Ingersoll-Rand Aktie

All right. Good morning, everyone. My name is Brandon Knutson. I am on the multi-industrials research team here at Morgan Stanley. And today, I have the pleasure speaking with Vicente Reynal, Chairman, President and CEO of Ingersoll Rand; and Vik Kini, CFO of Ingersoll Rand.

Before we get started, I have to read some disclosure announcements. So for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative.

All right. So Vicente, a lot of industrial companies are describing improvement, but your short-cycle and medium-cycle businesses were already kind of growing mid-single digits. What are you seeing as the clearest evidence of the cycle is broadening?

Yes. So I'll say the first quarter, you saw that organic revenues, we were down about 1% and Q2 moving to positive mid-single digit, around 4% organic revenue growth. And then we also -- on the last earnings call, we gave a bit of a color into the July number, something typically that we don't tend to do, but it was just to kind of talk about that not only the short-cycle businesses was picking up, but also that long-cycle business we're starting to see. And I think the importance there is that it was not a onetime event. It was not a onetime single project. It was not an easy comp. And it was fairly broad-based in terms of end markets and regional side.

So I think we sit here fairly optimistic with what we're seeing. We also feel that this is not just some of the markets moving, but the investments that we have done over the past, call it, 12 to 18 months on the organic side, whether it is feet on the street, new facilities. We -- about this time last year, we were celebrating an opening of our new facility in Latin America and Brazil, where we can actually localize technologies. We also expanded our compressor facility in India after continuing to see phenomenal double-digit growth in India. So I think a lot of these investments are kind of paying off as we see here moving forward.

That's great. And regionally, Americas appears to be strongest today, while Europe has been more mixed. What do you think is driving that divergence? And do you see any change on the ground there?

Yes. I'd say over the past couple of years or a few years, the European business has been the most, I would say, stable, albeit not growing, but kind of fairly stable. And if you remember, we spoke about the North America business seeing a bit of a headwind about 12 to 18 months ago when renewable natural gas was kind of peaking around late '24, early '25 in terms of orders and then basically coming out to almost 0. And then we're just kind of offsetting that.

Offsetting that, but also seeing general manufacturing, food and beverage, power gen, some of the kind of more general industrial end markets seeing better momentum and obviously leading to what we saw in the second quarter, which it was basically high single-digit organic order momentum in the Americas business.

That's great. And how much of this recent growth would you say is underlying market strength versus Ingersoll-driven share gain and commercial execution?

It's a little bit of both. It is kind of what we like to say, part -- PMIs, as we all know, they turn to be in the above 50% in January. And we always said that the ITS business, in particular, takes about a couple of quarters to see the turn, and that's kind of what you kind of saw here in the second quarter. So there's a little bit of that market tailwind that is happening.

But again, I go back to and make reference to the comment that I made on the investments that we have done. Another investment that we have done that we're putting a lot of effort into it over the past 12, 18 months that we expect to see benefit of that is our engineered-to-order solution. So if you think about as a company, we tend to be very decentralized and we operate in individual P&Ls. We have 2 segments, but there's like 9 P&Ls that report directly into me.

And we launched an initiative on applying some vertical market approach for creating solutions. So whether it be wastewater facilities or things of that nature, where we can take technologies from both ITS and PST, combine them and be able to provide a very unique solution to the customer, or kind of working with specific end users that may want to take the same approach in a more modularized approach where we can take a kit with multiple technologies and then provide that to the customer, so it facilitates the installation at the site.

And I think a lot of those solutions is something that we have been doing a lot of investments. We have manufacturing locations across the world that are dedicated to this. We have engineers globally that are dedicated to this. And we think that this is going to be a good outcome for Ingersoll Rand moving forward, be able to provide these solutions that combined with a little bit of a tailwind in the market could accelerate how we view things organically.

And you see that as coming through a little bit in the second quarter, but really the tail end return on that investment should be over the next 12 months or so?

That's our view.

Great. So you mentioned July having strong inflection in orders that you talked about on the Q2 call. Should investors see that as a true beginning of the trend? Or is it timing of large projects or maybe related to getting ahead of price increases, anything there?

Yes. No, I think we're very encouraged by what we saw in July. To Vicente's point, it's not our norm to give like an intra-quarter orders update, but we thought it was important to give a little bit of color on kind of what we saw in July. We had the benefit of sitting at the end of July. We had the kind of the first 4 weeks of July behind us.

And what we said was that orders in the ITS side of the equation was up mid-teens. And the way to kind of think about that is, I'd say, comparable momentum on the short to medium cycle is what you saw in Q2. But obviously, kind of the kicker for lack of a better way to say this, or kind of the outpaced growth was driven a lot by the long-cycle side of the equation.

We've described our portfolio that in ITS, about 40% of our business is aftermarket. And then when you look at the original equipment, about 75% is short to medium cycle, 25% behave more long cycle. Those long cycle are those kind of larger projects that really inherently exist across, I really say our entire portfolio, compressor, blower, vacuum, even pumps, and they're pretty widespread from a geographic perspective. So there isn't really a huge concentration in one region versus another, pretty widespread. And that's exactly what we saw in July.

In July, we saw a number of those larger projects that we have been talking about being in the funnel, the long-cycle funnel, over the last couple of years being active and healthy. But we would acknowledge you've seen kind of an elongation in terms of decision-making, kind of those POs getting to the finish line. And what you saw in July was a number of those kind of normal course longer-cycle projects across a wide variety of end markets kind of finally getting kind of that PO stage.

And so the way we describe it here is very encouraged, obviously, by what we're seeing. Obviously, we don't view it as something like big flush of the funnel or anything like that. The quoting activity has been quite healthy and active in terms of kind of replenishment and continuation of that funnel. And so I think, obviously, one month is just one data point, but I think we remain very encouraged by now starting to see the short to medium cycle kind of momentum that we've been talking about for a few quarters and now for the first time in quite a while, seeing the long cycle also starting to see some traction on top.

So it's the first time in, frankly, the better part of the last 2 years where you've kind of now seen not just organic volumes starting to come back in a more meaningful manner, but also seeing contributions kind of from both sides of the original equipment portfolio.

Okay. And you made it clear that those projects were being delayed, not necessarily canceled and now it's coming through in July and proving that out. Are you still seeing customer willingness to commit to these long-cycle CapEx projects improving? Or is it more quarter -- like elongated cycles essentially?

No, we see -- I mean, the momentum on that continues to, I'll say, increase. I mean we -- the funnel continues to grow. We continue to see investments, whether some of those could be related to nearshoring, could it be to some of the semiconductor exposure. We still believe that there's more to come around maybe rebuilding some of the things that are happening in the Middle East and things of that nature. So I think it continues to -- we continue to expect to see some of these kind of longer cycle projects to continue.

That's great. Is there any market that dominates the long-cycle pipeline? You talked about food and beverage, pharma, power gen. But any one that kind of dominates and anyone that can become disproportionately large in that pipeline?

No, I wouldn't say there's anyone that like dominates it. To your point, and I think the point, we have long-cycle exposure across, like I said, most of our product technologies. And by definition, it means it's quite globally spread. So to your point, whether it be infrastructure, power gen, air separation, water, wastewater, food and beverage, you've seen a number of different outlets and avenues.

Now to your point, yes, historically, just based on maybe regional trends and things like that, you have seen certain end markets be able to show disproportionate growth. That's why you've seen things like, for example, in the '22, '23 time frame, you saw EV batteries in China, which lends itself to some of our long-cycle equipment there or RNG in the U.S., which lends itself to some of our gas compression technology. But I think overall longer-term kind of duration and horizon, no, nothing that we'd say is disproportionately larger, plays pretty well across a variety of end markets.

Great. I want to shift gears a little bit to AI and data centers. It's obviously a big theme within industrial is driving a lot of activity. But investors don't typically think of Ingersoll as primarily a beneficiary of data center. Where exactly do compressors, vacuum blowers, et cetera, participate in the AI infrastructure space?

Yes. So it's an interesting one. I mean, because so far has been definitely minimal. I would say that -- but we believe that we have the right to play in some places. And that's kind of back to the commentary that I made about these engineered-to-order solutions and how we can combine different technologies, provide modularized technologies that could actually be colocated within a specific environment and provide the easiness of kind of plug and play versus kind of what we're seeing is kind of getting done out there. So still early days, early stages for us to kind of participate pronouncedly. I mean we think that there is an avenue for us to play there, and we'll see more as we kind of move forward here in the future and whether it could be working with hyperscalers or colocators and things of that nature.

In addition to that, I mean, obviously, there's secondary activities, second degree attachment to the AI and data center boom, whether it could be a semiconductor expansion. And that, of course, we play -- we're one of the market leaders in working with some of the gas companies on compressors for air separation. A lot of these facilities, they have also wastewater facilities and kind of need some of that as well, which we can do.

So there's some secondary, but I mean, I think in the first degree on how do we get closer, we have been doing a lot of voice of customer, a lot of understanding, a lot of visits to data centers to see how can we -- with our engineered-to-order solutions, we can improve the way things are done. And I think there's some potential avenues there.

Now that you've been in the market for more time with these engineer-to-order solutions, are you starting to see real traction with data center infrastructure builders?

We're definitely having conversations, which is good. The deals are getting closer.

Right. Okay. Sounds good. Switching a little bit to aftermarket that represents about a little over 1/3 of the business. How quickly does aftermarket grow when equipment sales accelerate? Like what's the time line for that flipping?

Yes. So typically, I mean, I think what you've seen here is that aftermarket as a percentage of sales, kind of high 30s, call it, run rate of 40%. We have aspirations for that to continue to grow. And over time, you've seen the absolute dollar of aftermarket grow. I mean, clearly, the OE is also growing. So that's why the percentage continues to stay in that kind of level.

But typically, to your point, when you -- we start seeing right almost at the time that you install the equipment, you see some aftermarket consumables, right? It starts as the consumables because in order to maintain the warranty, you have to use a lot of the consumables, in many cases, to ensure the proper efficiency of the compressor as an example. And then from there, after warranty, kind of more service and solutions.

We have said a lot about that we're moving to a model where we can get a customer in an agreement for 5 or 10 years that provides a bit more benefit for them to be a much more sustainable OpEx line for them, while we have the capability of connecting the compressor or the asset and be able to remotely monitor, remotely do preempts and be able to send service technicians for the right procedure that needs to happen if something were to fail. But you could argue that aftermarket 6 months into the installation starts to come in the consumable and starts to ramp kind of sustainably from there.

Is there any application or product set where that service opportunity isn't there? Or is the whole portfolio an opportunity essentially on new equipment to add service on top of it?

We view it as everything that we have in the portfolio has an opportunity to create aftermarket, even including on some of the technology that we have in our Life Sciences solutions. So we do, for example, a lot of the robotic automation for liquid handling. There is an opportunity as well for having a service solution and aftermarket on that.

That's great. I want to shift a little bit to M&A. That's a big part of the growth algorithm. You've all shown to be great compounders and really disciplined on M&A that you do. So you walked away from approximately $1 billion of potential transactions recently because valuations just seemed a little too rich. Has the broader M&A market become more or less attractive in your view?

So I would say that we have -- I think in the last earnings call, we said that earnings call, we said we have roughly 200 companies in the funnel. We still have that or more, 11 companies under LOI, letter of intent and that letter of intent typically is very high percentage likelihood that it will get into a closing of the transaction. So we continue to be very, very pleased with the flywheel that we have in the bolt-on M&A and that we do it in a very disciplined fashion.

If you look at the aggregate companies that we acquired in 2025, low single-digit multiple, I mean, 9.5x pre-synergy and one that we believe we can kind of take down 3 or 4 turns on a post-synergy multiple on things that we can control, SG&A, direct materials, pricing efforts and things of that nature.

From time to time, we then see some larger transactions. I mean -- and -- but we remain very disciplined. So these larger transactions, basically, one of them, we never saw -- I mean, you got to be careful now because I mean, some companies are seeing some of that second degree of AI or data center exposure, and you got to be careful because you get a discount that eventually it's going to come down, I guess. So I think we just remain very disciplined on how we look at the companies on a financial performance perspective.

And when you're looking at these acquisition targets, how important is increasing aftermarket content when you're evaluating opportunities?

It is important. I mean it's definitely one of the -- it is not the sole factor that we look at, but we always like to say that we're looking for companies that have good gross margin that we can actually expand and companies that have a level of aftermarket that we can see that we can improve. And that -- so aftermarket continues to be a factor on that decision-making.

Is there any reason Ingersoll needs to do another large platform acquisition? Or are there enough opportunities on the bolt-on side to deliver the inorganic growth that you need?

Plenty of opportunities at this point in time. So we don't see the need to do a transformational acquisition. I mean, obviously, we continue to execute on this bolt-on strategy that we have. From time to time, we continue to look and understand, is there anything out there that could be transformational in nature. But for that, it has to be something very unique and very special that will give us the ambition to do it.

But for now, we remain disciplined on our bolt-on strategy, and we'll continue to observe. And if we see anything that could be transformational in nature, we can do it. We have the financial power and the liquidity to be able to do it when we're only 1.7x levered and roughly $4 billion of liquidity. So we have the capability and the capacity, but we're going to continue to remain disciplined.

And what do you see as kind of how high you would go leverage-wise in order to do a large deal if something became attractive and available?

Yes. I mean I think we want to stay prudent. We've always said that we want to long term, keep profile leverage sub 2x. Now to that point, if there's something that is transformational in nature that we feel like is a great fit. The concept of going to arguably over 3x leverage, but then having an imminent path back to that sub-2x leverage in a relatively short time frame. Sure, that's something we'll evaluate. But to Vicente's point, we're going to continue to be prudent and patient.

Just to give you a little color, all of the deals that we talked about under LOI are of the smaller bolt-on variety, very similar to what you've seen us execute on over the last 6 to 18 months. So I don't think anything has changed in that perspective in terms of being disciplined and prudent.

Great. I want to pivot to China a little bit. So that has been a drag on ITS margins recently because inflation has been difficult to recover through pricing. Why has pricing been more difficult in China than rest of the world?

Sure. Yes. Maybe I'll start there and maybe give a little bit of color here. So as far as the margin profile, and I'll kind of weave this in with the pricing question. I think historically speaking, if you were to go back 2, 3, 4, 5 years ago, China or Asia Pacific as a percentage of our overall revenue was closer to 20%. China was about 15% of that 20%. So it was the lion's share of our Asia Pacific portfolio.

For the factors that Vicente mentioned back into kind of really exiting the '23, '24 time frame, the big run-up you'd seen in things like EV batteries kind of came back down. And then, frankly, just the overall China market reset that you've seen. China is now closer to about 10% of our revenue profile, whereas Asia Pacific is about 15%. So obviously, China has kind of reset, for lack of a better way to say this, within the overall kind of portfolio.

And so a couple of things that you've seen over the last few years. One, obviously, as you've seen that reset, first and foremost, our Asia Pacific business is a profitable region. And obviously, when you've seen that kind of volume reset, you have seen some headwinds on the margin front compared to where we were a few years ago, largely attributable to that kind of volume kind of component.

As far as the pricing side of the equation is concerned, a couple of comments. We did indicate that in Q2, you saw China was about a negative low single-digit headwind to pricing. So total ITS is delivering between 1% to 2% price, with that negative low single digit from China. Now if you go back in time, China really never has played at the same levels of pricing as North America or Western Europe. Think of it as being more flattish. So yes, maybe there's a couple of hundred basis point headwind to that, which I think is just a reflection of kind of the overall market, some of the overcapacitization you've seen in the overall environment, not necessarily just our equipment, but kind of broader -- broadly speaking.

And so from our perspective here, what's encouraging is starting to see some of that China volume starting to come back, right? So even in Q2, we indicated that China was actually up low double digits, inclusive of that pricing headwind, which means volume was probably up more like mid-teens. So I think as we continue to see, I'd say, better stability and traction in China, more medium term, we would expect to see pricing get nominally a little bit better. We're not expecting China pricing to get positive necessarily or back to the levels of North America or Europe, but closer to that flattish realm over the medium term, I think, is more the expectation. It's just going to take a little bit of time.

And what needs to happen there? Because you said volumes are already coming back, but pricing hasn't. What else needs to happen besides volumes and pricing to normalize?

Yes, I think it's just a little bit of just time and normalization, right? We've been through a couple of years of that entire market getting reset. So 1 quarter or 2 quarters is not going to necessarily be the inflection point. It's going to take a little bit more time for stabilization. But I think to your point, the good news is we see encouraging trends, at least just in terms of how some of the broader market dynamics are playing out there, and we saw it in Q2.

And I think the other piece here is if you look kind of under the covers of our China business, again, not all products are necessarily made equal in the context of pricing, right? We are seeing positive pricing in certain areas like aftermarket and maybe some of the more differentiated newer products that we brought to that market over the course of the last few years like blower and vacuum and air treatment as well as some of the localized product that we brought from some of the bolt-on acquisitions. So again, I think we're going to continue to obviously manage it in a kind of a portfolio-wide approach, but it's just going to take time is kind of the base case.

And if we get a few more quarters of China volumes increasing, do you have a sense for how long it usually takes for that price environment to normalize? Is it a 12-month phenomenon, 18, 6?

Yes, tough to say exactly the right time frame here, but I think your point is valid here. If we continue to see better traction on the volume side, we would expect things will start to settle down a little bit, and then we can start kind of closing some of that -- narrowing some of that gap we see on the pricing side between where we are today and more of that flattish level.

And would you ever choose to exit kind of lower differentiation product categories where pricing is structurally unattractive rather than just chasing the volume that comes with it?

I think in our view, we -- when you think about our products, I mean, we tend to be highly differentiated and which is the reason why we continue to maintain a pretty high level of margin and the ability to be able to get that 1% to 2% of price every single year regardless of the market. So I'll say that on purpose, we want to take technologies that are differentiated.

When you think about it, I mean, we play -- we're $8 billion roughly revenue company. We play in a $75 billion addressable market. So plenty of opportunity for us to be selective on technologies that we want to continue to acquire, plenty of opportunities for us to be selective in the end markets that we want to play. And we believe that we can only win as long as we really deliver that total cost of ownership with differentiated solution.

And then broadening out from China, you gave the July update on the quarterly call. But as you look across the rest of the world, how would you characterize the underlying demand environment today?

Yes, sure. I'll just keep it relatively simple here. I think North America, obviously, has been seeing the best kind of improvement here. We talked about it in Q2, high single-digit kind of orders improvement. So continue to be encouraged by what we're seeing in North America, particularly after kind of the last 2 years that have been a little bit more tougher sledding for lack of a better way to say it. We talked pretty extensively about China and Asia Pacific just now. Obviously, Europe is the piece or we run it as EMEA, Europe, Middle East, India, Africa.

To Vicente's point from earlier, it's been the most stable region now over the last few years. I think right now, it's kind of relatively neutral. Not all parts of EMEA are kind of made equal for lack of better way to say that. I think India, for example, has been our best-growing region for probably the last number of years. Clearly, right now, Middle East, obviously, seen some of the challenges, Central Europe comparable. Areas like Italy, Spain have been seeing some pockets of opportunity. So some puts and takes within, I'd say, the broader EMEA expanse, but when you put it all together, relatively neutral.

And then areas like I mentioned India, areas like Latin America, areas like Southeast Asia, we've kind of highlighted those as probably 3 of the 4 kind of major areas of, we say, potential outsized growth as you think more medium to longer term. And a lot of that is just because of we have good presence there. We've been making structural investments, whether it be commercial investments or I think Vicente has mentioned here, we've put 2 new manufacturing plants into operation over the course of last year, one in Latin America for localized compressor manufacturing, a second manufacturing plant in India for compressors because we frankly had run out of capacity in our first one.

So those are areas that we see, I'd say, maybe slightly outsized opportunity just because of maybe our historical presence our share there is not at the same levels that you see in areas like North America and Western Europe. And so again, continue to be optimistic there in terms of the long-term growth. But I'd say that's kind of how we're seeing the expansion from North America to Europe to APAC.

Great. And then getting more specific on ITS. We saw organic growth grow 4%-ish in Q2, but EBITDA margins declined year-over-year. You highlighted China price cost as being a pressure there, but also investments that you're making in new technologies and commercial operations and higher corporate costs. Which one of those reverses the fastest and which one is more of a structural phenomenon?

I'll say the first thing is going to be the price/cost situation. And we spoke about how as we were into last year because of tariff situation, we were going to do price cost neutral, meaning that increase enough on the price to cover the tariff, but not to kind of get the margin or benefit of that price on that side. As we kind of move here into the second half, I mean, we're comping some of that. And in addition to that, we have done also incremental pricing that we typically do here in the first half of the year. And so that's going to prove to kind of deliver some better improvement on the price/cost equation.

The second piece is that we -- as we tend to always optimize the business, we did some restructuring kind of second -- end of Q4, kind of early Q1 roughly. And some of that kind of we'll see some of the fruit too as well as we kind of come into the second half.

And then you see the long-term ITS earnings power there approaching 30% EBITDA margins. What needs to happen operationally for the segment to get there?

I mean I think what I'll say that it's a segment that we see structurally nothing different than -- I mean, it can definitely continue to achieve or we'll get to 30%. So structurally, nothing that has dramatically changed, except obviously, the tariff situation that has been this kind of price cost neutral that really affects the margin. So I think -- and also in addition to that, you saw the negative organic volume that clearly that created the headwinds. I mean despite that, I mean, the segment still trade -- still runs at high 20s. I mean, 26%, 27% EBITDA margins.

So we're in that kind of closing to the line that as we continue to now get the price cost equation improvement and as we start to see in the volume, the organic volume, that's going to be the main -- those are going to be the main drivers to kind of get back to those levels.

And then on PST, that continues to be a bright spot, 31.5% margins in Q2, targeting around 32% plus in the second half on a path to mid-30s. What remains the largest lever from here to drive those margins up?

Yes. I think we're incredibly pleased with the momentum we've seen on the PST side. Just to kind of give a bit of color here, you've got the 2 platforms within PST. You've got these rough numbers, roughly $1 billion Precision Technologies kind of niche positive displacement pump business. You've got a $600 million, $700 million Life Sciences platform.

I think you've seen a lot of efforts over the course of the last few years, particularly on the Life Sciences side to further integrate those assets. Obviously, a big piece of that equation is the ILC Dover assets that were acquired 2-plus years ago. I think you've seen a lot of the heavy blocking and tackling in terms of the integration, getting those P&L structures set up, managing that P&L and that business in a very comparable manner to how you see the rest of the enterprise, getting things like IRX and I2V and a lot of the kind of internal kind of mechanisms and playbooks into that business.

So at this point in time, to your point, you're seeing good growth across both. The PT business tends to be a little bit shorter cycle in nature. So by definition, you've seen that start to come back a little bit sooner just based on some of the short to medium cycle momentum you're seeing broader speaking. And then obviously, the Life Sciences business has been, frankly, the best growth business of the entire portfolio.

But I think on the go-forward piece here, to your point, now you've seen EBITDA margins sustainably over that 30%, 31% level for approximately 4 quarters now. The concept of getting to that mid-30s EBITDA margin profile, not that kind of far away. I think the single biggest catalyst, a number of the same blocking and tackling drivers you would expect to see across the portfolio. But obviously, I think the biggest area there continues to be just the growth side of the equation. This is a healthy margin business, plays in the mid-40s gross margin profile. So just continuing to see, I'd say, the requisite growth on both the PT but as well as the Life Sciences business, I think we will continue to drive good momentum there.

Great. I want to shift a little more to pricing and margin recovery in the back half. How much confidence do you have that this price realization catches up with inflation without compromising order growth?

Yes. I think we've been very, I think, prudent and thoughtful about that in the context of making sure that, of course, we're taking the requisite pricing actions, as you would expect, we have 9 P&Ls that make up the entire portfolio. Each of our P&Ls does pricing on their own cadence based on the regions, the product lines. In certain cases, there's multiple pricing actions taken through the year based on kind of what needs to be done. And as you can expect, there have been pricing actions that were taken both in the second quarter as well as actually actions that are taking on -- taking place as we speak here right now.

So whether it be just normal course pricing to the question, whether there be some inflationary pressures where we may have to recalibrate a little bit. Listen, the teams have gotten pretty adept at having to kind of look at this and reanalyze on a fairly consistent basis just based on what you've seen over the last couple of years with supply chain disruption, tariffs, things of that nature. So I think that is what you should expect to continue to see. I think we're going to continue to remain very prudent and disciplined in the context of where we take price and how we kind of calibrate.

To your point, the organic volume piece of the equation is very important. We've seen that coming back nicely here in the second quarter. We continue to expect that to kind of keep coming through in the back half of the year. So I think we want to be thoughtful about maintaining that price and volume kind of balance, along with kind of just some of the other self-help to Vicente's point, things like some of the restructuring actions we've taken, which should be a little bit more visible in the back half as well as just the direct material productivity equation.

Obviously, when you think about the seasonality in ITS, typically speaking, Q1 is your kind of lightest quarter, Q4 is your heaviest with Q2, Q3 in between. And your direct material productivity follows your cost of goods sold. So inherently, as you have more of your shipments in the back half of the year, you typically tend to see that margin profile follow. So I don't think this year should be any different than that expectation in terms of just the sequential momentum you would see from the first half into the back half.

Makes sense. And you mentioned earlier that outside of China, pricing is relatively normal at 1% to 2%. Is that what we should think about as a through-cycle pricing contribution? Or is there anything that's changed in Ingersoll to make that higher?

Nothing has changed. I mean, clearly, we're going to try to hold exposure to be higher than that. But I think you can think about it always as a 1% to 2% of price in -- through the cycle in any environment.

Great. And the second half margin ramp depends on things we've talked about in terms of pricing, normalized corporate cost, productivity, which of those carry the greatest execution risk in your view?

Sure. I think if you -- let me just kind of state, you have improving volume. You've got some of the pricing actions that we've taken that should kind of materialize more in the back half of the year. We did talk about some of the outsized impact of some of those targeted wins we had, for example, in China in Q2 that should repeat themselves to the same magnitude as well as some of the productivity factors.

I think when we think about, to your question, what carries the most risk, listen, we feel good about the ability to execute across the balance. Obviously, there are some of those that are a little bit more within our control, some are a little bit more just execution-based, based on the macro environment. But to that point, I think we feel pretty good about where we're continuing to see order trends and things like that. So inherently, obviously, some of the areas that are a little bit more market and execution driven probably carry a little bit more risk, but those are things that we feel like are manageable. And clearly, we're continuing to execute here as we exit through this Q3 and into the back half of the year.

Great. And then looking a little longer term, you've continued to reference roughly 30% ITS and mid-30s PST margin potential. What is the realistic time line for getting both of those businesses near those levels simultaneously?

Yes. Obviously, the timing here, let's just -- I think without putting an exact pin on it here, PST, now to your point, we're approaching that 32% margin range. So I think the concept of getting the mid-30s, whether you want to define that as 33% or better, you're not that far removed, to be honest. I think on the ITS side, listen, we've been close to that 30%, 30% level before. To your point, obviously, we're stabilizing now a little bit more in that 27%, 28% realm here as we exit the year. I think the concept of triple-digit margin expansion like you saw back in the days post the merger, I don't think that's the realistic expectation on the go forward.

But I think getting back to some requisite amount of margin expansion here in the context of next year, assuming we kind of have a bit of a more normalized growth environment with contributions from both price and volume. I think getting back on track with some degree of margin expansion here in ITS, of course, is the expectation. And as such, more of a medium-term approach in terms of getting back to those levels. It's not going to happen overnight. But to Vicente's point earlier, we don't see any reason why structurally we can't get back to those levels. It's just going to take a little bit of time.

Great. And then thinking about the puts and takes as we start to look towards 2027 and beyond, you've highlighted July strong order growth, general activity going well, investments you're making into growth. Where do we see, in your view, the largest upside to the earnings equation over the next 12 to 18 months?

Sure. I think -- listen, I think what we see here is, clearly, as we sit here right now, we're coming off of a couple of years of lows for lack of a better way to say this in North America and Asia Pacific, right? So I think, one, those obviously will kind of have hopefully the best ability to kind of rebound here after. Obviously, North America has kind of seen it in the order profile as we sit here right now.

I think to Vicente's point, continuing to leverage some of those differentiated capabilities in terms of ETO and things like that, showcasing that, which has really become more of something we've been leaning into over the last year, leveraging this kind of one IR portfolio. So for example, we have a strong Life Sciences presence, about 20%, roughly speaking, of our portfolio is Life Sciences oriented.

But now we really have a true, I'd say, connectivity closer to with the ILC Dover acquisition to kind of the biopharma, the pharma producers, how can we leverage that to pull through more of the portfolio. So it's really starting to think about that in a little bit of a different manner as opposed to just compressor, blower, vacuum, how can we look at things in a much more systematic approach and then leveraging some of our ETO capabilities to really be able to provide differentiated systems and solutions.

Obviously, the M&A piece will continue to be there. It's been there. It's going to continue. But I think continuing to think about how we can drive the entire portfolio in a little bit of a differentiated manner is something that we're really leaning into here.

Excellent. Well, thank you both for your time. Thank you for coming to the conference.

Thank you.

Thank you.

All right. Welcome, folks. I'm Steve Volkmann with Jefferies and very pleased to be hosting Ingersoll Rand for this fireside chat. Vik Kini, the CFO, has joined us. And we're going to run this as a fireside chat. So I'll probably lead off with a few questions, but would love to have your participation as well. If you're interested, we have a mic that we'll make a -- come up for air at some point and see if we have any questions from the field.

But Vik, I've been asking this question, you can answer as quickly or long as you would like. But since we are on a webcast, I figured I would just provide the opportunity if there's any updates or thoughts around how Q3 is progressing that you'd like to share, we'd love to hear them.

Yes, sure. So first of all, thanks for having us, and great to be here as always. I think simply stated here, obviously, nothing we're providing necessarily incremental around initially August or September or anything like that further than what we spoke about on our earnings call. But I'll reiterate some of the statements we made in Q2 at our earnings call because we did provide a little bit more color, particularly around July.

I think the piece that we'd kind of lean on here is that in Q2, encouraged to see kind of some of that short- to medium-cycle side of the business starting to kind of come back a little bit more. I think within ITS, you saw about mid-single-digit orders increase on the short- to medium-cycle side, which is kind of the -- call it a core bread and butter side of the equation with not surprising North America probably being the strongest contributor here on the orders front.

In Q2, we did mention that some of the timing of some of the longer cycle was kind of a headwind that kind of sat on top of that, which is what brought ITS orders more flattish from an organic perspective. And we provided the color in our earnings call with the benefit of sitting towards the end of July, we had kind of 4 weeks of July behind us. And as you know, it's not our norm to necessarily initially give intra-quarter orders, updates and things like that.

But we thought it was important to provide a little bit of color that we had seen in the first number of weeks of July, low double-digit to mid-teens orders improvement on the ITS front. And the best way I'd probably describe that here is comparable trajectory on the short- to medium-cycle that you saw in Q2. But the piece, obviously, that was encouraging on incremental to that was the long cycle piece.

We've been talking for the better part of 18 to 24 months that long cycle, the funnel continues to remain active and relatively healthy, but you had seen kind of the elongation of decision-making from customers for a number of reasons. And as such, that had led to some, I'd say, lower, I'd say, orders front on the long cycle than you would have historically seen over that time frame.

July, you did see a number of those projects finally come to fruition. So I think the good news here is, one, July is just one data point, but we're very encouraged to now starting to see better momentum, not just on the short- to medium-cycle side, but also on the long cycle side. Obviously, all of this lends itself to kind of the volume side of the equation, which is the piece that you've seen kind of the bigger headwinds on over the last 2 years.

So again, encouraged by what we're seeing here. We'll continue to track and monitor this as we obviously and give you guys obviously appropriate color here as we get through earnings. But encouraged, I think, for the first time in a couple of years to really start seeing kind of both sides of the equation starting to move in the positive direction, which is definitely encouraging from our front.

Great. So a couple of quick follow-ups just because everybody might not be deep in the weeds here. How do you think about the breakdown between your short cycle and long cycle?

For sure. Yes. So I'll talk to the lens of ITS, which is our largest segment, about 80% of the revenue of the company. So let me just start by saying business composition is -- I'll use rough numbers, 35% to 40% aftermarket. Aftermarket, obviously, is much more, I'd say, utilization based -- based on our equipment and things of that nature.

When you park that, you have the other, let's call it, 60%, 65% that is original equipment. And that is broken down approximately 75% is kind of short- to medium-cycles. So I would call it core compressor blower vacuum type technology, kind of the bread and butter, if you will, typically somewhere between 30-, 90-day type lead times, pretty tight book-and-ship type business, but kind of the core.

And then the balance, which would be the remaining 25% is longer cycle in nature. And the way to kind of think about longer cycle, you might hear us refer to it as ETO or systems or projects. They typically are larger scale projects in nature, predicated around the technology and then typically larger systems or skids or things like that built out, customized for our respective customer base. And they're typically anywhere from $0.5 million, but typically 7-figure type price tags, 6 to 18 months in terms of duration, meaning from when the order is taken to final shipment.

And obviously, the larger the sticker price, typically, the longer the duration. So that's probably the best way to think about the composition, particularly within ITS. Also worth noting that on the PST side, the Precision Technologies business, or the core pumping business, which is about the larger piece of that equation, that also has a fairly similar exposure to our long-cycle projects as well in some of our pumping and dosing type technologies.

Okay. So short-cycle, up mid-single digits, I think, in the 2Q. What really drove that after this kind of long wait?

Yes, I think it's -- like you've seen kind of in the broader -- obviously, with PMI is continuing to improve, I think you're seeing now our portfolio, which core industrial compression, blower technology, vacuum technology, pump technology, it's kind of mission-critical from a process perspective. And so you're seeing it kind of broad-based. I wouldn't point to one specific end market.

I think what you've seen over the last few years is, and I'll talk by region, you've obviously seen a couple of years of headwinds from a North America perspective, particularly from areas like some of the tariff-related impact you saw last year and then some of the items that -- from administration changes prior to that, things like renewable natural gas that kind of had a peak back in the '24 time frame and obviously, you kind of came back down, back in '25.

China similar. China used to be about 15% of the revenue base of the company. Today, it's close to 10%. And Europe has actually been kind of the most stable business kind of in between over the last few years. So I think with some of the just kind of inherent macro recovery you're seeing, you're seeing, obviously, not surprisingly, North America and Asia, particularly China, starting to see better traction. And that's exactly like we said we saw in Q2 with the short- to medium-cycle being up mid-single digits with -- but North America being the leader of the pack there at up high single digit on the order's front.

So again, encouraged to see kind of that, I'd say, regular, kind of, I'd say industrial activity starting to come back. You're seeing it obviously on the short- to medium-cycle side. And then we've obviously talked about the long cycle side, starting to finally see some better traction on the orders front.

So I was going to go to long cycle next. So we've had some delays on some big projects. Those seem to be starting to loosen up. Is this more sort of a timing issue? Or do you think there's a broadening of demand there as well?

Yes. I think the way we'd probably describe it here is kind of go back to how we characterize it. The long-cycle funnel had been relatively active and healthy. Yes, you've definitely seen an elongation in terms of just customers' decision-making patterns to actually kind of ink the final PO. But one of the big things and frankly, some of the reasons that we wanted to provide a little bit of that July commentary is inherently, the question becomes if you see delays that ultimately led to cancellations of these projects. And that's not the case.

If you actually look at our product portfolio, you actually have long-cycle exposure across all of our core technologies, compressor, blower, vacuum and pump. And it's actually a fairly widespread from a geographic perspective. So it's not hypercentric one product or one region. It's actually pretty widespread. And even in July, again, it wasn't just like 1 or 2 big projects. It was actually a number of the kind of more, call it, single-digit millions of dollar type projects coming to fruition, actually well spread from a geographic and end market perspective.

So I think what we'd say here is I can't point to necessarily one single bullet. Silver bullet is like here is the reason. I think we would attribute it a little bit more to timing and just some of the customer decision making. But it also does speak to those projects valid, we're always going to get -- continue to move forward and now finally starting to see a little bit of unlock.

But I think the other piece that's encouraging is the long-cycle funnel in general continues to be active. It's not like you're seeing a big flush and there isn't, I'd say, activity backfilling it. We're actually seeing good quoting activity continuing within the funnel, which is encouraging.

Great. Okay. The other thing that's been topical this last couple of days here is a lot of kind of cost volatility, whether it's metals or energy or transportation and just sort of bring us up to speed on kind of how you're seeing that play out.

Yes. So I mean I think like anyone, we're seeing requisite pockets here and there. Now let's characterize who we are. We're not like heavy manufacturing. We are essentially assembly. So we're not buying raw commodities or anything like that. We're buying much more semi-finished goods and things of that nature.

So obviously, I think we're managing that piece as you would expect. I think at this point in time, pricing, I think, from our end, has kind of come back into that typical norm of 1% to 2% that you typically see, I'd say, in a given year. Now obviously, the last number of years, you've seen elevated pricing levels due to tariffs and some of the supply chain disruption.

So I think we're continuing to manage that at this point in time. We'll continue to evaluate as we go forward here. I think the teams are doing a good job managing that within expectations. But nothing I would call out as dramatically out of sorts at this point in time.

Okay. And so for the second half, we're assuming price/cost neutrality.

Neutrality to slightly better. Yes. I think we expect it to be improving from the first half into the second half. We have taken some pricing actions in the half that we would expect to kind of materialize in the back half. To your point, we'll continue to monitor what's going on. It's a pretty fluid environment. But yes, I think the last few years, you obviously have seen, particularly with the tariff side, you've seen price/cost be neutral, but obviously margin dilutive.

I think we're slowly but surely growing out of that. And I think as we move into next year and the year after, we would expect, pending what may or may not happen there, we expect that to return back to a slightly better margin equation compared to what you've seen in the last few years.

Okay. All right. Maybe let's open up the aperture a little bit. Investors keep asking about AI exposure. It depends on what day they ask, whether that's a good thing or a bad thing. But talk about how compressors, vacuum blowers, pumps fit into data center and power gen and sort of that theme.

Yes, for sure. So I think to date, our direct AI exposure or data center exposure has been relatively minimal, as you've seen. It's probably fair to say maybe second derivative impacts of some of the providers. We obviously are providing our air compression technology and process-driven equipment for their manufacturing needs and things of that nature.

Now that being said, probably over the last year or so, we have spent, I'd say, more time internally, really from an organic perspective, thinking about how we can maybe play a little bit more in the data center realm. We'd like to keep it simple here. When you think about air compression technology pumps, things that move air gas and liquid for cooling purposes or other purposes, we do feel like there is applicability there.

I would say, also bundled with one of our core competencies is our engineering capabilities and ETO capabilities, so ETO or long cycle. Like we said, 25% of our original equipment is long cycle or ETO in nature. And we do believe that with some of the trends that we're seeing there with some of these larger hyperscalers or data center manufacturers, that is a capability they want to see.

So I think simplest way to say it right now, Steve, is right now, is it very material in the Ingersoll Rand revenue perspective? Not today. Do we feel like on the go forward, there are opportunities for us to play a little bit more tangibly in the space and that we're actively working with some of these customers to actually be able to show off, showcase not just some of our technology, but then also our ETO capabilities, yes. So I think there are some opportunities and pockets that we're looking to target across our core technology on a go-forward basis.

Okay. What about semiconductor is another focus. And I know your big competitor has, I think, more exposure there, but is that a target for you as well?

So we do have on the compressor side, I'd say, selling large-scale compression technology for air separation, things like that, which plays into the semiconductor kind of value chain. From a direct to what I call vacuum perspective, I think, was your question here. No, we don't play on the -- what I'll call the high vacuum side of vacuum.

We play much more on what we call the rough industrial process vacuum. So it's much more of the industrial or kind of non-semiconductor type applications. That's where we've historically played. So -- and I don't think you're going to see that really change going forward. So the direct semis exposure on vacuum that you're referencing, no, that's not part of our vacuum portfolio.

Okay. Maybe we'll do a little geographic discussion. You mentioned China has gone from 15% to 10% of revenue. Describe what happened there for those that might not be as close to it. And then, of course, what's the outlook for that?

For sure. Yes. So if you flash back a couple of years, let's go kind of really back to the 2020 -- post-merger, kind of until '23-'24 time frame. Obviously, China was closer to 15% of our total company revenue. I think you saw, one, just based on the markets there, but then also you saw areas like EV battery and photovoltaic and solar type application. You saw a big run-up in that market. And I don't know if you've been to China, you can see it there, with your own eyes.

And a lot of our core compression technology plays well in that space. So what you saw kind of post that time frame, the '24 to '25 is not surprisingly, you saw obviously with the EV batteries and some of that kind of coming back down, you saw -- I'll use rough numbers, roughly about $100 million headwind as that kind of reset back to normalized levels, then combined with obviously some of the challenges seen in the general China kind of market.

And so you kind of flash forward now to kind of where we are today, China is closer to approximately 10% of revenue from a total company perspective. As we sit here right now, though, I think we're encouraged by after about 2 years of the China business kind of leveling out, for lack of a better way to say it, we have seen, I'd say, kind of, I'd say, healthier volume here as we've sat here into the first half. In second quarter, just an example, we saw low double-digit revenue growth in China, and that's really all volume driven.

So I think we're encouraged to finally start to see some return to kind of, I'd say, hopefully, some normalization on the growth front in China. I think if you think about where our business plays in China, Ingersoll Rand's presence in China historically has been very compressor-centric. That's really where its space was. Obviously, that team has done an incredible job bringing in, and I'd say, leveraging technologies that they historically didn't have as much access to.

And what I mean by that is what came as part of the merger that the legacy IR China franchise didn't have. That would be product technologies like blower and vacuum, which came from Gardner Denver, air treatment technology that came via acquisition post-merger. And then if you remember, we've done now 80-plus bolt-on transactions since the merger.

Now not every one of them is necessarily applicable through this lens, but there have been a number that have, whether they be U.S., Western Europe, even India-based acquisitions that have differentiated technology that, that China team has probably -- they're probably the poster child internally in terms of being able to localize and localize with speed. And so they've done a really good job.

And so even if you look, despite even some of the headwinds we've seen over the last few years, if you were to kind of go under the covers and look, you'll actually see some nice growth in some of those differentiated technologies, albeit off a much lower baseline. And so I think we're encouraged by where that portfolio is at least positioned to continue to leverage some of those strengths in terms of differentiated technology while still being, I think, what we consider to be an industry leader on the compression side that we'll continue to see hopefully growth off of -- albeit a reset baseline that we talked about for the last 2 years.

Okay. And I think pricing has been a bit of a challenge. You mentioned low double-digit volume in terms of recent growth. Is that stabilizing?

Yes. I think the way we'd say it here and just maybe to give a little bit of color, I think we talked about this during our second quarter earnings call. We always talked about this year after, I'd say, the pricing dynamics in the last few years with supply chain and tariffs that obviously drove an outsized pricing impact. We would expect the pricing to kind of return back to that 1% to 2% level, which is pretty normal in this industry. And this is exactly where we are.

Now it should be mentioned here that, that includes a negative low single-digit headwind from China specifically. Now I would say China, even historically has probably been a much more competitive pricing environment. So I wouldn't say that even historically speaking, China was at the levels of North America or Western Europe or areas like that.

But to your point, yes, I think with just given some of the resets you've seen in the market, some of the capacity that's been in the market and things like that in a broader sense, not just necessarily our technology, but broader sense, you have seen some more pricing headwinds. We would view that as something that over the medium term should moderate.

Again, as things continue to normalize, as volumes continue to get healthier out there, we would expect that to get back to historic levels, but that's not going to be something that happens necessarily overnight or in 1 quarter. That's more of a 2027 onwards dynamic. So definitely something we're seeing right now, but an area that we would expect to moderate and improve as we move over the course of the next number of quarters.

Okay. Good. Maybe switching to EMEA. Things have been a little more, I guess, volatile over there in terms of timing around blower, vacuums and Middle East delays, et cetera. What's the outlook there?

Yes. So kind of to your point here, I think if you look over the last few years, EMEA has actually probably been our most stable region comparatively speaking, right? So the way we kind of look at it is we have EMEA inclusive, so Europe as well as the Middle East, India and Africa.

If you kind of look at the puts and takes, not surprisingly, I'd say India has been probably the best-performing region of the entire company, obviously, not the biggest piece of the equation, but India has been a big kind of growth kind of region for us. In fact, we're pretty explicit, we actually opened a new -- a second manufacturing plant from a compression technology perspective there late last year. And I think we continue to see good traction in the India front.

Not surprisingly, areas like the Middle East. Middle East is approximately 3% to 4% revenue base, roughly speaking, obviously, impacted by what's going on here in the Middle East right now. I think if there's good news to be had here that is that hopefully, when we get a bit of a stability and things normalize there, we do feel that there's maybe some pent-up demand or whatnot from an Italy perspective. But that aside, Middle East and probably Central Europe have probably been on the other side of the equation from a headwind perspective.

And then the balance of where we play is really in Western Europe. So areas like Italy, Spain, France, the U.K., Nordics, and they've each had kind of a, I'd say, some have been a little bit better than others. The best way I can probably say it right now is, I would say, Europe is relatively neutral when you put those areas to kind of together, as we're -- kind of we're seeing right now with some of the puts and takes.

Okay. And then we've already sort of talked about North America, but I'm curious, you guys are often, I think, identified as sort of one of the beneficiaries of reshoring, onshoring in North America. Can you specifically sort of say that you're seeing demand from that theme?

Yes. I mean I think you're seeing an improvement in just broadening trends as we sit here right now. Have there been pockets of reshoring and onshoring that you've seen benefits from? Yes. But I'd point to that being the biggest catalyst or driver. I wouldn't necessarily say that's the biggest catalyst. So I think we continue to be encouraged by seeing what were kind of some of these trends in these themes.

I think what you're seeing right now is just an improvement in kind of the overall kind of just demand environment. But to your point, yes, absolutely, to the degree there continues to be more onshore and reshoring type capabilities or opportunities this business tends to be a bit more CapEx driven in terms of compression technology and things like that. And that would be an area that we would expect to be a beneficiary from.

Okay. Good. Let's talk a little bit about ITS margin. So they've been a little bit pressured, I guess, tariffs, volumes, China pricing, we talked about some of your commercial investments. But I think you are guiding a stronger second half. What gives you confidence in that?

Yes. So to your point here, ITS margins were in the upper 20s towards 30%. They have kind of been more in the 26, 27-ish percent realm here. So still operating at a healthy level, especially in lieu of -- I won't repeat them all the headwinds that you've kind of talked about over the last few years. And I think we do continue to be encouraged by, if you kind of look under cover, continuing to see good momentum in areas like aftermarket recurring revenue that have at least I'd say, bolstered the margins, albeit not necessarily mitigating the full extent of the areas you talked about.

Now as far as going forward, whether it be second half of the year or early into the next year, a couple of the areas that we feel like should be tailwinds to the margin equation. So a couple of things. One, we talked about the price/cost dynamic starting to, I'd say, normalize. And clearly, even in the first half of the year, we've taken certain targeted pricing actions, as you would expect, that we'd expect to deliver into the back half of the year.

Probably the biggest one here and probably the barrier that's had the biggest headwind from the last 2 years is volumes, right? We've been in an environment for the last 2 years that's really been absent of organic volume, particularly on the OE front. And if you think about our portfolio, again, whether it be ITS or even PST, these are both segments that play above 40% gross margin.

And I would say, original equipment and aftermarket play at healthy levels. It's not like you have low-margin original equipment and it's like, razor/razor blade, but no, they're both very good margin profile businesses. Just as volumes continue to improve, that should help the margin front.

The other pieces here that I would speak to in terms of just the margin progression within the business, a couple of things to think about. One, the productivity equation. So as a reminder, direct material is about 70% of our cost of goods sold.

And generally speaking, and this is not necessarily -- a statement necessarily about 2026. You see this generally most year. If not you see this every year, your margin profile tends to be healthier in the back half of the year as compared to the first half of the year, if nothing else because of the seasonality factor. Typically speaking, ITS has revenue base lighter in first quarter, heaviest in Q4, Q2, Q3 in between. And particularly as that cost of goods sold flows through in the back half of the year, you tend to see that productivity follow it.

And the other piece here, you saw us talk pretty explicitly in the back half of last year into the first quarter of this year about some targeted restructuring that we did kind of portfolio-wide. So it was total enterprise-wide, but ITS is 80% of the revenue of the business. So you can expect that was the biggest piece. That's largely been consumed and digested at this point in time.

So for all those factors, we would expect a healthier margin profile as we exit the back half of this year. And again, we'll wait to kind of guide on '27 and things like that. But for us, the biggest piece, that should be helping ITS margins as we move forward is price volume -- price cost aside here for a second. It's just getting back to, I'd say, a regular normalized volume cadence, which is the piece you really haven't seen in the last few years.

Okay. Good. Let's switch to PST then. Life Sciences, I guess, has been sort of the highlight there. Orders running low double digits, mid-teens for several quarters now. Just talk about what's driving that and the bigger themes and whether they're sustainable?

Yes, for sure. Very encouraged by what we're seeing on the Life Sciences side. So we've talked about this for a few years that we created this Life Sciences platform by kind of the combination of the legacy, we just call it Gardner Denver, then the Ingersoll Rand Medical business.

Now we refer to it as our Flow Control Solutions business internally. That's the biggest piece, but then you also have the assets from ILC Dover that really are now creating a $600 million to $700 million Life Sciences platform that you really didn't have historically. And I think when you look at our exposures across the Life Sciences spectrum, whether it be the legacy IR Gardner Denver Medical business, which is selling more, what I'll call, OEM compression and pump technology into medical lab life sciences, lab automation, diagnostic type equipment.

The second largest business is the biopharma business for ILC Dover, which clearly has been the best growth business in the entire portfolio exposed to GLP-1s and obviously making single-use powder containment technology for drug manufacturing. And then even the medical device business, which is the contract manufacturing business exposed to some good trends in urology and cardiac type applications on a contract manufacturing basis.

You're actually seeing good drivers of growth across all 3, albeit they're all exposed to slightly different aspects of the Life Sciences platform or the Life Sciences spectrum. So the way, Steve, I would probably say it here is that, to your point, Life Sciences has been the best growth profile business of the entire equation. It's worth noting here that the Precision Technology side has also shown pretty good traction here as of late.

These are businesses that both play a very healthy margin profiles. It's worth noting that now over the last 2 years, the Life Sciences business has definitely closed the gap towards the Precision Technologies, and you've seen that now in the overall PST margins where now this business has played above 30% for at least 3 or 4 now consecutive quarters. We're starting to now finally approach that mid-30s kind of EBITDA margin target that we've historically laid out.

And I think our simple way to think about it is we don't expect that at least the levers or at least the growth drivers we're seeing to dramatically change on the go forward. So I think we continue to be encouraged there. As far as the balance of whether it be pricing, whether productivity, I think a lot of those, you'll see us fairly similar themes and trends as what you saw on the ITS side. Clearly, the volume side here has probably been a little bit quicker and more evident as of late, but again, continues to be quite healthy on the go forward.

Okay. So to your point, you hit 35.5%, I think EBITDA margin in the second quarter in PST, if my numbers are right. And then you've described this mid-30s target. So what do you need to do there operationally mix? What gets you to the mid-30s?

Yes. So I think we've kind of probably been in that 31%, 32% range thereabouts. So again, to your point, not that far away from the mid-30s. I think it's just continued execution. I think a lot of the blocking and tackling in the context of, what I would call, the restructuring integration of the ILC Dover asset is behind us. That said, it's been a little over 2 -- almost 2.5 years now since the acquisition.

So I think now the structure, hardline P&L, you've really seen it adopt IRX, demand gen, the same toolkit that you've seen across the rest of the spectrum. Now I think it's really just the blocking and tackling. So to that point, pricing will be comparable to what you see on the ITS front. The productivity equation is very much there. I think a lot of it just comes down to core volume growth. The other piece here that now is becoming a little bit more evident, particularly on the Life Sciences side, is the bolt-on M&A routine.

We've now done 4 bolt-on acquisitions since the ILC Dover acquisition into that Life Sciences business. We continue to do bolt-on acquisitions on the PT side of the equation, too. So I think it's just essentially a blocking and tackling and just continued volume growth. There's no reason that the margin profile of that business plays out and the gross margin profile of 45% plus that you shouldn't continue to see good incrementals and good flow-through there.

Great. Okay. I'm going to come up for just a second. Does anybody here want to ask a question? We have a mic if you do. And if you don't, I'll keep going. All right. No takers. So maybe we'll just finalize the margin discussion. Just how should we think about incrementals in the 2 segments sort of medium term?

Yes. I mean I think this business, we've historically said the business over the cycle or medium term wants to play in that 30% to 40% realm with ITS probably towards the lower end of that realm and PST plays towards the higher end. I think that's the right way to target things over that kind of medium-term spectrum given some of the inputs and factors we've talked about. But as we've said a number of times, the volume piece of that equation is clearly the catalyst to kind of keeping in those ranges.

Okay. Great. Recurring revenue and sort of attachment rates have been something you guys have been very focused on. I think you have a $1 billion target for recurring revenue up from, what was it, $450 million last year.

$450 million, yes, not too long ago, back in 2021. The number was closer to $100 million. So yes, we've had quite a run here. It's clearly been probably the single biggest organic growth driver our focus from an initiative perspective internally. To your point here, this is a model that really kind of started in compressor side in North America, legacy Ingersoll Rand. I will still say compressors, North America is the biggest piece of the equation.

But now really expanding that model on how do you drive multiyear contractually driven, really service or other-type aftermarket contracts with your customer base to really kind of lock in that true recurring revenue base. And I think now what you've seen is the model really being adapted to the other regions, as well as kind of some of the Gardner Denver portfolio as well as some of the other product technologies that at least inherently historically, you maybe didn't think about though the same lens, blower, vacuum, pumps, areas that if they have a wrench turning service type applications and need, there may be something that can be applicable there.

So we sit here today, to your point, yes, we eclipsed $450 million last year. Obviously still plenty of room to run. We continue to be really excited about the opportunity set here. And now we actually kind of have measurable baselines and momentum across essentially the wide variety of the business, right? I will still say that the majority of what you're seeing is really on the direct side of the equation.

So I think earlier this year, trying to take this model and adapt it a little bit more through the channel and partnering with our channel partners. That's, I think, continued opportunity on the go forward. But I think we continue to be really excited about the opportunity set here.

And this obviously is, I'd say, a healthy aftermarket margin business. So again, continuing to see traction. And this should hopefully be an area, I'd say, a lever over the medium to long term that should continue to bolster margins in the grand scheme of things.

Great. Okay. So let's flip to M&A since you mentioned that a moment ago. Obviously, of 400 to 500 basis points of growth is kind of your long-term target. I think you're about halfway through that this year. So what does the pipeline look like? Yes.

So I'd say pipeline continues to remain active and healthy. If we could flash back here to our last earnings call, I think we mentioned that we still have over 200 active companies in the funnel. At that time, 11 transactions under LOI. The way I describe it right now is these are very much of the bolt-on variety, very similar the types of transactions you've seen announced over the last number of years, but even over the first half of the year.

So again, kind of right down the middle of the fairway-type of opportunities. I think we've mentioned that there's always inherently maybe a slightly larger transaction that we've had or things like that. But at this point in time, I'd say the funnel is largely of that smaller bolt-on variety. And I'd say conversations continue to be very fruitful and active.

So to your point, yes, roughly about halfway to the target halfway through the year. So again, we continue to remain optimistic on over the medium term here, continuing to operate in that 400 to 500 basis point range is a good target for us. Nothing that we would say really is changing our viewpoint there. And I'd be -- I will note good traction on both sides of the equation, ITS and PST. So very similar to what you heard us say historically, and I think the funnel continues to be relatively healthy and robust.

Okay. Great. All right. So we have about 2 minutes left. Is there anything I should have asked you or you think investors are not fully appreciating?

No. Listen, I think you've covered the big bases here and not to kind of -- to repeat myself from earlier. But I think the piece here that we -- after a couple of years of macro headwinds and things like that, that we continue to remain -- we're becoming, I'd say, more encouraged by is just the growth side of the equation, right?

You've heard us talk pretty explicitly over the last number of even despite some of the headwinds we've seen that we're continuing to invest, whether it be in manufacturing sites in areas like India or Brazil, whether it be commercial investments, whether it be feet on the street, even in -- I think it was Q2, we announced a strategic partnership with a third party on some oil-free technology, which is really kind of R&D co-development.

The common theme and trend amongst all these, even some of the AI discussion we had earlier, this is all about driving sustainable organic growth for the longer term. And so we'll continue to invest in the company and the business to drive organic volume growth. I think we're encouraged to now starting to see end markets and the major regions we play in starting to be a little bit better than where you've seen in the last couple of years. And now it's really more so operationally and executing thereafter. So I think we remain encouraged here. And other than that, I think you've covered the bases in the highlights.

Very good. Well, I appreciate it, as always. And thank you all for your attention.

Yes, thank you.

Okay, everyone. So we're back with Ingersoll Rand. Let me just introduce myself first since we're on the webcast. This is Nicole DeBlase. I'm Deutsche Bank's Multi-industry and Electrical Equipment Analyst. And I'm very pleased to introduce Vik Kini, CFO of Ingersoll Rand. And we also have Max, who is now running IR for Ingersoll.

So Vik, I'm going to start pretty high level and then drill down to the segments. [Operator Instructions] So the second quarter earnings call, I think Vicente noted that July organic orders were up low double digits to mid-teens, which is a nice acceleration from 2% in 2Q. Can you just like recap the drivers of this, longer-cycle projects versus short cycle, ITS versus PST, et cetera, the trends?

For sure. So first of all, thanks for having us. Max is not mic-ed up, so I'll just say thank you on both on behalf here. As far as the orders profile, let me start with Q2, and then we can kind of move into the July number just to kind of ground ourselves. So in terms of Q2, 2%, if I go through by segment, I'll really start with ITS. ITS, you saw more flattish organic orders.

I think if you kind of peel the onion back a layer though, what you saw was on the short to medium cycle side, you saw comparatively better momentum. You saw something approaching more mid-single-digit kind of order trajectory. And yes, obviously, the piece that created a little bit more of the, I'd say, more timing on the headwind was on the long-cycle side. And specifically in Q2, it was a little bit more European-centric in some of our blower and vacuum kind of longer cycle systems.

It should be noted that we have long-cycle exposure across kind of compressor, blower, vacuum, even our Precision Technologies pump business. So there is about 20% to 25% of our original equipment is longer cycle in nature.

So one thing we'd say here, and I think you've heard us for a couple of quarters is that in terms of the long-cycle funnel, continues to remain healthy. But there had been that kind of elongation, for lack of a better way to say it, in terms of the decision-making and ultimately getting to the finish line with POs and the orders.

So now flash forward into July. To your point, low double-digit, mid-teens kind of organic up through at the time we did earnings, I say the first 4 weeks of July. I think you know it's not our norm to necessarily be talking about intra-quarter orders or anything of that nature.

But I think the reason we wanted to provide that color was twofold. One, if we kind of peel that on your back layer, the medium -- or short to medium cycle continuing to show, I'd say, comparable momentum to what you saw in Q2. So I think that has continued as you would expect.

And then obviously, the piece that kind of really drove that outsized July performance was the longer cycle side of the equation and particularly through the ITS lens. And the way I'd probably characterize it here is, as we've said, the funnel has remained healthy. It just was kind of getting to that final getting POs in place and things of that nature.

And so in July, you saw it was actually a number of kind of longer cycle projects, pretty good cross-section across regions and end markets. I wouldn't point to one region or one application or end market in particular. To your point, obviously, encouraged by what we've seen in July.

We're not trying to necessarily represent that that's the norm per se anything of that nature. But I think it does speak to the fact now that I think you're starting to see better momentum on the long cycle converting now into POs, combined with that short to medium cycle momentum we've now been talking about for a couple of quarters, Q2 now into July time frame.

And I think we're really encouraged now by seeing that organic volume piece of the equation starting to take a little bit better foothold. In Q2, on the revenue front on ITS, you saw 4% organic revenue growth, good contribution from both price and volume. And now also into kind of the back half, you're starting to see the volume trends starting to improve, which definitely is the first time we're seeing volume being a little bit more explicit in the course of the last 18-plus months, which we're really encouraged by.

Okay. Okay. That was really comprehensive. Maybe a couple of follow-ups. It felt pretty strongly, and it was kind of echoed in your commentary there that you guys don't want to us to extrapolate that low double digits to mid-teens through the rest of the quarter yet. I guess a couple of questions on that.

Any thoughts on 3Q? I'll try. And then that cycle strength like if you look at what's in the funnel, I get that there was a boost from long-cycle activity in July. Is it likely that, that continues? Or are you saying, oh, the funnel is may be not showing as attractive of a setup for August and beyond?

No, no, I wouldn't read. So we're not going to necessarily try to comment any further on the Q3, the guide. I appreciate the effort. No, I think we're encouraged by what we're seeing. Like we said, July, it was the first 4 weeks, you saw good momentum on the long cycle, but the funnels themselves will continue to remain healthy.

I think we've been talking about that elongation for a while and delays, but not cancellations. I think July was definitely a proof point of that. But I think the funnels themselves continue to remain encouraging. And as such, I think we would continue to expect to see long-cycle project momentum and things of that nature on a go-forward basis.

So I think to your point here, I think we're very encouraged by now starting to see, I'd say, requisite contributions from both the short to medium and now the longer cycle piece as well.

Understood. And when you talk to customers about like what's giving them that comfort in finally making the CapEx decision, what's changed?

Yes. I mean, listen, I wouldn't say that there's been some dramatic like catalyst that all of a sudden things change. I think some of this is just timing, to be very honest with you, a little bit more certainty in kind of where the markets are and things of that nature, maybe some degree of any of the bottlenecks that may have existed historically are kind of getting loosened up and things of that nature.

So I think the piece, like I said, that's encouraging for us is it really wasn't just like one region or a couple of larger projects. No, it was a little bit broader based than that. And as such, I think we're -- we continue to be encouraged by the fact that, to your point, like there's definitely still plenty of healthy long-cycle funnel out there that this continues to hopefully be something that we see continue to click through here as we move through the balance of the year.

And remember, this long-cycle projects on average are 6 to 18 months, roughly speaking, in terms of duration from PO to shipments. And as such, a lot of what you're seeing now is starting to build the backlog out for that long-cycle component into 2027.

Makes sense. Okay. Understood. And then you guys raised your total company full year organic growth guidance to 1% to 3% with earnings. But I think 2Q organic was 4%. So you're kind of embedding a little bit of a decel in the back half. Why is that?

Sure. Yes. So yes, just to take a step back here, we did raise kind of the organic growth target by 1% at the midpoint on the full year. Obviously, the way to think about that is it's effectively all the volume, and it's largely ITS driven, okay?

On the backs of, I would say, that good momentum you're seeing on the short to medium cycle side, to a degree, some of the longer cycle. Some of that long cycle does have like POC, so you get a little bit of some of the revenue recognition kind of along the way, but the majority of that revenue profile is into '27.

The way I think about it here is 4% revenue growth organically in Q2. The implied guide for the back half is in that 3% to 4% realm. So it's comparable, I think, to what you're seeing in Q2, and I think a requisite kind of mix of price and volume.

Obviously, we're slightly negative in Q1. So I think we're encouraged by, I think, the sequential trends we're seeing here. And I should say that's obviously through the lens of ITS. PST comparatively has been a little bit more stable from that perspective or healthier. And again, we continue to expect to see organic growth into the back half of the year as well on the PST side.

Okay. Understood. We'll dig into the segments for sure. Maybe just a few more high-level questions first. I think pricing, you guys said is going to contribute about 2% to revenue in 2026. How sustainable is that level of pricing power as tariff surcharges potentially roll off or become less impactful? And any thoughts on just price cost into the second half?

Yes, sure. So I think we've always said that the company, and I've been with the company for 15-plus years, 1% to 2% price is normal in any degree of a normal environment. And I think we can also agree you probably haven't seen a normal environment for a little while. And you've obviously seen maybe outsized pricing as a result of supply chain or tariffs or things of that nature.

That all being said, I think the 1% to 2% realm and towards the upper end of that range as we sit here right now is, without question, I think, a normalized expectation. To your point, yes, we're kind of in the midst now of rolling through a lot of those tariff-related -- not tariff-related pricing actions.

And so what you're seeing is in this year, we're taking, I'd say, the more normal price, if you will. It's not a vanilla spread peanut butter approach. Effectively, it's product by product, region by region. Every part of the business takes pricing actions at the part point in time of the year that makes sense for their cadence.

And as such, you've even seen, I'd say, more normal course pricing actions in the first half of the year as well that will take root in the back half and things of that nature. So I think the simple answer here is that 1% to 2% pricing level, very normal, very consistent with what you've seen historically. And I don't think there's any expectation that should be anything different into 2027 or any thereafter.

Okay. Okay. Makes sense. Also wanted to ask about recurring revenue. I think the last data point we got was that it exceeded $450 million in 2025 and is still growing in '26. Any thoughts on like how recurring revenue as a percent of total sales might develop?

Yes. Maybe I'll take a step back here. I think we've said that exiting next year, we want to be on that $1 billion kind of trajectory, if you will. I think as we moved into -- you've got it right, $450 million, we eclipsed. It's worth noting that it wasn't on a few years ago 2023, our Investor Day, where we were just scratching the surface of $200 million.

So clearly, the recurring revenue piece of the portfolio not only has been probably the single biggest or one of the biggest, I'd say, organic growth initiatives, it's also been one of the higher growth pieces of the equation. And I don't think anything is expected to change in any way, shape or form in that context.

I would say from where we were in 2023, where just to kind of take a step backwards here, I think as most people remember and know, this model really kind of grew up on the compressor side of the business in North America and kind of the legacy Ingersoll Rand side of the business and really now, I'd say, proliferating this across the portfolio.

Europe, Asia, India, Latin America, the Gardner Denver portfolio of products and even into parts of the portfolio, lower vacuum precision pumps on the PST side that, to be honest with you, years ago, they didn't really think about recurring revenue. But if there's any degree of service and recurring aftermarket needs, there's probably a care or a recurring revenue type model that can be applied and exist.

So a couple of things to think about here. The way you think about it is exactly right. We would expect that the recurring revenue piece of the equation would definitely be kind of the highest torque or the highest growth piece of the equation. It obviously comes through at healthy margin profile.

So again, over time, this is a piece that, one, yes, will become a healthier mix of aftermarket. As you said today, if -- just to use rough numbers here, aftermarket approaches 40% of the portfolio. That's approximately $3 billion and at $450 million, you can do the math, obviously, the percentage there, that's a number that we would expect to grow as a percentage of the total pie or aftermarket over time and one that actually we would expect to see good requisite contributions on both P&Ls.

Obviously, ITS will have the most outsized -- the compressor P&L will obviously be the piece that is still the biggest piece of that equation. But I think now we finally have what I would call very measurable baselines in blower vacuum pumps that we would expect to continue to grow.

So all things that I think should continue to grow. And yes, that should be margin accretive over time.

Okay. Okay. Great. I'm going to move on to specific questions related to ITS now unless anyone has anything they want to ask on high-level stuff. Okay. So can we just double-click a bit more on the short- and medium-cycle activity that you're seeing? Like do we think that this acceleration that you guys have talked about in 2Q is finally the impact of PMI inflection that we have been waiting for?

Yes. I mean I think we've always said there's maybe a bit of a lag between some of those leading indicators and what you see in the portfolio, the concept of being at that kind of, let's call it, mid-single-digit-ish type realm of short to medium cycle orders momentum, continuing to see. Let's say comparable momentum for July. Yes we would point to that, I think, as I think, signs of that. Now obviously, as you know, we're very global in nature. About half our revenue base is North America, 1/3 EMEA and about 15% is APAC with a meaningful piece of that being China.

So we obviously have some of those geographic and regional kind of dynamics at play. But I think broad strokes here, yes, we would point to, I'd say, some of that improvement from a macro perspective, starting to see that kind of now starting to translate more and like I said before here, off of obviously what '24 and '25 were comparatively tougher sliding for a better way to say that, I think you're seeing comparative now improvement across effectively most of the major end markets.

Okay. Got it. And understood that it's broad-based across most end markets. What about regionally? Like is the U.S. kind of leading the charge? Are you seeing improvement in Europe and Asia as well?

Yes. So if we kind of take Q2, I think North America was definitely kind of the best from an organic orders perspective, where I think you were approaching like high single-digit type organic orders across the North America profile of obviously, compressors is the biggest piece, but the compressor blower vacuum kind of being that short to medium cycle side of the equation.

So North America definitely. Obviously, clearly, North America is probably the most impacted last year in Q2 just because of the tariff dynamics. But that clearly, I think, improving trends is definitely a piece of that equation.

Europe, obviously, has been probably the most stable region over the last couple of years. I'd say that's -- nothing has dramatically changed there. Now not all Europe is necessarily made equal. I would tell you the U.K., the Nordics, the France, the Italy, Spain of the world are probably the comparative better performers, not surprisingly, Central Europe, particularly Germany, lesser so. Now I would say our revenue profile in Germany is probably not as outsized as it may be in other parts of Europe. So that is there.

And clearly, Germany has clearly not been the star performer for a number of years, for a better way to say it. Middle East, we've talked about pretty explicitly. Obviously, we have about a low to mid-single-digit kind of revenue exposure there, call it, maybe 3%, 4%.

That's obviously getting a bit more normalized here as kind of hopefully things continue to settle down, hopefully, in the Middle East. India has been probably the best performer of the portfolio, double-digit growth for several years on end at this point in time.

And then Asia, what I'd point to on Asia is, I'd say, the non-China markets, Australia, Korea, Southeast Asia for us have been relatively stable, good performance. China, obviously, China has kind of reset over the last few years. That was roughly closer to 15% of the revenue of the portfolio maybe 3 years ago. Now it's closer to 10%, 11%.

I think the good news here is that you're starting to see, I'd say, better trends from like a volume perspective, just obviously off of a slightly lower baseline. So I think we're encouraged by what we're seeing particularly on the volume side of that equation. But I think in Q2, definitely from an orders perspective, North America was probably the leader of the pack.

Okay. Okay. Perfect. Understood. And then can we actually spend some time on the China pricing challenges that you guys talked about on the second quarter earnings call. Maybe some background on like when it started and if you've at least seen some stabilization at a minimum.

Yes. So I think a couple of statements here. So I think China has always been comparatively speaking to North America, Europe has probably been a little bit more of the more competitive pricing environment comparatively speaking. That's not a new statement. That's always been the case.

Yes. I think what you saw in Q2, I think we said it pretty explicitly, you saw probably like negative low single-digit pricing headwinds in China specifically. I'd say that it was probably a little bit more pronounced in Q2, but you've been seeing comparable numbers here. It just didn't start in the first half of the year, like a better way of saying. As far as kind of that dynamic, yes, listen, I think, obviously, kind of a reset baseline in China in terms of the market, a little bit of a deflationary environment there comparatively speaking, and maybe just the overall -- not necessarily compressor, but the overall kind of industry, a bit of oversupply and kind of things of that nature.

I think that's probably kind of the contributors to what you're seeing here. And I think we said it on the call here, we don't view that as something that is there long term. We view that as hopefully a little bit more transient over the medium term, right? So don't think of that as something that gets back to flat necessarily or whatnot, maybe in the back half of the year. We would think that, that's something that over the medium term as some of those macro dynamics settle a little bit, we'll get back to more normalized levels.

Now to take a step back, what normalized probably means is we've talked about pretty explicitly 1% to 2% for the overall enterprise. But that's probably with, I think, China in a more normalized environment more closer to flattish than where it is now.

I don't think China being at North America or Europe levels is the real honestly, that's not something we've seen historically nor would be the expectation going forward.

Okay. Okay. Understood. And I guess like -- so if we're moving from pricing being a low single-digit headwind to flat in China, how does that get resolved? Like is there just excess inventory that we need to burn through?

Yes, I think it's just a little bit of timing and frankly, just a little bit more of normalization of the market and things of that nature. And that's why we refer to kind of more medium-term dynamics in 2027 onwards. That's not something that we necessarily say is going to necessarily be playing itself out like overnight or here into Q3.

So I think right now, things are fairly comparable. But again, taking a step back from a broader enterprise perspective, remember, we did take certain pricing actions here in the first half of the year across the globe. And as such, I think you would expect to see from a sequential perspective, Q2 into the back half of the year, slightly better pricing performance in the back half of the year compared to what you saw in Q2.

Okay. Okay. Understood. And I guess like just in general, are the competitive dynamics a lot different? Like is there local Asia competition that you're up against in China that you don't necessarily see elsewhere?

There is local competition. And I would say there's China competition and whatnot you see in other parts of the other geographies as well. Now I would also say that in a lot of cases, we're not necessarily competing exactly in the same technology realms and things of that nature. And I do think that when it comes to the efficiency of machines and the ability to service it on a global basis.

I think our global service tech network and multiple -- thousands of service techs who can do things like the recurring revenue and care model, that I think hopefully is what sets us apart. But yes, I mean, you see Chinese competition. You do see it, albeit maybe at the lower end of the market.

Okay. Okay. Got it. And maybe we can talk about some of the competitive dynamics within compressors more globally. When you compare yourselves to your biggest competitor, Atlas, what would you say is like your special sauce that makes Ingersoll stand out? I mean it seems to me like the product that you -- you're both really good companies. The product is kind of similar, but that's an outsider's perspective. What's your view?

Yes. I mean, listen, Atlas a great competitor, obviously, very global in nature, very competitive technology set. Maybe to take a step backwards here, by combining, I think, the Gardner Denver and Ingersoll Rand portfolios, I think you've really now created a much more global kind of top to bottom offering set with regards to oil-free and oil lubricated, historically speaking, where one part of Gardner Denver IR was stronger on small to medium, the other was better in medium to large. One had lower vacuum, one less or so.

And now obviously, by virtue of putting the 2 companies together and now what you've seen post-merger, particularly through organic means, but also that kind of torque that you've seen from the inorganic piece, where we've done 80-plus bolt-on acquisitions and seeing us effectively go from something that I wouldn't say nothing, but minimal, for example, like air treatment and dryers and all the kind of periphery that is in the ecosystem of air compression technology.

Now we have, I think, one of the leading portfolios in areas like air treatment. So I think, one, good lineup there. Now to your point here, the portfolios aren't exactly the same. Our ITS business is compressor, blower, vacuum and power tools all under one portfolio, under one roof. They're obviously very similar across all them, but organized differently.

I think even in the compressor and vacuum space, our technology suites are a little bit different. We cap out at like centrifugal compressors. We don't play in those -- the large, I think, LNG-related kind of like turbomachinery turbine type compression technology. We also don't play on the semiconductor side of vacuum, right?

So I think in terms of where the portfolios match up and where kind of I'd say there's comparability, I'd say very comparable performance. And I'd say -- when you say special sauce and things of that nature. I think for us, it's fairly simple here. It's leading technology, leading efficiency, being able to kind of prove out both efficiencies and total cost of ownership over the life of your technology and then be able to serve it through the aftermarket.

And as such, the fact that we have multiple thousands of service techs around the globe who can do things like the care model and that recurring revenue initiative we've talked about and then being able to attach more offerings to our compressor to be able to serve the customer better. Once upon a time, it was a compressor in your basic aftermarket. Today, you've gone all the way to compressor aftermarket recurring revenue, air treatment and all the periphery in between.

So I think -- and then things like Ecoplant and some of the connectivity features and things like that. So I think that's something that you're not going to see change. It also is why, for example, right now, even despite some of the headwinds, for example, in China that we've talked about.

The reality is China in Q2 was up low double digits from a revenue perspective organically, inclusive of the negative low single-digit pricing. So that kind of implies scratching the surface of mid-teens volume growth in Q2 in China.

And that should be a means to an end in the context of continuing to push the installed base that you can then service through the aftermarket, albeit more medium term. So I think good global competitor. We've always said that. And I think we're encouraged by those improving volume trends we're seeing to be able to kind of service it through aftermarket, which is obviously a big piece of our equation.

Okay. Okay. Understood. So a few follow-ups then. Maybe first, how would you kind of stack up market share versus Atlas over the past few years? I mean I don't really notice a trend. It seems to bounce around between the 2 of you for just judging based on organic growth, but just curious if you have any perspective.

Yes. I mean we view it as very stable. I'm sure there's pockets where maybe we're doing better. I'm sure others would say there are pockets -- you hear that kind of across the board. But we would view it in the core markets where we operate as relatively stable. Now I would also tell you that we've been pretty explicit that there are certain markets we've kind of historically represented them or talked about them as underrepresented or underpenetrated markets.

So in no particular order, Latin America, Middle East, India and Southeast Asia. And all markets we have a presence in, but all markets where -- whether it's through official third parties or just operating in these environments for long enough, we have a general sense of where we think our share position is.

And I think it's probably fair to say the 4 areas I mentioned here, we know that our share is probably lower comparatively speaking, to where we are in the U.S., Western Europe and China. Fundamentally, we don't view that there's any reason that, that should be the case. It's probably been historically either a lack of focus or lack of investment, whatever the case may be. And as such, over the course of the last few years, you've heard us talk about the regions pretty explicitly.

You've heard us talk about we opened a new compressor manufacturing plant in Brazil. First time we actually have in-region compressor manufacturing. We opened a new plant in India late last year, our second compressor manufacturing plant because we run out of capacity.

And then Middle East and Southeast Asia, not necessarily requiring distinct footprint or manufacturing footprint, but a lot of more commercial reinvestment and things of that nature. And so we would fully acknowledge that I think there are areas that we feel like we probably have over a medium term, maybe a little bit more of a disproportionate opportunity to grow maybe just as a result of kind of our historical presence in that markets.

But the manner to get there, whether it be commercial reinvestment, manufacturing footprint or some combination of both, it's a little bit different market by market, but that's also why you've seen us not hesitant to continue to reinvest in the business even over the course of the last few years.

And yes, that's been a little bit of the some of the ITS margin profile. But for us, that's an investment that's, again, for the benefit of longer-term volumes that should be the catalyst for growth going forward.

Okay. Okay. Understood. And one more follow-up from what you said earlier is mid-teens volume growth in China in 2Q, you can back into because we know what the price situation was. What drove that? I'm surprised to hear mid-teens growth from anything in China, right?

Listen, I'll start by saying, obviously, China today with a lower baseline than it was two years ago. So I'll start with that. So I think a couple of things here. One, does speak to the fact that, again, there is activity in volume on the ground. I'll start with that.

Two, I think Vicente referenced some -- I think the word was sales investments, but some -- I'd say, some targeted application wins in Q2, where I think of probably some opportunities whether it be customers or applications that maybe we haven't played as prevalently in historically that we've made a bit more distinct push into.

And yes, some of the margin profile there may not look exactly like the rest of the portfolio, but we feel like those are investments that are, again, going to serve us well from a medium- to longer-term perspective. And then the other piece here, yes, our ITS China business is heavier compressor, just given that's where the legacy came from an IR perspective.

But what that also means here is the technologies that China, our business historically hasn't had as much access to, blower, vacuum and then air treatment as well as a lot of the technologies that we have acquired maybe in North America, Europe, India that now that team can localize.

And I would tell you, our China team I'd like to say they all do well, but our China team probably sets the mark internally for localizing technology that differentiates from the market. So yes, obviously, the conversation about China inherently becomes much more compressor-centric, as you would expect.

But when you look at blower, vacuum, air treatment, some of the other technologies, frankly, you are seeing those have, albeit off a much lower baselines, much considerably higher growth rates just because there are products that our business hasn't historically had there because either came from Gardner Denver or via acquisition.

So I'd say it's a confluence of a lot of those factors. But again, I think it speaks to our China team. I would say albeit a bit of a tough environment, continuing to drive differentiated performance by virtue of focusing on those factors that hopefully we can leverage to our strength despite a China market that's probably not the same as it was a number of years ago.

Okay. Okay. Clear. So moving on to ITS margins, an area where there's been a few more challenges recently. I think they've been down year-on-year since like the first quarter of '25. Can we just talk through the big factors and why we kind of expect improving margins half-on-half in the second half, especially after tariff refunds were like $10 million in 2Q. I assume most of that was in ITS, which makes the ramp just look a little bit harder now.

Yes, sure. So I'm not necessarily talking about any specific quarter, but we can talk about kind of the last 18 months or so. Obviously, you've been in an environment of tariffs and outsized tariffs where we've been very explicit that, yes, we took requisite pricing action, but it was always meant to be effectively price offsetting tariffs at best.

We were not looking to make margins on tariffs and anything of that nature. So at best, that's margin dilutive, right? Two, you've obviously also been in an environment that -- and again, I'll go back to why we're encouraged about what we're seeing going forward, but you've been in an environment where organic volumes have obviously been trailing.

In fact, over the course of the last few years, whatever organic growth has been, it's been positive price and probably at best flattish volumes and in certain cases, negative volumes. And when you have a portfolio that -- I know we're talking ITS, but both of our segments play above 40% gross margin profile, obviously, negative volume has its impact there.

I would say those are obviously the 2 biggest factors. Yes, of course, quarter-to-quarter, you're going to have noise from the reinvestment we continue to make and other factors. So that's always been there. So yes, that has created, obviously, the headwinds.

Now I will also say a business that ITS was effectively at 30% EBITDA margins. Even in Q2 despite some of the headwinds I've talked about, 27% still a very healthy margin business, but acknowledge and completely understand the dynamic at play in the question.

As far as the go forward, and I think why we continue to have optimism about where we're going forward, a couple of factors here. And a lot of what we've already spoken about here, but a couple of things here. One, you are settling back now into that normalized 1% to 2% pricing range. You've seen that. But yes, obviously, we've taken actions here in the first half of the year that you expect to be a bit more visible in the back half, item one.

Item two, just to keep it simple here, you're seeing a better organic volume environment, okay? Volumes help just no matter how you cut it. And so I think continuing to see bettering trends, particularly on a global basis, I think that will continue to help the margin profile, not just in the second half of this year, but also into 2027.

I know we're not going to sit here and guide on '27, but I think we're encouraged here by seeing contributions from both short, medium and long cycle that should hopefully improve those trends on a go-forward basis.

Third item here is some of the items we talked about in Q2, like, for example, some of these targeted applications wins that outsized dynamic of China, which created either a mix dynamic or things like that, we wouldn't expect to repeat to the same degree in the back half of the year. And then the other piece of the equation here that I think is worth noting here is the productivity side.

So productivity, whether you look at it through the lens of classical direct material, so procurement, sourcing, all what we call I2V internally when we redesign products, remember, that tends to be a little bit more visible in the back half of the year versus the first half because effectively, it's tied to your cost of goods sold.

So as your seasonality and your revenue base is typically higher in the second half of the year, particularly in Q4, you tend to see that follow. This year should be no different. So at least from that Q2 jump-off point, some sequential improvement in the back half.

And then the last factor here, we talked pretty explicitly in the back half of last year into the first quarter of this year about restructuring. We took some pretty portfolio-wide restructuring initiatives. So it's kind of all businesses, all regions. ITS that is 80% of the revenue base of the company. So you would expect it was the largest piece of that.

Those have largely been all digested here to the first half of this year. So yes, we'll continue to do reinvestment, while we'll continue to invest on the commercial side. And I would expect you to continue to see some improvement on the cost profile side of the business going into the back half of this year.

And I think roughly speaking, just to use rough numbers here, the expectation on a full year basis is that you're kind of approaching that 28-ish percent EBITDA margin for the full year, which, yes, we acknowledge is still down about 100 bps year-over-year.

But I think now serves as probably a better jump-off point into 2027, where I think you see this kind of growth algorithm and then the incrementals that come with it starting to resemble, I think, numbers of what you've historically seen in the past.

Okay. So we're kind of should be unless nothing changes from a macro perspective, we should be in a position where we can kind of get back to the normal cadence of margin expansion in '27.

That would be the expectation.

Okay. Okay. Understood. All right. And let's see. With respect to the top line, organic growth improved in 2Q quite a bit in ITS. And I think it was actually better than what you guys had expected as well. So what drove the upside? And is it fair to think that this level of growth can be sustainable into the second half?

Yes. I mean, listen, I think some of that volume outperformance, China, particularly in areas like that, I think definitely with some of the contributors there in Q2. I mean, to keep it simple, we saw 4% organic growth in Q2 with a good contribution between price and volume.

We're calling for 3% to 4%, roughly speaking, is kind of the implied guide in the back half, which for all purposes is fairly comparable to what you've seen in Q2. So I think the simple way to say it is yes, we would expect to see better trends or comparable trends, I should say, for like better way to say this into the back half of the year.

And I think going back to how we started, the fact that you're also now starting to see improving trends in the long-cycle orders performance, again, not necessarily going to translate into revenue to that degree in the back half of the year, but also now starting to build some of that funnel into '27, I think, continues to give us signs of encouragement about kind of now the go-forward view.

Okay. Okay. Perfect. I'm going to move on to PST unless anyone wanted to touch on anything else with the ITS?

Okay. So PST orders also accelerated really nicely to like 7% organic growth. Is this -- can we attribute that mostly to, I think, the prior year comp was a bit easier? Or are you seeing clear improvement in the underlying demand trends on this side here as well?

Yes. Let's taken PST and we're going to break it into two pieces. So PST is roughly speaking a $1.6 billion, $1.7 billion approaching $2 billion in revenue. And I think the way to think about it here is your Precision Technology, so kind of the core niche precision pump side, $1 billion plus.

The Life Sciences is $600 million to $700 million, right? So that's kind of how you think about the 2 components and how that kind of adds up to the total. I think what we tell you here is we're actually seeing good trends across both.

So the Precision Technologies business, not surprisingly, it kind of has a bit of a look and feel that kind of resembles ITS in some respects in the context of the geographic profile of North America, Europe, Asia, fairly comparable in terms of percentage-wise to ITS. So again, it's had its fair share of China impact over the last few years, things like that as well.

It does have some long-cycle project exposure as well in parts of like the Milton Roy portfolio and things like that. So again, not too dissimilar from what you see in ITS. But I think you've seen good steady orders performance and improvement there. The short to medium cycle there in businesses like Aero and Dosatron continue to show nice performance like we've been talking about.

I think the piece here that's obviously been kind of the torque on top of that, for like a better way to say this, is the Life Sciences piece, right? And so I think as we've talked about here, the Life Sciences business is essentially comprised of 3 main businesses. You have the legacy Gardner Denver, then IR Medical.

Now we call it Flow Control Solutions, but it's the old Gardner Denver IR Medical business. That's $300 million plus. It's selling miniaturized compression and pump technology into medical lab, life sciences, OEM and diagnostic type equipment.

You've got the second business, which is the biopharma business that came from ILC Dover. That's obviously been the best growth profile. We'll come back to that here in a moment. But that's the business that sells powder handling technology and things like that, consumable technology into things like GLP-1s and APIs, ADCs and drug manufacturing.

And then the third business is a squiggle of about $100 million, and that's the medical device business. So the good news here is all 3 of them are showing good trends. Clearly, the biopharma one is probably the one that's showing the more outsized growth comparatively speaking. But I think the simple way to say it here is, one, you're seeing good volume trends across both sides of that business.

Yes, I would definitely say in the context of year-on-year, particularly in the back half of the year in Q4, the comps are a little stiffer, probably comparatively speaking, probably more so because of the Life Sciences piece, which has, to be honest with you, over the last couple of years, been the best grower of the entire portfolio.

But that all being said, I think the order trends, I think the end market dynamics, we continue to be really encouraged there. I'd be remiss if I didn't say here that 31.5% EBITDA margins in Q2. So that trajectory to that mid-30s EBITDA margin profile that we've been talking about for a little while now, starting to see, I'd say, that really becoming in sight here.

We do expect some sequential margin expansion in the back half of the year, quite frankly, for some of the same reasons that we've talked about in ITS in terms of pricing and productivity, but also just to be honest with you, continued volume momentum. I think the concept of being at that mid-30s is on the horizon, I'll say that much.

Okay. Great. And then you kind of touched on this a little bit. I wasn't sure if it was in relation to orders or revenue, but with the tough comps in Life Sciences, you guys do have a deceleration in organic growth embedded in the back half from what you did in 2Q. Is that because of the Life Science?

That's largely what that is, correct.

Okay. Understood. And then you hit on the margins been completely the opposite of ITS here, really, really strong, have continued to surprise to the upside. I guess how do you think about the ability to reach mid-30s? I think the original target was to get there by 2027. Is that maybe a step too far?

Yes. Listen, we're exiting this year in that 31%, 32% range on a full year basis is kind of, I think, what the expected closer to the higher end of that number. We've talked about potentially upwards of 100 basis points per year with normalized kind of growth.

So you're not that far off as you're exiting '27. So I put a finer point on it as we get to the back half of the year and give guidance. But starting to approach that mid-30s, which I guess you could define as 33% or 34% you're not that far off is, I guess, a simple way to say it.

Okay. Fair. Got it. That's pretty much everything I had on PST unless anyone else wants to ask.

[indiscernible]

$450 million last year. So we don't provide guidance there, but I would say that should be a double-digit grower without question. So $450 million we eclipsed in 2025 expectation of continued momentum here and exit rate out of '27 of approaching that $1 billion.

Double digits. [indiscernible] a big chunk

Is that aspirational what is the base case [indiscernible]

Yes. I mean, listen, we haven't recalibrated expectations yet. So I'll hesitate to kind of go and kind of reframe the equation here. But I'll just be very clear here, double digits like to use the numbers, $450 million getting to $500 million. Now I think the expectation is a bit more outsized than that. I mean, just to put it in perspective, we've gone from sub-200 million to $450 million in like 2 years, roughly speaking, from '23 to '25.

So not trying to say, obviously, there's still an acceleration that obviously needs to happen here. I think the way we'd say it here is we still very much are pushing the businesses to that $1 billion run rate trajectory here. I think the simplest way to say it is continue to expect strong double-digit momentum.

To be honest with you, '27 just happened to be kind of that kind of mark on the calendar for lack of better way to say this. This is not a momentum or this is not an initiative that ends for lack of a better way to say this in '27. I would actually say quite the opposite. If you think about where we've come from, it took probably the better part of a decade to get to the $100 million, $200 million mark.

And in 2, 3 years, we've gone from $200 million to $450 million and obviously, aspirations for much larger numbers. What I will tell you right now is what was historically really just a North America compressor-based program, now you really see it across all parts of the portfolio.

So I think the simplest way to say it here is whether you get to that $1 billion run rate or something slightly less here, I think the simple way to think about it is that's still very accretive growth from a margin profile perspective.

And again, I would say, independent of where we may exit '27 at, I think that momentum will not stop. So I think we actually -- to be honest with you, this is probably one-off, if not the single largest organic growth initiative across the entire enterprise.

That's been probably the same statement for 2 years, and I don't expect that to be any different for the next few years to come.

Any others? Okay. Just wanted to talk a little bit about capital deployment. Deal activity feels like it's picked up a little bit recently for you guys. You've announced a few bolt-ons recently. What are you seeing in the M&A environment qualitatively? And do you think that, that deal pickup could kind of remain the case through year-end?

Yes, for sure. And I think we continue to remain really encouraged about kind of just the M&A algorithm and kind of the end market, the kind of the market dynamics as we sit here right now. So to keep it very simple, we're still targeting that 400 to 500 basis points of annualized inorganic growth. I think we've closed 5 or 6 transactions now, roughly speaking, for the first half of the year.

You did see on the earnings call, we closed Lonestar, so a blower-based company. We also announced the signing of a filtration-based company, Fai Filtri that is expected to close more towards the end of the year. As far as the funnel itself, it looks and feels very comparable to how we've talked about before.

200-plus companies under funnel, 11 additional transactions under the LOI under LOI, which we typically have a pretty good hit rate of LOIs converting to closed transactions. So yes, I would fully expect that you'll continue to see that momentum in the back half of the year.

As you know, obviously, M&A can be a little bit timing and episodic just with sellers getting the finish line and stuff like that, but that's just timing, nothing else. I think the market, I think the funnel, it's all bolt-on in nature. So frankly, the 11 under LOI and effectively, the vast majority, if not all, of the funnel, by and large, looks and feels very similar to the bolt-ons you've seen us do.

I think Vicente did mention on the call that there were maybe 1 or 2 of maybe more of $1 billion-ish purchase price, one that we walked away from just a valuation perspective and another that's probably just still in the funnel at this point, not under LOI.

And the fact that these are smaller bolt-ons, family-owned, privately owned companies, that we're cultivating 90% sole source, nothing has changed in that respect. So I think we continue to be very encouraged by what we're seeing. I think at this point, since the merger till today, so 6-plus years, we've eclipsed now. I think it's somewhere 80 to 85 bolt-on transactions.

And I should also say and Max, when he is not now doing Investor Relations, he has an other dual hat of being our M&A leader for our Life Sciences business, a role he's been doing for 2 years, and he's done 4 or 5 bolt-on transactions. The ones you've seen in life sciences, those have been under Max's watch, but I think it's encouraging now that you have a life sciences platform that you can do very similar private family-owned, low double-digit pre-synergy adjusted EBITDA purchase multiple type acquisitions in the life sciences realm, just like you've seen us been doing for the last 5 or 6 years in ITS and Precision Technologies.

Got you. I mean you look at that acquisition funnel today, are there plenty of opportunities on both sides of ITS, PST, is one stronger than the other?

Yes. I feel like I should share the mic with here. But yes, I think the simple answer is yes. Whether it be the LOI, the 1,100 LOI or the larger funnel, good mix across both segments. I would also tell you very good mix across effectively our geographic perspective. At this point in time, you've seen us now do transactions in, obviously, North America, Latin America, you've seen a handful, clearly, Western Europe, India, a handful even in the APAC realm, Australia. So this model is pretty much as global as it gets. And I would tell you the funnel is fairly representative of that as well.

Okay. And anything of the size of ILC Dover, a bigger transaction coming anytime soon? Or are we still a little ways out from the next time you guys are going to do it like a later on?

Yes. I mean I think the simple answer here is nothing on the horizon I can point to. But as you know, things can change. And if there's something that comes to market that makes sense, we will definitely evaluate it. Obviously, the balance sheet continues to be very healthy, 1.7x net debt leverage. So I think capacity-wise and ability from either a business perspective, integration, all that, no issues if it comes to bear.

But I think we're not going to be impatient in that respect either, right? I think you've seen us we said every 3 to 5 years you might see something that looks more like an ILC Dover-ish type size. In the interim, you're going to see us be very kind of close to core on the bolt-on routine, and that's what you're seeing us do right now.

Okay. Understood. And last one is just buybacks did step up to $250 million in the second quarter. Might we see more buybacks in the back half given where the stock is and maybe there's an opportunity there?

Yes, I don't think you'll see us hesitate to lean in there. I mean last year, as an example, we're able to -- with the strong free cash flow nature of the business, probably a little bit of dry powder from a cash perspective we had. You saw a good mix between the M&A kind of the state levels up to $1 billion last year.

I think for the first half of this year, you've seen about $350 million. I don't think there'll be an aversion if the opportunity is there to step into the share repo. But clearly, the M&A piece is still the focal point of the capital deployment strategy.

Makes sense. Well, I think we're out of time. Vik, thank you so much for your time today. It's a great conversation, and thanks to everyone in the room for joining as well.

Perfect. Thank you for having us.

Hello, and welcome to the Ingersoll Rand Second Quarter 2026 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to [ Max Borsheimer ], Director of Investor Relations. You may begin.

Thank you for joining Ingersoll Rand's Second Quarter 2026 Earnings Call. I'm [ Max Forsheimer ], Director of Investor Relations. And joining me this morning are Vicente Reynal, our Chairman and CEO; and Vik Kini, our Chief Financial Officer. Our earnings release and presentation were issued yesterday afternoon and are available on the Investor Relations section of our website, where a replay of this call will also be posted.

Before we begin, please note that today's discussion will include forward-looking statements subject to the risks and uncertainties described in our SEC filings and on Slide 2 of this presentation, which you should read in conjunction with the information provided on this call. We will also reference certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in our earnings release and this presentation both of which are available on the Investor Relations section of our website.

Today, we will review our second quarter results, discuss segment performance and provide an update to our full year 2026 guidance. During Q&A, please limit yourself to 1 question and 1 follow-up to allow time for other participants.

With that, I'll turn the call over to Vicente.

Good morning, everyone, and thank you for joining. Before we get started, I wanted to take the opportunity to formally introduce [ Max Worscheimer ], who has added Investor Relations responsibility to his current role on our M&A team. You will be seeing and hearing from him going forward, and I know he looks forward to engaging with many of you.

Beginning on Slide 3, the second quarter and first half overall reflected continued strong execution and improved demand momentum in our business. In the second quarter, we saw organic order growth of 2%, organic revenue growth of 4% and adjusted EPS growth of 7%, demonstrating the strength and resiliency of our business. Our growth this quarter was broad-based across our diversified end market base. Every main region this quarter delivered positive organic revenue growth, and we continue to focus investments towards durable, structurally growing end markets.

Importantly, our first half performance and the healthy demand trends we continue to see across much of the business reinforce our confidence in our outlook for the remainder of the year. As we will walk you through this morning, we are raising our full year revenue guidance and expect adjusted EPS to land towards the higher end of our previously communicated range.

We also remain disciplined in our approach to capital allocation. Our acquisition pipeline continues to be robust, including 2 new announcements to date and remains focused on targeted bolt-on opportunities that strengthen our core technologies, expand our aftermarket presence and enhance our long-term growth profile. Our teams around the world remain focused on controlling what we can control through the use of IRX and our economic growth engine, we continue to drive operational execution, support our customers and outperform in the markets we serve.

Turning to Slide 4. Before moving to our operational and financial results, I would like to briefly acknowledge the continued recognition we have received for our sustainability leadership and employee ownership culture. During the last year, we were recognized across multiple leading ESG, workplace and corporate salienship rankings, including joining the 2026 Fortune 500, a milestone that reflects the scale, discipline and momentum we have built as the Ingersoll we are today. These recognitions further outlined in our recently polished sustainability report reflect the strength of our ownership mindset culture and our commitment to making life better for our employees, our customers, our shareholders and our planet.

Turning to Slide 5. I am excited today to announce the closing of one acquisition and signing of another. So this morning, we closed on the acquisition of Lone Star Blowers. The company referenced as a U.S.-based blower manufacturer in the presentation. Lone Star Blowers expands our expertise in key blower technologies and solutions and expands our aftermarket presence through an established service business and rental fleet. This acquisition will add approximately $50 million in annual revenue.

We're also excited to announce the signing of the acquisition of Filtri, a manufacturer of industrial filters based in Italy. This acquisition will expand our filtration capabilities and also strengthen our aftermarket offerings. We expect this acquisition to close in Q4 and add approximately $30 million in annual revenue. Both of these transactions are highly consistent with our strategy of acquiring market-leading technologies that strengthen our core while maintaining disciplined valuation standards. Notably, both acquisitions strengthened our aftermarket capabilities, a key focus area as we continue to increase the resiliency and recurring revenue characteristics of our portfolio.

We have 11 additional transactions under LOI and our funnel remains strong, focus on proprietary and internally sourced deals. Our disciplined M&A strategy remains a key differentiator and continues to be an important driver for long-term value creation.

Now I'll hand it over to Vik, who will review our financial performance.

Thanks, Vicente. Starting on Slide 6. The second quarter represented another solid quarter of execution. Orders finished just over $2 billion, up 5% year-over-year, with organic orders up 2%. Book-to-bill finished at 1.0 turns slightly lower than we typically see in the second quarter, primarily reflecting the delayed timing of several large project orders. Important to note that we continue to see solid momentum in our short to medium cycle business, where orders were up mid-single digits.

In addition, we expect these longer-cycle projects to recover in the back half of the year, and Vicente will provide some color on what we have seen thus far through July.

Revenue grew 9% year-over-year to approximately $2 billion, with organic revenue growth of 4%. Aftermarket revenue represented 36% of total revenue during the quarter and continues to be an important contributor of the resiliency of our portfolio. Adjusted EBITDA was $520 million, an increase of 2% year-over-year with an adjusted EBITDA margin of 25.4%. Adjusted EBITDA margin was down 160 basis points year-over-year with the decline driven primarily by 3 factors: first, inflationary pressures, particularly in China, where it is more challenging to offset inflation with price; second, continued investment to support growth around new technology and commercial applications; and third, higher corporate costs. The higher corporate costs were largely driven by a year-to-date true-up of management incentive costs reflecting incentive compensation adjustments aligned with performance, which we do not expect to recur at this level in the back half of the year.

Unallocated corporate costs were $49 million in the quarter versus $34.6 million PAUSE a year ago, driven largely by the incentive true-up, and we continue to expect approximately $170 million in corporate costs for the full year.

Despite this quarter's year-over-year margin rate pressures, we remain confident in our ability to deliver within our previously communicated adjusted EBITDA range through continued operational execution and productivity actions. In terms of the sequential margin expansion we expect to see in the second half of the year, the margin ramp in the back half of the year is normal course for us as first half pricing actions and benefits from first half productivity projects are realized.

We also had the incentive comp true-up here in second quarter that we do not expect to repeat to the same magnitude in the back half of the year. Adjusted EPS was $0.86 for the quarter, up 7% year-over-year.

Turning to Slide 7. Free cash flow for the quarter was $269 million, up roughly 28% year-over-year. We ended the quarter with approximately $3.8 billion of total available liquidity, including approximately $1.2 billion of cash and $2.6 billion of available revolving credit facility capacity. Leverage remained at 1.7x, providing significant balance sheet flexibility. During the quarter, we deployed $110 million towards acquisitions and returned approximately $248 million to shareholders through share repurchases and dividends. We were also pleased to receive a one-notch upgrade from Moody's to Baa1 during the quarter, further reinforcing the strength of our balance sheet and capital allocation strategy. Overall, our balance sheet remains a strategic asset and positions us well to continue investing in attractive growth opportunities.

One other update I wanted to provide here as you will see disclosed in our 10-Q for the second quarter, we reached an agreement on an initial $187.5 million recovery, which certain insurers on the RWI claim that we filed last year related to the ILC Dover transaction. We collected the first $25 million in the second quarter, and this is reflected in free cash flow for the quarter, with the remaining $162.5 million to be received during 2026. This is a significant and favorable initial recovery, and we continue to actively pursue additional meaningful recoveries related to the ILC Dover transaction beyond the $187.5 million.

Consistent with our focus on earnings quality, these recoveries are excluded from adjusted earnings and the incremental cash that we expect to collect in the second half of 2026 is not reflected in our free cash flow guidance. We, therefore, view it as pure upside that directly strengthens our capital allocation firepower.

I'll now turn the call back to Vicente to discuss our segment performance.

Thanks, Vik. Turning to Slide 8. IT delivered another solid quarter. Revenue increased nearly 9% year-over-year, including organic revenue growth of 4%. Organic revenue growth was positive across all regions. Orders were approximately flat organically, resulting in a book-to-bill ratio of 1x. Within our compressor business, we continue to see healthy activity particularly in North America, where organic orders were up high single digits. Overall, compressor orders increased by low single digits globally.

Organic order growth was impacted by the timing of several loan cycle blower and vacuum projects in Europe as well as the continued impact on the Middle East, where specific project activity remains delayed rather than canceled. IT generated adjusted EBITDA of $435 million, with margins of 26.8%. Margin performance was impacted primarily by challenges offsetting inflationary impacts with price primarily in China, and continued commercial investments to support future growth.

For our innovation in action highlight, we're showcasing a plug-and-play on-site nitrogen generation solution that integrates multiple products from our portfolio into a single factory tested system. The solution enables faster deployment, simplify commissioning and full life cycle support, demonstrating our ability to leverage the breadth of our technology portfolio to solve critical customer needs. This solution also demonstrates the commercial synergies we continue to realize through M&A. The system combines technologies from our Oxy wise, Gardner Denver and York brands into a single integrated solution for customers.

Turning to Slide 9. PST delivered an excellent quarter and continues to demonstrate the strength of the platform we have built. Orders increased 11% year-over-year, including 7% organic growth. Life Sciences delivered low double-digit organic order growth, while Precision Technologies grew mid-single digits organically. Revenue increased by 8% year-over-year, including 4% organic growth.

Importantly, both Life Sciences and Precision Technologies delivered positive organic revenue growth in the quarter. Adjusted EBITDA increased 15% year-over-year to $135 million. Adjusted EBITDA margin expanded 200 basis points year-over-year to 31.5%, reflecting strong execution across the portfolio and the continued benefits of IRX.

We're encouraged by the breadth of growth we're seeing across the segment and remain excited about the long-term opportunities within both Life Science and Precision Technologies. For our innovation in action, we're showcasing Dosatron's installation-ready dosing systems. This standardized solution simplify deployment, improve reliability and reduce installation complexity for customers while supporting strong commercial momentum across the business.

I'm also proud to share that following the significant earthquake that recently struck the Philippines, Ingersoll Rand partnered with Planet Water Foundation to deploy safe drinking water stations across the hardest hit areas. Planet Water Foundation is not only a partner, but also valued Dosatron customers as our pumps are a key component of the Aqua block kiosks that deliver safe drinking water in these situations without the need for electricity. It serves a good reminder of the mission-critical nature of our portfolio and an example of our purpose of making life better in action.

Turning to Slide 10. Given our momentum through the first half of the year, today, we are updating our full year guidance. Starting with revenue. We now expect revenue growth of 4.5% to 6.5%, 200 basis points higher at the midpoint, driven primarily by organic volume, reflecting a strong first half and healthy demand, particularly in the short to medium cycle side of the business. This outlook assumes approximately 1% to 3% organic growth, approximately 2.5% growth from M&A and approximately 1% growth from FX.

We're maintaining our adjusted EBITDA guidance range of $2.13 billion to $2.19 billion. As Vik mentioned, the margin ramp we see in the second half is largely driven by first half pricing actions taking effect, the nonrecurrence of the incentive compensation true-up in Q2 and benefit from stronger productivity in the back half of the year from projects executed in the first half, all of which is normal course and consistent with prior years.

Adjusted EPS remains projected at $3.45 to $3.55, and based on our current expectations, we expect results to finish near the high end of the range. Free cash flow conversion is currently expected to remain approximately 95%. The phasing of revenue, adjusted EBITDA and adjusted EPS remains consistent with prior years.

One additional clarification on our guidance is that our adjusted EBITDA and adjusted EPS ranges exclude any benefit from [ AEPA ] refunds we expect in the second half of the year, which we will view as upside. We will update guidance once those amounts are materially received.

And to give a bit of color on our start to Q3, while we don't guide on orders, I am happy to share that we have had a great start to July, where we have seen double-digit order growth through the first 4 weeks of the month. We have seen strong realization of several long cycle orders, which were delayed in the first half across all of our main regions, along with continuation of the short- to medium cycle strength that Vik mentioned earlier. We're encouraged in what we're seeing, and we're confident in achieving our updated guidance for the remainder of the year.

Finally, on Slide 11. As we conclude this portion of the call, I am encouraged by the momentum we continue to see across the business. Demand remains healthy across the portfolio. Our teams continue to execute at a high level, and our M&A pipeline remains robust. We remain well positioned with a strong balance sheet, ample liquidity and significant flexibility to continue investing in growth.

IRX remains the backbone of our organization and continues to enable execution and outperformance across the company. As we look ahead in the second half of the year, we believe we're well positioned to continue to deliver durable growth, strong cash flow generation and long-term value creation for our shareholders.

Finally, I'm more important, I want to thank our employees around the world for their continued commitment, dedication and ownership mindset. Your efforts continue to drive our success and help us deliver strong results for all the stakeholders.

With that, I'll turn the call back to the operator and open the line for questions.

[Operator Instructions] Your first question comes from Michael Halloran with Baird.

Welcome, Max. So can we talk a little bit about the momentum you're seeing on the short and medium side of things now. Maybe just drilling a little bit more on regional dynamics? And then any end markets in particular that you're seeing that momentum. And it seems like you're pretty comfortable that, that momentum can sustain as we're exiting the second quarter through July and onward. But any thoughts on how that momentum phases out?

Yes, Mike, let me first give you by region. So Americas is roughly 50% of our revenue, and it's been the strongest region so far. ITS orders up high single digits, healthy compressor activity. And we're seeing the short-cycle indicators that are the best in the portfolio.

EMEA is about 1/3 of the revenue. Orders were down low double digits organically. And I want to be precise about why it is 2 things, both timing rather than demand is the phasing of some long cycle project orders in our blower and vacuum side of the business in Europe. And it's also the Middle East. Underneath that core compressor orders in the region were up low single digits organically, which is better read on the underlying market. And then Asia Pacific, which is about 15% with China around 10% of total. China organic revenue was up low double digits in the quarter. The volume story there is very good. But as we indicated in the prepared remarks, this continues to be the most challenged market from a pricing perspective, but we're encouraged by how our original equipment is getting into the market, again, in China, for China in some very kind of unique applications that we expect will generate some very good aftermarket in future years.

From an end market perspective, PST, we mentioned life sciences, obviously, up mid-teens, driven mainly, in this case, here, biopharma. Biopharma we continue to see that low double-digit growth there. I'm very encouraged about the timing of bringing the full Ingersoll's portfolio into Biopharma. So not just what we got in PST, but now the team is driving pull-through of other technology into biopharma.

And then in the ITS, it's broad-based. I mean, Americas, we saw momentum in power gen, electricity infrastructure, some air separation for semiconductor, Europe is resiliency, continues in general, industrial, food, beverage, kind of kind of the more normal industrial side. We still expect maybe defense picking up here soon, hopefully. And Asia Pacific is growing in kind of electronic shipbuilding among others. So you can see kind of multiple fairly broad base in many cases.

No, that makes sense. And then maybe just on the larger projects. I know you referenced some of the longer-cycle projects. Are you at the point where project pushouts are starting to roll through and people are willing to move forward with projects? Are we still seeing delays on a global basis? And how do you think that long-cycle activity plays out as we look forward?

Yes. I think, Mike, that's where we are getting more and more encouraged. For a while, we were talking about elongation and kind of what we're seeing now is basically customers getting more enthusiastic and project getting kind of moved in a better direction. So we're seeing better momentum on the long cycle projects, yes.

Your next question comes from Jeff Sprague with Vertical Research.

Just a quick follow-up on the long cycle. First, is there any sort of common thread in what is now being released and previously held up and released, perhaps more energy or some other vertical market? Maybe any comments you'd point to there?

Yes, Jeff, good point. I mean this is actually one of the more encouraging conversations we're having in terms of that energy efficiency. I mean, as we -- you know the compressed air is typically 30% of the industrial electricity consumption in a manufacturing facility, and it could be higher based on applications. So we're seeing more as power prices have moved up the payback on replacing an older, less efficient machine is getting shorter. So definitely, that is definitely one of the key indicators here that we're seeing that is driving some better momentum among other things.

I think historically, past few earnings calls, we were talking about kind of delays in project just due to engineering capacity or it could be EPC and a lot of that is also kind of freeing up to as well.

Great. And maybe then just a quick one for Vik. So just on the organic revenue guide, just primarily a reflection of going after additional price? Or is there actually some improved volume sort of underpinning that bump? And what volume improvement be if there is some?

Yes. So Jeff, I think it's more of the latter. So it's the volumes, the organic volumes. So I think as we indicated in the prepared comments here, encouraged by what we saw in Q2, where you saw 4% overall organic growth. I think volume was obviously relatively healthy there, particularly on the short and medium cycle side of the business. So I think that's where you're really seeing the uptick. So the incremental 1% organic for the full year is really volume driven.

I think as Vicente said here, encouraged by what we're seeing both in the Americas front. China continues to show good momentum there. And so that's really where we're seeing in price. We have taken certain pricing actions in the first half of the year, which was consistent with our expectations, and those are starting to kind of more materialize into the back half of the year. But I would say that's fairly consistent with what we had expected in previous guidance.

Your next question comes from Nigel Coe with Wolfe Research.

And Max, I look forward to meeting you in due course. But just on the orders in July, obviously, really encouraging to see that the longer cycle orders starting to kick in. Can I just clarify, when you say double digits if we strip out acquisitions, et cetera, we're still seeing double-digit organic orders. Just want to clarify that one first of all.

And then are we seeing the backlog building for '27 given that these are longer cycle projects? Or could these hit in the back half of the year? It doesn't feel like you're baking these orders into the back half of the year?

Yes. Nigel, let me take the first one and I'll let Vik comment about the second one. Yes. I mean organic is low double digit to mid-teens, basically is what we're seeing here in the month of July.

Yes. And then just to follow up on that. As far as the long-cycle projects, definitely building the backlog out for 2027, as you would expect, most of these are long-cycle projects are the typical 6- to 18-month type duration in terms of projects difficult to what you've seen. So they're largely building out the backlog for 2027. That's not to say that some won't have some revenue recognition here in the back half of the year. But yes, solid backlog build more as we move into 2027 with regards to some of those longer cycle projects.

Okay. That's great. And then just maybe just a bit more details on the ITS margin momentum through the back half of the year. And can you just maybe just clarify was the sort of the margin weakness in the quarter? Was that confined to China and the price pressure in China? Or was it a bit more than that?

No. No, it's really confined to China, basically. And in addition to some of the investments that we're making. I mean you saw we made an announcement about earlier in the quarter about a partnership that we made for some new technology to as well. So it continues to be some good investments that we're doing, I mean, despite what kind of market conditions might be. And on top of that, has been the pricing on challenge in China.

Your next question comes from Rob Wertheimer with Melius Research.

I wanted to check in on trends in Life Sciences and PST. It seems like you had pretty good orders, comp was a little bit easy. And there were some kind of cross currents around the industry that don't seem to have affected you in the quarter. So I wonder if you could just sort of characterize the market? Is it steadily rolling? Is it accelerating? How do you see it right now?

Yes, Rob, we see good momentum on the Life Science business as we kind of alluded here. We see that it's largely driven by the biopharma. In our case, the exposure that we continue to have to GLP-1 is very strong so that as that market continues to grow and seeing some investments, we're pleased to see that. In addition, we're -- we have made some investments to play in the larger biopharma side and are working on what you also kind of hear in the news on the biopharma expansion. Now a lot of that hasn't come to fruition yet, but we're excited about what the potential of that could be as we move into the second half or even 2027 based on the new facilities that are kind of getting invested now.

So again, we see continued stability in that market and good growth based on, I guess, the investments that we're making and the focus that we're putting in to really accelerate our penetration in the biopharma side.

Your next question comes from Nathan Jones with Stifel.

I guess I asked the same question I asked on most of these calls, just said there about quote to order times. Obviously, you had a few of these longer-cycle projects get delayed in the quarter. But if you kind of exclude those, are you seeing any changes in that quote to order time, maybe in the U.S., you are maybe in Europe or not. But any details you can give us on, I guess, the customers' willingness to accelerate these orders?

I would say this, nothing dramatically significant. I mean, obviously, you're seeing the short cycle business, and Vik mentioned that, I mean, mid-single-digit organic quarter growth on [indiscernible] cycle business. So we continue to see momentum. And when you -- when we about sequentially continue to improve and obviously now here in July as well. But in terms of that quote to order, I don't think anything that customers are trying -- at least not on our products, or the end markets where we play that we have seen that customer quote-to-order cycle get shortened dramatically.

Okay. Fair enough. Maybe just a question on China and the pricing power over there. Ingersoll Rand has always tended to try and play in areas and products where it has significant differentiation in a command price. Are there opportunities for you to consider what you want to sell in China, how you want to sell it and look at the portfolio overall through that kind of lens, where maybe some of these products you're selling in China don't have pricing power and you don't need to be in that business or anything from that perspective?

Sure, Nathan. I would say, I mean, we're always going to play a mission-critical products where total cost is low based on the total process in the equation. So, I mean, right now, what you see in China is just basically a timing issue in our view. More broadly, we're spending quite a bit of time localizing newly acquired technologies into China, and typically under an existing brand that we have in China. So I want to say that we're cutting back on our product portfolio, but rather investing in new technologies in the market where we have seen success from acquired businesses elsewhere and kind of have unique technology that we can have.

The second big piece is that a lot of the growth that we see in China is related to original equipment hold goods, which come in -- comes at a lower margin typically than the aftermarket. And in some cases, what we have done here in China as there have been some very unique applications with specific customers that we never had before, but that we see that can have a great potential in the future for us. We're making some commercial investments to really penetrate those new applications. And again, in China for China. So I'd say we feel good about the product portfolio we have in China, and we continue to invest in China for China.

Okay. So the pricing is a bit more transient and an issue?

It is definitely more transient, yes.

Your next question comes from Andy Kaplowitz with Citigroup.

Vicente, it looks like you've continued to have nice acceleration in your Precision Technologies business. Could you talk about the durability of that growth? Like what are the biggest drivers? And I think precision is mostly comprised of shorter cycle markets. So is it fair to expect continued acceleration from that mid-single-digit growth from here?

Yes, Andy. I mean, I think we're very pleased with what we're seeing on the PST side. I mean, as you remember, even going back to our last Investor Day, we said that this segment should be in kind of that mid-30% EBITDA or not just a mid-single-digit grower organically. And we're getting back to that. So again, great progress that we're seeing here on the growth but also on the margin expansion.

Yes. And then Andy, on the -- specific to the Precision Technology side, we would agree. You're seeing solid momentum. That business has a comparable look and feel in some respects to ITS. So yes, you have seen good continued momentum on what I'll call some of the shorter cycle kind of core pump businesses. There is longer cycle project activity there as well. And I think we're working through that just like you'd see on the ITS side. So I'd say fairly comparable trends, specifically on the precision technology side as to kind of what you've seen on the ITS side.

Great. And then on M&A, the one that you raised your contribution to 2.5 for '26 from closed deals, which I think puts you right on target for our usual algorithm and you had a couple of nice announcements today. But if I look back at the last few years, you've tended to be a little further along at this point in the year. So how would you characterize the M&A environment in general this year versus past years?

I would say pretty very healthy. I mean, our funnel is very healthy over 200 companies that we have in the funnel. And so no difference. I mean right now, so far, including these transactions that we announced today on a year -- I mean we're kind of halfway point to the commitment of the annualized acquirer. So I think we're making some good progress. And I think it's difficult to compare the cadence of deal activity each year against another. But I mean we're excited where we are. We've got great prospects. We learn transactions under LOI and healthy activity and with a very good disciplined pre-synergy multiple.

Your next question comes from Joe Ritchie of Goldman Sachs.

So ITS, I'm curious, would your margins have expanded this quarter absent like the China headwind that you guys described. And then also, as you kind of think about the year is your expectation that you can kind of still hold margins kind of like flattish with where ITS margins were a year ago?

Yes, Joe, I'll take that in 2 pieces here. So the first part here, China was a question the biggest piece, obviously. So I would say it would have been much more comparable is probably the best way to say it. That's not obviously the only moving factor, but that is without question, the single biggest driver for the factors that Vicente indicated with regards to much more the pricing size comparatively speaking to some of the inflationary headwinds.

As far as on the full year and kind of what the guide kind of implies into the back half, I think as we exit the year, particularly in the fourth quarter, I think you're much more in line with prior year and actually probably even slightly above the exit rates we had for prior year. But I would say on a full year basis, it's still probably trending a little bit below on a full year basis, comparatively speaking, to where we were in full year '25. But again, I think we view that as Vicente said, a lot more timing oriented here. I think with the momentum we continue to see, particularly on the organic volume front as we exit the year as well as kind of some of the China items that we view as a bit more transient for lack of a better way to say it. We don't see any reason why the ITS business can't continue to have that earnings power approaching that 30% EBITDA margin profile consistent with what we've talked about in our prior Investor Day.

Got it. That's clear. And then Vicente, just touching on those longer cycle orders from July. I'm curious, maybe I didn't hear it, but like from an end market standpoint, does a particular end market stand out to you on what's converting into orders? And then as you kind of think about your pipeline for the rest of the year, how does that large project pipeline look?

Yes, Joe, I say nothing that I would say one specific end market focus. I mean it was -- it's kind of becoming a bit very nicely broad-based, food, beverage, pharma, power gen, air separation for semiconductors. So it's actually a very good blend on multiple end markets. And as we -- which we like. And as we think about kind of the rest of the year in terms of the pipeline, very consistent with that, consistent with having a good blend of multiple end markets in the loan cycle.

Your next question comes from Chris Snyder with Morgan Stanley.

At least on my math, it seems like this back half margin ramp off of that Q2 base is a bit stronger, at least on the higher end of what you guys typically deliver. It seems like a lot of that is driven by this price cost catch-up. So I guess, could you just maybe kind of talk about the drivers of that sequential margin expansion off Q2? And then since it seems like it's mostly driven on price, any color on just like how much incremental price is coming into the back half following some of the actions you guys took, I guess, in Q2?

Yes, Chris, I'll kind of bucketize it to keep it simple here maybe into kind of 3 major kind of drivers here. First and foremost, to kind of in line with what you said, there is, I would say, better price realization, just in the context of some of the actions that we took through the first half of the year and executed in the second quarter. So again, I would say that was -- that's kind of 1/3 of the -- 1/3 of it. A third, to kind of repeat on an enterprise-wide basis, obviously, corporate, we expect to be a bit more normalized into the back half of the year. Clearly, we had the incentive compensation true-up that we took in Q2 that we don't expect to repeat at the same level in the back half.

And then the balance is what I would say is somewhat generally normal course here is the expectation on the productivity. And to some degree, some of the mix you would expect to see coming into the back half of the year. As a reminder, we typically see a lot more of our productivity benefits from actions taken, whether it be on the classical direct material or I2V side as well as to repeat some of the restructuring actions we took towards the end of last year and to the beginning of this year, materialize more into the back half of the year. And remember that direct material productivity generally follows our cost of goods sold, in particular, as you typically have your strongest finish towards the fourth quarter, that's where you tend to see a lot of that come through. So I'd say those are probably the 3 drivers.

Thank you, Vik, I really appreciate that. And then maybe tying that to the July order comment, which was obviously I mean, a really strong inflection for you guys on the long cycle side. I just want to confirm, it seems like this order inflection came after you guys put price in, which is more constructive than seeing the order inflection of course, before the price action. So -- and I'm just -- if you could confirm that.

Yes. I think, Chris, that's a fair point here. So the way I would probably think about it is, remember, a lot of these longer-cycle projects that are booking through here in July, they've been in the funnel for some time. These have been active dialogue negotiations, things of that nature. So yes, I mean it's great to see them kind of now get to the finish line for lack of a better way to say this, but I wouldn't also lose track of the fact that in the midst of July, we're also seeing, I'd say, continued solid short-cycle momentum.

So I think your comment is quite fair. Yes, the long cycle is probably the biggest driver of that number you're seeing in July, but that's not coming without some good contribution also from the short cycle side as well.

Your next question comes from Amit Mehrotra with UBS.

I guess just following up on the July commentary because I want to make sure that my -- the market's expectations are correct. And it really comes down to the attribution of these long-cycle projects, maybe there were a few of them. But is the positive implication of that disclosure that, hey, this is kind of the trend that we can build on or sustain? Or is it really a data point that's idiosyncratic to maybe a couple of projects that hit in July because I don't want to be here in August, September, saying we're back to low single digits because of that dynamic. So maybe you can give us a little bit of color on that?

Yes. Maybe I'll start here. So one -- a couple of comments here. One, I think if you go back over the course of several quarters, we've spoken to the help of the long-cycle funnel, right? And as Vicente has mentioned, we had acknowledged that there have been some elongation and that had been some of the drivers of why you've seen some of the timing on some of the long-cycle comps and things like that, including even in the second quarter. So I think first and foremost, encouraged by seeing some of those projects get to the finish line. I do think that's obviously what you're seeing in July.

Now that being said, I think I would couple that to say that obviously, we're continuing to be encouraged by the long cycle funnel, right? Obviously, I don't think we're necessarily implying that at these levels is the level to indicate on a consistent go-forward basis. But I think it speaks to the fact that, that long-cycle funnel continues to remain healthy. As we've indicated, there really weren't cancellations. It was more timing. So I think that's now proving itself out. And that, obviously, the short cycle side continues to be pretty -- short to medium cycle side continues to be relatively strong and constructive. So I'd take that all in totality. But I think the July comment is just speaking inflecting and the fact that we're happy with what we're seeing there, getting those finish line on those projects.

Okay. Great. That's helpful. And a lot of our conversation talks about sort of the large compressor blower vacuum market, but there's obviously -- you sell stuff through distribution, smaller compressors, power tools, et cetera. Can you just maybe talk about how distributor behavior is, whether it's sell-through or their willingness to hold more inventories as maybe sort of another leading indicator sign of how things are trending?

Yes. I mean I'll say that difficult for -- and we said this historically, our distributors, they don't typically hold inventory. I mean the compressor gets customized for specific applications. And even on the smaller side, I mean we're not on the do-it-yourself kind of compressor type of product that is a very standard product. I mean we tend to configure to order [indiscernible] engineered to order. So those are more difficult to kind of keep in inventory. So our distribution is mostly kind of buy and sell pretty quickly.

[Operator Instructions] Your next question comes from Nicole DeBlase with Deutsche Bank.

Maybe just digging into the pricing environment a little bit more. I understand what's going on in China. There's been plenty of discourse around that. But I guess, what are you guys seeing with respect to pricing and Americas for compressors, any shifts at all in the dynamics or market share dynamics as well?

No. I mean nothing, I'll say, dramatic. I mean, that we're seeing. I mean typically, we're back to this kind of 1% to 2% price that we see consistent and stable. And even having said that, you saw that we talked about order momentum to be high single digit in the Americas. So again, very encouraged that a lot of that kind of tends to be more volume related than pricing. So nothing that I will dramatically say that we're seeing changes in the pricing environment besides what the difficulty that happens in China.

And again, China, I'll categorize that as transitory due to some of our capacity that has happened over the past prior years of investing, but we're definitely seeing inflecting better momentum in China as well. But again, from a pricing dynamic outside of China, fairly stable.

Okay. Understood. And then I just wanted to ask a question on PST margins, definitely a bright spot this quarter once again. Vik, is it possible to get your view on how second half margins look within PST?

Sure. Yes. I think the simplest way to say here is we would expect to continue to see sequential momentum as the year plays itself out. Really encouraged that we were right around 31.5% EBITDA margin here in Q2. I think our expectations would be that number is slightly better as we move into the back half of the year. So the 32% type range, if not slightly better and definitely approaching that kind of mid-30s EBITDA margin target that we've kind of historically laid out is definitely in sight and definitely the goal.

Your next question comes from Andrew Buscaglia with BNP Paribas.

You guys indicated you're doing some M&A here and some LOIs for usual kind of like under -- in the background, what is the nature of the size of the deals that you're looking at? Is valuations -- valuations attractive for larger-sized deals. Can you just give us a little more color there?

Yes. The [indiscernible] we talked about LOI was tend to be in same nature as kind of what you saw announced today. The bolt-on in nature, low double-digit pre-synergy multiple prior quarter we spoke about having a couple of about $1 billion purchase price in the funnel. We actually decided to walk away from one of them due to valuation. So again, we remain pretty disciplined on the transactions that we're going after. So again, the [indiscernible] very similar to what you saw getting announced today.

Got it. And my second question is a little more high level. I think the back half guidance pretty picked over at this point. So I want to ask your take on sort of AI and infrastructure investment and how it pertains to Ingersoll Rand. Just given you obviously have the build-out of the hyperscale data center that's ongoing. But as like sort of the infrastructure investment bleeds into areas like semis and power equipment, we're reading a lot about and just broader industrial capacity needed. Can you talk about the role of compressors and vacuums the other precision fluid handling equipment you guys using? How you see that helping your song and -- and then where -- whether it's industrial tech or your Precision Tech segment? I go back and forth where we would see this materialize more. But can you talk a little bit more about that, too.

Yes. Absolutely, Andrew. I appreciate the question. I mentioned at the beginning of the call that, yes, on some of the Q&A, Power Gen has been one of the end markets or infrastructure we play. I mean, compressors are definitely -- air compressors are definitely needed in the power generation and electricity infrastructure. So as those investments kind of take on and pick up, definitely, our compressor systems will definitely have a play.

Clearly, a lot of conversations around the utilization of water and how to continue -- create closed-loop systems in data centers, and we have pumps that can move water, we have blowers that can actually help with the [ areation ] in some of the systems. So it's kind of a pretty wide range, but it's very, very broad-based in many multiple different markets, even including a new natural gas power is needed, we're the market leader of authorizing that natural gas. So that is on our precision technology kind of PST segment sort of thing.

So as those projects kind of start coming up live. I mean, obviously, those take a long time to get implemented, but we're pleased to see that we can play in that kind of broad base end market application that is driven by a lot of the data center infrastructure investments.

This concludes the question-and-answer session. I'll turn the call to Vicente Reynal for closing remarks.

Thank you, Sara. I just want to say one more time. Thank you all for your time and continued interest in Ingersoll Rand. And I know the special call out and thank you to our employees around the world whose ownership mindset and commitment while executing through IRX helps compound durable long-term value for all of our shareholders, which by the way, our employees are also sure [indiscernible] of the company. So again, thanks, again, and we'll talk soon. Appreciate it.

This concludes today's conference call. Thank you for joining. You may now disconnect.

All right. Here we go. I'm Joe O'Dea. I lead the multis team at Wells Fargo, and we are very pleased to continue discussions with Ingersoll Rand and Vik Kini, who is the CFO of the company. Vik, thank you very much for being with us today.

Yes. Thanks for having us.

We're going to go right into the Q&A. And let's start on short-cycle demand side of things, no shortage of interest in that. When we look at PMI in the U.S., we look at durable goods orders, the general tone actually from this conference, short-cycle enthusiasm remains and there's support behind the data trends. I think one of the key focus questions we get is we do see a lag between that organic growth kicking into gear at Ingersoll relative to, say, the general short-cycle group in multi-industry. And so just dig into that a little bit for us in terms of what you're seeing in the trends, how you think about that lag.

Sure. So yes, I mean I think if you think about -- I'll take them in pieces here. So first and foremost, the short-cycle side, the momentum and things of that nature. I think as we expressed in our Q1 call, whether it was in the IT&S side or the P&ST side, we definitely see trends getting better there, similar to kind of what you said. I think in terms of where you've seen kind of whether it be the historical, to use your words, kind of a couple of hundred basis points underperformance, things of that nature, I think that comes to 2 things.

One, I think the geographic kind of dispersion of the company, kind of our geographic exposures as well as the fact that you do have other aspects of the business on the long cycle side and stuff like that, that can create some noise. So as an example, over the last few years, I think not surprisingly, we've talked about whether last year, some of that uncertainty that existed in North America because of the tariffs, the year before that, some of the reset in the China market.

And then we had some, I'd say, specific nuances with our business with regards to some of the non-repeat of businesses like the EV battery business in China and some of the RNG exposure in the U.S., which I think created a little bit of an overhang on some of those numbers, right? So I think when we look at some of the short-cycle momentum right now, I think we're excited about some of the, I'd say, normalization of the trends that we've been seeing, particularly compared to the prior years.

I think when you look historically and you put some of that noise behind us, the good news is it's that. It is behind us. We have not walked into 2026 with another like $100 million headwind or anything like that. The China business has kind of reset. North America, we've talked about. Europe has actually probably been our most stable region over the last few years, and I don't think anything has dramatically changed on that front.

So I think the good news here is it's setting up for a better backdrop on a go-forward basis. The one thing we did mention in Q1 is that we do have, roughly speaking, 20%, 25% of our original equipment business is longer cycle in nature. I think the positive on that is that the longer cycle funnels continue to remain relatively healthy. In Q1, we did see some of the noise from the Middle East that were a couple of discrete projects.

The good news is we already saw one of those projects click through in April. So a lot of that is just really more so timing based. But I think on the long cycle side, yes, there's always going to be some degree of timing in terms of when those click through to orders. But I think the good news is the funnels themselves continue to remain relatively healthy. We don't see cancellations or things of that nature. So it's really much more just a timing nuance, but that's why we still remain encouraged that, that long cycle will click through. And with a better macro backdrop, hopefully, that should set up for a better growth algorithm as we think forward.

And do you have any sort of rule of thumb when you think about the short cycle versus long cycle, if you were to focus on IT&S in particular. But that timing lag between we'll start to see it here and the shorter cycle starts before it hits...

Yes. So maybe to set the stage here on IT&S. So roughly speaking, I think it's 37%, 38%. So we'll say roughly 40% is aftermarket, which is obviously much more correlated to utilization and things of that nature of the equipment. Then when you look at the original equipment, roughly speaking, 20%, 25% is long cycle, that leaves around 75% is short to medium cycle. When you think about the dynamics between the 2 to keep it fairly simple, the short to medium cycle order to shipment, it's a little bit contingent on the product and the region, but you're anywhere from like 30 to 90 days. So in that 60-day time frame on average.

And then on the longer cycle side, the longer cycle side for us are much more what we call kind of the engineer-to-order kind of systems or packages. And so you're looking at things that typically have a price tag that's at least roughly speaking, $0.5 million, but typically 7-figure price tag and higher. And the order to shipment is typically anywhere from 6 to 18 months. So it can take some time to obviously get from the funnel to an order and then order to actual full shipment and full factory acceptance testing and everything with the customers can be anywhere from 1 year to 1.5 years. So there is a bit of a duality there. But that's also typically why, for example, in the first half of most calendar years, you see a book-to-bill above 1, that's more indicative of some of those longer cycle projects being booked in the first half and then they revenue more so through the second half of the year.

And when you think of the complexion of accelerating growth, aftermarket, short cycle, longer cycle. Is the idea that, that aftermarket has been steady for a while or your customers going to be using facilities more kind of we...

Yes, I think the aftermarket has historically a little bit of a better growth, all things held equal, dollar for dollar. I think it also speaks to the fact that on the aftermarket side, one of our single biggest organic growth initiatives, which you've heard us talk about quite explicitly is the recurring revenue side. And that's what's squarely in that kind of bucket and probably has been all things held equal, probably the single best growth outlet from a total company perspective in terms of unique initiative or things of that nature.

So yes, I mean, I think typically speaking, you see that short cycle kind of the beast that comes back a little bit quicker, the long cycle kind of has its dynamic. And then the aftermarket is kind of largely following that compressor or blower pump utilization.

Yes. You touched on it a little bit with Europe and some stable trends there, but that typically is another area of focus as people think about the organic growth and a little bit more China exposure than average multi, a little bit more Europe exposure. Just touch on those regions a little bit, what you're seeing in the demand trends.

For sure. So maybe just to set the stage here, Americas for us is about half of our revenue base, and that's largely U.S.-centric, not exclusively, but U.S. obviously being the biggest piece. Interestingly enough, Europe is about 1/3 and then Asia Pacific will be about 15%. And of that 15%, about 10%, 11% is China. So just to set the stage here. Interestingly enough, very comparable trends between our IT&S and our Precision Technologies business. So within the P&ST segment, the Precision Technologies, the niche pump business, very similar revenue exposure.

So you don't see a dramatic shift between the 2. They actually kind of mimic each other very well in that respect. As far as China, kind of to set the stage there, you're right. Obviously, that business has kind of reset a little bit from where we were probably 2 to 3 years ago. That business, China was probably closer to 15% of total company revenue. It's reset to lower double digits, about 11%.

I think the good news here is that kind of reset is largely there, right? That kind of happened over the course of the last few years. In fact, as we sit here today, I think in our first quarter earnings, we actually talked that China through the lens of IT&S, actually, I think it's shown its third quarter of organic orders momentum. So yes, that's off of a little bit of a lower baseline.

But I think it speaks to some of the nimbleness of the team and what they're doing because that business in China historically has been largely compressor-centric. It's largely from the legacy Ingersoll Rand side. Clearly, that business won't show organic momentum without at least some contribution from the compressor side, still the largest piece.

So that's relatively stable at this point in time. Where you're seeing some of the pockets of growth opportunities are in areas like blower and vacuum and some of the localization of M&A. So blower, vacuum technologies that really come from Gardner Denver, that market really didn't have as much access to, now leveraging that Ingersoll Rand channel, you're seeing better traction.

Same thing on the M&A front. As we've done -- we've done now close to 80 bolt-on transactions since the merger. And those that are, I'd say, pertinent to the IT&S side and have applicability in China, that team has probably been the poster child in terms of localizing for the local market. So I think that speaks to what's going on in China. Yes, you've obviously seen some headwinds over the last few years, but I think we're encouraged by the fact that, that team is showing growth in what is a -- it's a tough operating environment.

On the European side, the way I would probably characterize it is we've seen relative stability in the Western European front. Obviously, not all components of Western Europe are made equal. Clearly, the Central Europe, Germany piece has been a little bit slower treading. Germany, not frankly, our biggest market. We're much more U.K., France, Mediterranean, Spain, areas of that nature, which have comparatively been a little bit healthier.

So I think as we sit here right now, I think stability is probably the right word to say. So still encouraged by what we're seeing there. We do have our India business, which is kind of part of our -- we run it with Europe. India, smaller business, but with probably our single best growth region of the total company. So completely acknowledge that, yes, what you're saying in terms of Europe and China. I think the China comp growth headwinds are largely behind us. We're encouraged by at least what we're seeing a little more stabilization now. Europe has been relatively stable, and that's kind of what we're still seeing right now.

And then related to price points, you talked about the longer cycle, you can do $0.5 million and a lot of 7-figure price points. When you think about the shorter cycle side of things, just any color on the price points within that percentage of mix to understand. Are you still seeing levels where customers might hesitate a little bit waiting for firm confidence before moving forward...?

I mean, look, I think there's always going to be some sense of that. But I think would I parse out price points between like 10 to 20 or 30 to 40, no, I wouldn't like delineate in that respect. I think when it comes to the short to medium cycle side, yes, price is always going to be a factor. But at the end of the day, customers are paying for quality, reliability, energy efficiency, which is really what our products bring to bear.

So I would tell you, as long as you can have the innovation, reliability, the lead times that match, you can generally get the price hopefully that you're kind of looking for. So nothing is dramatically different on that front. What I would say on the pricing front right now is that not surprisingly, you've kind of now -- you're getting past a lot of the tariff noise that happened in 2025.

You're lapping a lot of those pricing actions that were taken last year, and you're getting much more into what I would consider to be a bit more of the normal pricing environment as we sit here right now, which is kind of returning back to that 1% to 2% kind of standard. That's typically what you see in this business. That's where we're kind of migrating back towards. Nothing is dramatically different on that front. Obviously, China is a little bit of a tougher pricing environment, all things held equal. But other than that, North America and Europe tend to be operating as you would expect.

Let's move to the price cost side of things. And if you have a question at any point, just raise your hand, and I'll get to you. On the 232 stuff and going back to August and just explain the headwind that, that presented from a cost side of things, the response and the timing of how all that has played out. Are we at a point where that is all kind of in reported numbers...?

To keep it relatively simple, yes. Obviously, in the back half of the year, it was roughly -- the timing of when some of those tariffs were coming in as opposed to the timing of announced pricing transactions, when that's actually on the channel, when that actually ripples through the order book into revenue, there's inherently always a little bit of timing there. The reality is we said we kind of worked through that timing in the back half of last year, and that's what you've largely seen.

So I think as we sit here right now, yes, year-over-year, particularly in the first quarter, and remember, the tariffs really happened in the second quarter of last year, you still have some of the year-over-year comp dynamics, as you would expect. But generally speaking, at this point in time, price kind of matching those inflationary headwinds, those are really offsetting. As we mentioned from the time that this started, we were not really looking to make margin on tariffs, right?

We were pushing off one for one. And as such, it was kind of dollar neutral but margin dilutive. Obviously, as we comp that out here into the back half of the year, that normalizes a bit and then compounded with the fact that you'll get some normal price, it should lend itself to a better price/cost equation, all things held equal. We'll obviously continue to monitor what's going on in the market real time, but the team is largely managing through that.

Any context on the magnitude of that margin dilution or the magnitude of price that was required as a result of those tariffs...?

Yes. I mean we didn't, I'd say, quantify it externally. So I'll -- consistent with kind of what we talked about before. You did see elevated pricing levels that were above that 1% to 2% average norm. That was clearly driven by the tariff dynamics. Like I said, it was largely offsetting the cost one for one. So I'd say the levels of price that you saw really in the back half of last year over and above that kind of 1% to 1.5%, 2% realm, which you saw higher than that, that was really the driver there. That's returning much more to the norm as we speak right now.

So again, I think as we move into the back half of the year, those expectations are much more normal course pricing. And I could say, having been with the company for 15 years now, 1% to 2% has historically always been kind of that sweet spot. I don't think anything is dramatically different as we think about going forward in a more normalized environment.

And when you think about the raw material inflation earlier in this year and then inflation tied to kind of the Middle East tension, anything there that's requiring additional pricing responses?

So I think like everyone else, we're managing through it. I think whether it comes to some of the oil-driven and oil derivatives or lubricants or plastics, obviously, we're dealing with that like anyone else. So when I say that we're kind of back to a little bit of the normal course pricing, to some extent, that includes obviously an expectation that you're going to be offsetting some requisite amount of inflationary pressures or headwinds and things like that, as you would expect in this environment or like anyone else is dealing with.

So I think the simple answer is the team has been working through that. I would say, in normal course, pricing actions have been taken. It's important to note that pricing for us is not uniform across the enterprise, meaning we don't have a set day for every business, every region, every product line we take a price increase. In fact, quite the contrary. We actually are staggered by business. Every business has their own cadence and even in certain cases, equipment versus aftermarket is not a peanut butter spread approach.

So I think based on some of the exposures, we've made sure to account for that as we've gone through what we consider to be some of the normal course pricing to make sure that we're mitigating those pressures as much as possible.

And have you seen any impact on the competitive landscape just based on where folks are manufacturing, where they're selling, how that would have had differences in the cost and price and then kind of demand?

Yes. I mean obviously, we can speak to what we've seen and what we've done here. I think just to keep it simple, we have a model that's very much in region for region, right? So you do not have a meaningful amount of like intercompany serving one region serving another. We have very, very, very limited exposure in that respect, but that's the model that we've set up.

Now of course, we have a global supply chain. And so you do have your U.S. business, for example, procuring certain components from Asia or China, just from a third-party perspective. So that's what's led to some of our exposure, which we've been managing. Clearly, some of our competitors have different models, as you've seen. And I think you would expect they've been taking the requisite actions, whether it be for deploying inventory, things of that nature to try to manage.

Would we still maintain here that we think our in-region for-region model in the grand scheme is a model that we want to subscribe to in the sense that we think it serves customers in the best possible manner, hopefully manages some of those global supply chain dynamics, but also manages lead times to customers? Yes. Hard for us to speak to kind of what others have seen and done. But I would say this has always historically been a fairly orderly market in that sense. So we would expect competitors to behave relatively prudently as well.

And then anything on Middle East as it relates to demand impact, logistics, added costs there. And coming back to you did see some pushout in orders. You've caught about 1/3 of that in April. Anything that you've seen since then?

Yes. So to keep it simple here, the first quarter, did we see any dramatic impact on the revenue and earnings side, not really. It was -- yes, we managed through it. We saw a little bit of noise in just the timing of some of the orders you mentioned. One of which had already kind of come back by the time we had done the earnings call. I think our expectation is that the balance of those orders would come back over the course of the year.

Like we've said, the funnels, nothing has dramatically changed. You're not seeing cancellation, things like that. Now of course, every day that we wake up and see new news there, it continues to create a little bit of uncertainty. So it would be good for that to get behind us just to get kind of that uncertainty out of the air. But I don't think that's any different from anyone else in that respect. So I think the simple way to say it right now is we're still managing through it. The team is doing an exceptional job. Our employees are all safe in the area in the region. Getting a little bit more certainty would obviously be helpful, but the teams continue to manage through any meaningful disruptions or anything like that, nothing of that nature to speak to at this point in time.

And then what about the energy efficiency opportunity tied to that? So the degree to -- for how long do we need to see disruptions before customers start to react? And you can talk a little bit about the efficiency opportunity of replacement and new orders...

Yes, for sure. So I mean first and foremost, total cost of ownership, energy efficiency, the fact that compressors can consume up to 30% of the energy in a manufacturing facility, that's always part of the narrative, right? I think to your point here, if energy prices are elevated, but most probably stay elevated for a period of time. We're not talking like weeks or a month for an extended period of time, then that can become a much more, I think, relevant part of the conversation for customers to think about, we obviously use our demand generation engine to make sure that, that education is obviously getting out of the customer base.

The way I think about it here is, yes, to keep it simple, higher energy prices for a longer period of time inherently will lead to a better payback on a compressor, right? We've seen instances in the past where if the average is something that can be in the 2-year time frame or thereabouts, the economics can lend itself to a year. In certain cases, we even saw in certain isolated instances, even better than that. Now does that mean that everyone is throwing away compression technology and go -- no, I don't want to lead to that at this point.

If people have 2-, 3-, 4-year-old equipment, they're still going to utilize that equipment. But I do think it lends itself to the question that maybe as compressors, that compressor reaches mid-life and you have to go through the big air end overhaul or the big kind of engine overhaul, if you will, is the right thing to do to do that or maybe invest in new technology. So maybe there's a replacement a little bit earlier than would have otherwise been done under the right circumstances.

So I think without question, we are having those conversations. Clearly, this environment lends itself to making sure that customers are at least aware of what their options may be, what the economics may be. And we obviously do everything we can to help them with the decision-making criteria, what that means from a total cost of ownership, from a savings and a payback perspective. So I think we're encouraged that we will continue to push on that.

Joe, have we seen that necessarily be like something that we can speak to? I wouldn't go that far through the first quarter or anything of that yet, but we're still early days. We want to see that energy prices at a higher level for a more extended period of time, and we'll see kind of where that materializes to.

And as you go to market, is a 2-year payback generally what you need to target in order to move those conversations forward?

Yes. I mean, listen, I almost look at it through the lens of -- we're an industrial manufacturer. And like anyone else, we look at all of our CapEx projects and we rack and stack them. And generally speaking, if something hits a 2-year payback, it's pretty compelling, right? And so I would tend to think our customers would have a fairly comparable kind of perspective as well. So yes, I mean, I think that, that is -- would generally hit return thresholds, return criteria, the right level of savings and payback that customers are looking for. I can tell you through the lens of Ingersoll Rand, very similar for us as well.

Shifting to the margin side of things. There's a lot of focus on the anticipated margin acceleration over the course of the year and looking at both at each segment level. And so when we look at IT&S and think about what consensus has embedded is pretty decent margin step-up Q1 to Q2 and again, Q2 to Q3. And it sounds like the pricing side of that doesn't change very much. But just kind of walk us through the building blocks.

Sure. So maybe to kind of put a finer point on the pricing side. I think there is -- so just to keep it in 2 distinct pieces here. Obviously, as we move through the first half of this year, you're kind of annualizing the tariff actions that were taken last year, the pricing. But there are [ in-year ] pricing actions that are being taken right now. And remember, as you annualize and calendar the price -- the cost actions from a tariff, right, that really happens as we speak now.

As you're taking new pricing actions now, that should lend itself to a slightly better pricing equation, price/cost in the back half. So there is a little bit of that going on in the back half. I would also point to the fact that I think our guidance kind of outlined in broad strokes, slightly negative volume in the first half of the year, slightly better in the back half of the year.

So slight volume improvement in the back half of the year, obviously, with a business that plays in the 40% plus gross margin profile, that's obviously a contributor. The other 2 pieces I'll point to would be, one, on the productivity side of the equation. So when you think about direct material productivity, whether it be through classical procurement measures or things like I2V or redesigning products, those follow cost of goods sold.

And obviously, as you have your heavier shipment quarters in the back half of the year, you typically always see IT&S margins have a step-up from the first quarter into the back half of the year. So that will be no different than this year in terms of that productivity factor following just your revenue and cost of goods sold profile in the back half.

And then maybe the fourth point, which is a little bit more nuanced for this year compared to years past, in the back half of last year, you did see us take some fairly meaningful restructuring charges. And that was, I think, prudent restructuring of the organization and the business just given the macro landscape. Just to be clear here, those were global actions, total company.

But obviously, IT&S is roughly speaking 80% of the revenue. So that's obviously where the preponderance of the impact should sit. And those actions, you saw the charges in the back half of the year. You can expect that execution was happening kind of in the first few months of this year, the first half of this year, depending on the regions. So that should lead to a little bit of a better cost profile in the back half of the year, all things held equal from a structural or SG&A perspective.

And so seasonally, there's going to -- there's typically a volume step-up from Q1 to Q2. There will be sequential improvement [indiscernible] Back half, you get more of that kind of price/cost dynamics...

Correct. Typically speaking, for IT&S, and you could argue when is last year we saw it typical. But that aside here, Q1 is your lightest shipment quarter, Q4 is your heaviest, Q2, Q3 in between. That's typically how it plays itself out. So yes, to your point, that seasonality factor, which is kind of what I was saying, the revenue a little bit healthier in the back half of the year, the volumes and/or the cost of goods sold a little bit heavier in Q4, second half compared to first half, that does bring along for the ride some of the productivity with it as well.

And the way it's being modeled, there's more margin expansion through the year in IT&S, but there's good margin expansion in P&ST as well through the course of the year. Anything different about kind of the complexion of the drivers behind that?

Yes. So I think a couple of things here. Obviously, from a dollar-for-dollar perspective on the tariff front, obviously, IT&S probably had a little bit more impact there. It's not to say that P&ST didn't, but IT&S probably had a little bit more there. So from a P&ST side, I'd say the margin expansion that you're seeing, one, obviously, from the volume side, right? You've seen the organic kind of momentum we've been seeing for a few quarters.

It lends itself to, I think we've had 3 consecutive quarters, if I'm not mistaken, of above 30% EBITDA margins in P&ST. So we've kind of hit that level and now stayed above the said level, which is very encouraging to say as we kind of continue on that track to that mid-30s EBITDA margin profile. When you think about some of the levers, though, very similar in nature here. Obviously, P&ST is taking its requisite pricing actions in year, as you would expect, very similar to IT&S. Two, I think the volume side of the equation, I mean this is a business that plays kind of closer to mid-40s gross margin profile.

So the volume piece here is very beneficial. You have definitely seen growth drivers from the Life Sciences side. We saw double-digit organic orders in Q1. And I think the biopharma business is the one that obviously is the healthiest of the growers thus far in that business. So I think as you continue to see that momentum, that's kind of just the volume click through there, combined with the pricing.

And then listen, I think the P&ST side you'll continue to see some of the same productivity drivers, no different in IT&S. I think we've said it kind of explicitly that P&ST probably was a little bit of a later adopter of some of the kind of just standard IRX work and things like that just as part of the merger. IT&S was probably the more focal point. So that obviously continues to lead to a little bit of, I don't want to say the word, catch-up, but a little bit of opportunity that still exists there in P&ST that maybe you've seen some of that comparable opportunity taken a little bit earlier in IT&S.

And then the other piece here is, I think we're still encouraged by the fact that the ILC Dover business now is kind of firmly the anchor on that life Sciences side of the equation. You've seen the integration kind of now take root there. I think a lot of that is largely behind us in terms of the structural and some of that areas, but now continuing to leverage things like demand generation and things like that to help continue to accelerate some of that growth cadence. I think we're encouraged by that momentum we're seeing.

And as part of the productivity, is tariff mitigation a factor at all in terms of sourcing or metal content, like how you're approaching that?

Yes. I mean I would say whether you call it classical tariff mitigation or even I2V because they start to dovetail across each other in terms of how do you redesign a product to limit your exposures to one component versus another, they kind of all fit together. So I would say in terms of the tariff mitigation, a lot of that, what actions could have been taken have largely been largely there.

Now as far as resourcing, i.e., like going from one supplier to another supplier, potential some tweaks and redesigns of products, I would consider now that's kind of part of firmly the productivity part of the equation. And yes, those are very much [indiscernible] when we say procurement and I2V, it's exactly those types of initiatives that we're looking at.

I wanted to dig in a little bit more on the Life Sciences side. And maybe just start by explaining the Life Sciences business. There are a few different markets you're really playing in there.

sure. Yes. So our Life Sciences business, roughly speaking, $600 million to $700 million business. It's kind of got 2 building blocks of or it's kind of 4 -- the Life Sciences piece discretely is 3 businesses, but they kind of come from 2 different places. So the first one is you have the legacy, what I'll call, Ingersoll Rand Medical business. So the business that's been part of the portfolio forever, approximately $300 million in size.

If you remember, this is the business that was probably the biggest beneficiary from COVID. It obviously makes miniaturized compression and pump technology that goes into a host of what I'll call OEM devices, diagnostic machines, things like that. It also has some outlets and applications in breathing applications. So that was the big run-up during COVID. You saw the big reset to sub-$300 million.

And I think what you've seen here is now, I'd say, steady kind of growth kind of off that trough, you've seen a bit of a recovery here in terms of just some, I'd say, better growth cadence as we look over the last 2 years. So that business is the largest there, but largely serving larger like OEM -- it's an OEM component manufacturer. So that's kind of where you should think about some of their kind of end market applications, diagnostic machines and things of that nature.

Then the other businesses really came from the ILC Dover acquisition. So the first would be the biopharma business, let's call it, squiggle $200 million in size. But obviously, this is playing very large in single-use containment and technologies that are used in things like GLP-1s, high potency APIs, personalization of medical treatments, things like that, things that have obviously been very high in the news and continues to see very good growth traction.

So obviously, this business has been, prior to our acquisition, a double-digit kind of grower. It's maintained comparable momentum. Obviously, it's been the one that in Q1, for example, was the, I'd say, the largest contributor to that double-digit growth cadence you've been seeing and continues to operate well with very healthy margins.

The third business -- so it's interesting, it's $300 million, $200 million. The third business is $100 million. So it kind of makes it kind of the math kind of easy. And this is our medical device business. So this is where we are manufacturing medical device components for large manufacturers of medical equipment, whether it be like a catheter or whatever it might be, and we're being contracted to manufacture a specific component.

That's usually through like silicon or thermoplastic-type engineering, very precise. This business, a little bit of a different growth cadence. Whereas the other 2 businesses kind of behave very similar in terms of their normal book and ship dynamics and things of that nature. This business has that, but this business also is being spec-ed into these end market kind of applications.

You typically live a 2- to 3-year type of spec-in process with one of these large customers. Once you've got spec-ed in, then you live the life cycle of that product line. And so when I say this one is a little bit different for me, this is about looking at kind of the medium-term kind of funnel because it's about layering those different applications on top of each other and getting spec-ed into those new applications.

And as you look at those new products and those new processes, how do those rack and stack over the medium term. So yes, there's a short-term dynamic, but I think we're encouraged by that kind of medium-term funnel that you're seeing. And then listen, the fourth business, which is kind of the smallest piece, it's squiggle $50 million is the space business. It's a pretty moving sideways type business, as you would expect, given kind of some of the end market applications, it doesn't really move dramatically. So those are the 4 components there. Obviously, the first 3 are what are really driving the growth, and we're continuing to remain encouraged about what that future looks like.

And when you think about those 3, are there product or capability gaps within there that would be higher priorities as growth opportunities for you?

I'm not sure if these were gaps. What I would say here is a couple of things. One, very complementary to each other. So the fact that, for example, our medical device business can do plastic tubing type -- plastic molding, things like that, that can be used with some of the pump technology that might come from our Medical business or other parts, there are complementary components there.

The way I'd probably look at it now is I think you really have a beachhead, for lack of a better way to say this, from a life sciences perspective, where you're thinking about $600 million to $700 million, you could actually find, I'd say, some complementary technology. And if you look over the course of the last year, as an example, we've done 4 bolt-ons in life sciences alone. Lead Fluid from a pump technology perspective, Scinomix in terms of some lab automation.

You've seen Dave Berry Plastics, which is actually a complementary technology into our biopharma business. So you're actually seeing now the opportunity of -- I wouldn't say necessarily fundamental gaps, but the opportunity to find complementary technologies that can be bolted on that kind of fit those businesses and be able to actually, I would say, mimic the model that you've seen kind of core to Ingersoll Rand, albeit in IT&S and Precision Technologies historically.

These are businesses that we're sourcing from an M&A perspective that are sole sourced. We're getting exclusivity. We're not going through big auction processes in those respects. There are multiples -- from a pre-synergy multiple perspective, they're very comparable to what you've seen low double digit. You can drive comparable returns. So it actually is proving to be kind of a nice anchor that you can now do a lot of the bolt-on like you've seen in the core -- the more core industrial side of the business historically.

That's a good segue into M&A for total Ingersoll. And so you delivered at or above target for a number of years now, that's 400 to 500 basis points of acquired annualized inorganic revenue. We've seen a little bit lighter activity recently. And so maybe just explain kind of what you're seeing out there? Is your appetite for larger deals going up to speak to the confidence of reaching that 400 to 500 basis points...

Yes, I wouldn't read to too much into it. As you know, M&A can be, for lack of better word, a touch episodic in some respects. I think the way I would think about it here is, year-to-date, we've closed 4 transactions, all small bolt-ons in nature. When we did our earnings, whatever that was, 6, 8 weeks ago, we had 10 more under LOI. Those 10 are very much, what I would consider, to be kind of down the middle of the fairway bolt-ons.

LOIs typically have a pretty good hit rate to getting to the finish line of a closed transaction. You obviously still have to go through diligence and things. So you have to go through that process. But it speaks to the health of the funnel, right? It's not to say that the funnel is dramatically different. In fact, I would say the funnel, still multiple hundreds of companies in the funnel at varying stages of cultivation.

The fact that 10 under LOI speaks to the fact that I think the activity levels are still quite high. The economics, whether it be purchase multiple or return profile is very similar to what you've seen. As far as your second question about appetite for larger deals or things like that, I think nothing has changed in that respect. We've said that maybe every 3 to 5 years, you'll see something a little bit more size like ILC Dover was.

In the interim, you're going to see us be very keen to continue the bolt-on routine. I think that there's a lot of opportunity to add differentiated technologies, but create value through the return profiles and the synergies that we can deliver there. So nothing is different in that respect. As far as anything more sized, like I said, we'll continue to keep monitoring the market if there's something that's out there that makes sense. We won't be averse to looking at it, but it's got to hit the right deal criteria and things like that. In the interim, you're going to see the bolt-on routine continue to be the focal point.

And is Life Sciences the most attractive opportunity that you have when you think about that pipeline?

I would actually say the pipeline is quite equitable across both segments. Yes, obviously, with the ILC Dover transaction and now having that beachhead there, it does open an aperture for more life sciences type M&A comparatively speaking to probably where we were 2, 3 years ago. But I think you're going to continue to see an equitable mix across both sides of the business. IT&S will continue to see its fair share of bolt-on M&A.

We continue to see opportunities on the Precision Technology side, including one of the 4 bolt-ons we did earlier -- already this year. I think Life Science is intriguing, but don't think of the fact that we're going to divert capital all to just one versus the other. No, I think you're going to continue to see an equitable spread across the board.

And then moving to the recurring revenue side of things. And yes, you've achieved some good success so far on the targets, ultimately a target to get to $1 billion. Just talk about the progress so far. Any thoughts on the time line that it takes to get to that $1 billion?

Yes, for sure. so listen, I think probably not surprised to hear, but I think the recurring revenue initiative with CARE being kind of the gold standard there, arguably one of, if not the highest kind of organic growth initiative we've had internally. I think just to kind of speak to the momentum we've seen, this is a business that -- or this was a portion of the portfolio that was roughly $100 million when the merger happened.

There was roughly $200 million when we did our Investor Day in 2023, and we eclipsed $450 million, roughly speaking, last year. So I think the fact that you continue to see great traction and momentum, this is no longer just a North America compressor story anymore. Yes, that's still the biggest piece. But you've really adapted this model from a recurring revenue perspective in CARE to Europe, Asia, Latin America, the Gardner Denver portfolio where it makes sense and other technologies, i.e., blower, vacuum and pump. Where there is aftermarket content, there's probably some degree of a recurring revenue model that can be adapted.

So I think the good news here is, over the course of the last 2 years, you've really seen that model take root in a lot of our businesses. It's still relatively early days, but you now have like measurable baselines, I'd say, across most of our portfolio. As far as the path forward here, yes, listen, I think we continue to be really excited about the future here. This is one where I'd tell you we're going to continue to see -- our expectation is continue to see this being one of the best growth drivers in the aftermarket portfolio as we think about '26 and '27.

But to be very clear, it doesn't mean that there's like some like end of the game at any point in time. I think that's just a milestone along the way here. We continue to be really optimistic about where the future holds here and the fact that now we're getting better traction in the other parts of the portfolio aside from just U.S.-centric compressors, I think, is encouraging. And the good news here is as we continue to do M&A as whether it be product acquisitions or even in certain cases, targeted channel, those are both quite viable outlets to continue to proliferate that recurring revenue model.

Perfect. I think that brings us to the end. But thank you very much. Really appreciate it.

No, thank you for having us. Appreciate it.

Thank you.

Hello, and welcome to the Ingersoll Rand First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference to Matthew Fort, Vice President, Investor Relations. You may begin.

Thank you, and welcome to the Ingersoll Rand 2026 First Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon, and we will reference these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference will be available later today.

Before we start, 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, both of which are available on the Investor Relations section of our website.

On today's call, we will review our company and segment financial highlights and provide an update to our full year 2026 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow time for other participants.

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

Thanks, Matthew. Good morning, everyone, and thank you for joining us today. Beginning on Slide 3, the first quarter represented a solid start to 2026, especially given the continued complexity of the global operating landscape in the markets where we play. Adjusted EPS grew high single digits with revenue and adjusted EBITDA finishing in line with expectations. This performance reflects the durability of our portfolio and the consistency of our execution. Conditions remain mixed, but we're seeing continued improvement across several end markets and in short-cycle activity. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline remains robust, focused on differentiated technologies and services that strengthen our portfolio and enhances our organic growth profile. Finally, IRX remains a key differentiator, allowing us to remain agile and stay focused on what we can control, including operational execution, disciplined pricing and capital allocation.

On Slide 4, our inorganic growth strategy remains a core element of our overall strategy, and the pipeline remains robust. This is supported by our value creation flywheel, which is a core engine of our performance, generating durable free cash flow, which further enables consistent high-return capital deployment. We're pleased to announce the signing of Fox s.r.l., which is expected to close at the end of this month. As a leading manufacturer of hydropneumatic accumulators and pulsation dampeners, Fox enhances our pump technology by utilizing dampeners to absorb pressure pulses. This protects downstream pipes and equipment, helping customers reduce downtime and maintenance costs, and thereby increasing the return on investment offered by our solutions.

Today, we have over 200 companies in our funnel with 10 transactions currently at the LOI stage. More than 90% of these opportunities remain internally sourced, which reflects the strength of our operating model and deep industry relationships. We continue to expect 400 to 500 basis points of annualized inorganic revenue to be acquired in 2026, and we have a few additional deals expected to close in the coming months. Our approach to M&A remains unchanged, which is disciplined valuation, strategic fit and a focus on bolt-on acquisitions that strengthen our core technologies or expand into attractive adjacencies.

Now I will hand it over to Vik, who will share an update on our financial performance for the first quarter.

Thanks, Vicente. Starting on Slide 5, orders finished up 5% year-over-year, resulting in a book-to-bill of 1.07x, which is consistent with normal seasonality. Worth noting, we did see a delay in orders of approximately $40 million, which was driven by a few long-cycle projects. This delay was primarily driven by the conflict in the Middle East. We believe that the impact is transitory, and we expect these orders to be recovered in the balance of 2026. As a matter of fact, we have already recovered approximately 1/3 of these orders in the month of April. Excluding that delay, organic orders would have finished approximately flat year-over-year.

Total revenue grew 8% year-over-year, finishing in line with expectations. For the first quarter, adjusted EBITDA also finished in line with expectations at $469 million with an adjusted EBITDA margin of 25.4%. The year-over-year margin pressure was primarily driven by the flow-through on organic volume declines, the dilutive impact from tariffs and continued strategic investments for commercial growth. Corporate costs were $38 million. Our Q1 adjusted tax rate was 19.8%, and adjusted earnings per share was $0.77 for the quarter, up 7% year-over-year.

On the next slide, free cash flow for the first quarter was $163 million, finishing largely in line with expectations and normal working capital seasonality. With nearly $4 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Our leverage remains well below 2x, providing us with flexibility to continue to deploy capital effectively throughout 2026 and beyond. Our capital allocation strategy remains unchanged, which prioritizes M&A, while also maintaining our commitment to share repurchases and quarterly dividends.

Now I'll hand the call over to Vicente, who will review our segment results as well as full year guidance.

Thank you, Vik. On Slide 7, ITS orders finished up 5% for the first quarter. Book-to-bill for the quarter was 1.08x. Organic orders for the quarter were down 3%. Excluding the impact of delayed orders, which Vik mentioned, organic orders finished approximately flat. Important to note that on a 2-year stack, organic orders are up 1%. On a total segment basis, revenue grew 7% year-over-year. Adjusted EBITDA margin finished at 26.7%, which was down year-over-year, largely driven by the flow-through on organic volume declines, the dilutive impact of tariffs and continued commercial investments for growth. On a reported basis, every ITS product line grew orders except the power tools and lifting.

On an organic basis, let me provide some additional color on orders by product line. Compressors were down year-over-year, driven by the previously noted timing on the large projects. The blower and vacuum business continues to perform well and was up year-over-year. Power tools and lifting was down year-over-year, driven by the lifting business. And we remain encouraged by the core tool business growing organically mid-single digits, driven by launches in new product technologies as well as growth in the short-cycle momentum that we're seeing.

From a regional perspective, here are a few highlights on organic orders. We saw stabilized compressor activity in the U.S., and we continue to see encouraging order trends across many of our compressor categories. Additionally, China continues to outperform the underlying market, delivering another quarter of positive organic order growth. In our Innovation in Action section, we're excited to share a large win in carbon capture, where Ingersoll Rand was selected to provide a combined vacuum and blower application for an innovative carbon capture technology, which utilizes a proprietary gas separation process. This technology is applicable across a wide range of applications, including transportation like rail, power generation for data centers, as well as industrial engines. Although this innovation is still in its early stages, we're encouraged by the positive outcome demonstrated through the integration of our connected technologies.

Turning to Slide 8. Q1 orders in PST were up 6% year-over-year with a book-to-bill of 1.04x. Organic orders saw a modest increase of 1%. Our Life Science business maintained robust growth with a double-digit increase in orders, while the remainder of PST business was impacted by the timing of some large projects. In Precision Technology business, the short-cycle book and ship business continued to see organic order growth. First quarter organic revenue finished up 4%, with both Precision Technologies and Life Science Technologies businesses delivering positive organic revenue growth in the quarter.

PST delivered adjusted EBITDA of $122 million, which was up 15% year-over-year. Adjusted EBITDA margins improved by 120 basis points year-over-year, reflecting continued strong operational execution. For our PST Innovation in Action, we are highlighting a great win for our Life Science business, which integrates core ITS product technologies into ILC Dover's end-to-end bulk powder system solution. ILC Dover develops a comprehensive, fully integrated bulk powder system, which includes hardware, containment and mixing in collaboration with our own vacuum technology for a leading pharmaceutical manufacturer. This end-to-end design, assembly and installation utilize both ILC Dover powder solutions as well as our Ingersoll Rand Elmo Rietschle vacuum pumps for powder conveyance.

As we move to Slide 9, we are reaffirming our full year guidance for 2026. Total company revenue is expected to grow between 2.5% and 4.5%, driven by organic growth of 1% at the midpoint, growth from M&A of approximately 2%, which includes the carryover impact from all transactions completed, as well as the recently announced signed transaction of Fox.

And finally, we expect FX to be a tailwind of approximately 0.5%. Total adjusted EBITDA for the company is expected to be in the range of $2.13 billion and $2.19 billion. Corporate costs are planned at $170 million and are expected to be incurred evenly per quarter throughout the remainder of the year. Adjusted EPS is projected to fall within the range of $3.45 and $3.57, which is approximately 5% growth at the midpoint. We anticipate our adjusted tax rate to be roughly 23%, net interest expense to be about $230 million, and share count to be approximately 394 million. Free cash flow to adjusted net income conversion is expected to be approximately 95%. The phasing of revenue, adjusted EBITDA, and adjusted EPS is expected to be consistent with what we have seen in prior years as outlined on the table.

We continue to monitor the changes in tariffs carefully, including the recent changes in Section 232 tariffs. We remain nimble and continue to pivot, adjusting our mitigation actions to best minimize the effect of tariffs as well as inflation. And as a result, we do not currently expect any net tariff and inflation impact to our full year guidance. Additionally, as I mentioned earlier in the call, most of our orders from the Middle East are tied to long-cycle projects. We anticipate order recovery throughout the year and, with strong execution from the team, expect no impact on full year revenue or adjusted EBITDA at this time.

Finally, on Slide 10, as we conclude this segment of the call, I believe our performance in 2025, our solid start in 2026, with a book-to-bill above 1x, and the improvement in the short-cycle business set us up well for continued success throughout the remainder of 2026. We remain agile to effectively navigate the complex global environment. Through disciplined execution, ample liquidity and a strong balance sheet, we continue to differentiate Ingersoll Rand as an investment. Our approach to capital allocation remains unchanged, leveraging our strong free cash flow to drive durable earnings growth and create long-term shareholder value. IRX remains the backbone of the organization, enabling operational execution.

Finally and most important, I would like to thank our employees for the ongoing dedication and commitment to embracing our ownership mindset. Thank you for your help in delivering another strong quarter.

And with that, I will hand the call back to the operator and open it for Q&A.

[Operator Instructions] Your first question comes from Mike Halloran with Baird.

Maybe we could just start on what you're seeing on short-cycle versus long-cycle side of the business. On the short-cycle side, are you seeing sequential acceleration? Are you seeing signs of improvement in demand normalizing? And then on the long-cycle side, maybe just talk about what you're seeing outside of the Middle East where you talked about the project delays and if you're seeing delays more systemically, or what the customers are saying or if there's any signs that, that side of the business might be improving?

Yes, sure, Michael. So Michael, on the short-cycle, looking specifically at the U.S., we're seeing signs of stabilization and improvement, which is definitely consistent with the ISM moving back to above 50 now for the past few quarters. I'll say that compressor activity in the U.S. stabilized during the quarter as well, and we're seeing encouraging order trend across several compressor categories.

In addition, the short-cycle businesses continue to improve. We mentioned on the prepared remarks, the core tool business is growing organically at mid-single-digit rate. That's a good indicator for us to see on that short-cycle. And then within the PST side, in the Precision Technology, we saw book and turn or short-cycle business grow organically, which also lines up really well with what we're seeing and actually continued improvement as we went through the quarter and here into April.

In terms of the long-cycle, we categorize the longer-cycle funnel activity as remaining stable as well. And as we think about continued rising energy prices in Europe, we see this as a potential longer-term tailwind given the nature of our products and the value that we create for our customers in terms of delivering energy efficiency products and services. As we indicated before, what we're seeing right now is kind of customers and EPCs taking a little bit time more to decision-making and finalizing POs, which is consistent to what we have said before in terms of the elongation of the funnel and the overall decision-making.

However, projects are not canceled or anything of that nature. So we feel this is just a bit of a timing side in terms of the elongation of the decision that has not decreased. And as we have mentioned previously, specific to the Middle East, we have seen some of these longer cycle projects being delayed, but we expect that to come back over the course of 2026. And as Vik mentioned on the prepared remarks, already 1/3 of those projects have come in and booked here in the month of April.

And then maybe the follow-up to just put that in the context of how you're thinking about the guidance for this year. How much of that is embedded sequentially? Are you embedding some level of improvement as we work through the year? And as we think about how the orders are going to cadence out, I know you guys don't give specific guidance here, but how should that work out through the year when you consider comps, the timing of some of the projects, some sequential improvement as we're thinking about the short-cycle side of things?

Yes. Mike, as we think about delivering the full year organic revenue guide, our expectations for organic growth and the cadence through the year has not changed from the original guidance. As you have seen, at the midpoint of our guide, we're expecting about 1% full year organic growth. And when we provided our original guidance, we indicated slightly negative organic growth in Q1, and then low single-digit growth for Q2 to Q4. Q1 kind of came in as we expected. And even actually, if you were to exclude the Middle East pushouts, it kind of came even better than what we expected.

So as we think about our second half guide, that implies low single-digit organic growth, which is supported by a very good solid backlog growth from 2025, where our full year book-to-bill was above 1x. Q1 here in 2026, again, book-to-bill above 1x, 1.07x. As we mentioned here before, the ongoing momentum in the short-cycle activity, which we have seen in both segments, provides a good setup as we go into the second half. Ongoing commercial investments for growth, including a very focused on underpenetrated markets. And then as we all know, the prior year comps will continue to moderate, particularly in ITS as we kind of move into the second half.

Your next question comes from Julian Mitchell with Barclays.

I know you've given the color on sort of first half, second half splits on revenue and earnings and so forth in the deck. But just wondered if you could perhaps hone in a little bit on what you're anticipating for the second quarter. Just backing the numbers out, it looks like kind of organic sales company-wide may be flattish year-on-year in Q2 and then the EBITDA margin is down, I don't know, 50 to 100 bps year-on-year in the quarter. I just wondered if those are roughly accurate, and any kind of segment color for what you're seeing in the current quarter?

Yes, Julian, I'll take that one here. So first of all, your read is pretty directionally correct. I think Vicente kind of outlined kind of the full year and kind of the expectations, but maybe to give a touch more color specifically in terms of the phasing, both first half, second half, as well as second quarter. First and foremost, just to reiterate, our expectations and assumptions for phasing for EBITDA delivery in the year haven't changed. First half of the year being in that kind of 45.5% to 46% range, the balance in the second half.

As far as Q2, one, we do expect sequential improvement on margins from Q1 to Q2. But in Q2, margins, we do still expect to be slightly down year-over-year, kind of in that 50 to 100 basis point kind of range. It's primarily driven by ITS. We do still expect to see continued margin expansion year-over-year on the PST side.

And then just to fill in the color there on the organic revenue side of the equation, as Vicente just mentioned, Q1 was expected to be slightly down, and that's exactly what we saw. From an overall perspective, Q2 is expected to be flattish to slightly up. And then the low single-digit growth on the organic side is what we're expecting in the second half based on the kind of the drivers that Vicente just walked through.

That's very helpful. And then just my follow-up would be around the ITS business. As you said, sort of margins, I think, are down there for 5 quarters in a row year-on-year, down again second quarter. Maybe help us understand kind of the confidence on those being up in the second half? And anything you could flesh out in terms of price cost impacts, anything changing competitively with what's happening on tariffs and inflation in ITS, please?

Sure. I'll start on that one there, Julian. So obviously, a fair comment from your side. I'll note that, obviously, the last 5 quarters, the majority of those have been impacted by the kind of the tariff dynamics and kind of the underlying impact that's had on some of the demand environment, which is really the driver of what you're seeing on the margin front. I think from a total year perspective, our expectation on a full year basis is that ITS will be approximately flat year-over-year. As we indicated, Q1 was going to be the most challenging quarter, particularly given we hadn't really started comping or lapping the Liberation Day tariffs from prior year, which really started in second quarter.

As far as the second half, and to your question, we do expect that's where margin expansion kind of comes back, supported by, I would say, the slightly better organic volume outlook that we have kind of expected in the back half of the year, continued improvement in price cost driven by, I'd say, full implementation of all the tariff-related pricing actions that have been taken as well as kind of some of the targeted in-year actions that we always kind of have executed on. And then many of the productivity initiatives, including we were -- I think you saw us take some pretty meaningful restructuring charges in the back half of last year, which we would expect to continue to bolster margins, particularly as we move into the back half of this year. So I think that's what kind of gets us to that kind of flattish margin expansion on a year-over-year basis. But yes, it is a little bit more back-end weighted as a result of those drivers.

And the only thing I will add is that the exit rate on margin expansion will be consistent with our long-term targets.

Your next question comes from Jeff Sprague with Vertical Research Partners.

Just a couple of things. First, just the language on tariff here that you don't expect any impact. Does that mean you haven't sorted it all yet and you're still kind of working through it? Maybe you could just kind of talk us through the IEEPA change versus the 232 change. I guess you're saying you think you land kind of net neutral. But again, just looking for a little more clarity there.

Yes, Jeff, happy to provide a little bit more. Obviously, a number of moving pieces in here. I am going to keep it simple here. No, we have obviously worked through all those individual components. And I think the simple takeaway is kind of what you indicated here that at this time, those moving factors, whether it be the tariff-related changes, some of the underlying kind of just inflationary movements in the market, as well as a lot of the proactive measures that our internal teams have been working on from a mitigation perspective, those are kind of netting out relatively neutral on a full year basis. So our read at this point in time based on what has been announced is relatively neutral. And obviously, like everyone else, we're anxious to kind of see how things continue to play themselves out for the balance of the year.

And then maybe unrelated, just a little more color on Life Sciences, if you could, just how the year is unfolding, what you see in the pipeline? It looks like some of the Life Sciences reshoring announcements of a year or 2 ago, we're seeing some groundbreak on some bigger projects. Just wondering what the funnel looks like there? And is the visibility actually improving?

Yes, Jeff, definitely improving. And clearly, we're pleased with what we saw here in the first quarter, double-digit organic order growth momentum on the Life Science side. And a lot of these reshoring and investments that we're seeing, particularly in biopharma, and very specific around API production in the U.S., it's really a great trend for us in terms of the products that we have. So good visibility. As a matter of fact, this week, we had a great session with one of the largest biopharma companies here in the U.S., where we kind of collaborate, as we look into specific technologies that we can actually put and help them to really accelerate some of the productivity and production that they have to do here in the U.S. So looking good, and we feel positive about it.

The next question comes from Joe O'Dea with Wells Fargo.

Just wanted to circle back on the EBITDA margin kind of trajectory with ITS because I expect that will be the biggest area of focus coming out of this quarter. And if we're talking about something like, call it, 27.5% to 28% in Q2, and moving to something that approximates 30% in the back half. Just if you could unpack any quantification around that. I know you gave some of the items, but any more detail around like the pricing that you put in place for tariffs, but the timing of when that starts to flow through the P&L or the impact from the restructuring, any other cost mitigation, just to help with a little bit of the quantification around that bridge from Q2 into the back half.

Yes. Sure, Joe. Obviously, we're not going to necessarily provide the exact specifics on the individual components, but let me give a little bit more color on some of the moving parts. So one, I think, obviously, kind of your read on the directional movement of margins is in line with expectations. As we've indicated, we do expect to see kind of sequential margin improvement here as we move through the year, frankly, both a statement about ITS as well as PST for that matter.

On the ITS front, just to kind of delve into the components, a couple of moving factors. One, obviously, as I indicated here, we do expect to see organic volumes improve in the second half as comparatively to the first half levels. Clearly, those do come with what I would call normal flow-through, which clearly will be a benefit that you haven't really seen kind of in the numbers over the last few quarters, just given some of the volume dynamics.

Second piece would be price. So specific to price, all of the, I will call it, tariff-related pricing actions are in the numbers. They were all largely taken to the back -- through 2025. And I would say, you're seeing those in the numbers as we speak. What you haven't necessarily seen is some of the, I'd say, in-year 2026 actions, which is, I think, a catalyst of some of the margin expansion you would expect to see in the back half of the year.

The other factors I would probably point to here would be on the productivity side of the equation. So you mentioned one on the restructuring. The restructuring has been taken. As you can expect, that restructuring is global in nature. So it does take some time for some of those actions to be fully executed, which we expect to kind of largely conclude here through the first half of this year, and those benefits to start being more visible into the back half of the year.

And the other piece would be, I would say, the direct material side. As a reminder, direct material is approximately 70% of our cost of goods sold. And there is a lot of activity going on, whether it be on the I2V front or the classical, I would just call it, direct material procurement side of the equation. And as you've seen in years past, those benefits tend to be much more visible when you have kind of your seasonally strongest quarter, which is always in the back half of the year and particularly fourth quarter. So again, that's another driver of kind of some of the back half margin expansion that you're not necessarily seeing manifest right now in the first quarter.

All helpful details. And then just on the demand front, when you talk about some of the order delays and some of that coming back in, in the quarter, but trying to understand a little bit of the ripple effect from the conflict. And so if you could just talk about what you're seeing in Europe, overall demand, and then over the course of March and April, if you have seen any impact associated with the conflict, or if that order impact is largely contained to the Middle East region?

Yes. Joe, it is mainly contained right now to the Middle East. And the Middle East, it was really, as we said, a handful of this kind of long-cycle large projects that, as the conflict started and people had to just stay at home and not being able to leave -- I mean, we have a lot of our team members, they're all safe and sound, but they could not leave their house to go and talk to customers, same thing on the customer side. So that is really what created some of the delay and the impact. And therefore, as you can see here already, in the month of April, as we said, already 1/3 of those orders kind of already booked into us, and we don't see any cancellation whatsoever. Yes, so I think it's just, at this point in time, mainly due to fairly contained, all that.

As we think about continued perhaps impact in Europe, the main impact that we see is clearly the increase in energy prices, which we view it as a potential long-term tailwind for us given the nature of our products, as we said before, and how we can create customer energy efficiency for our products and services. There was actually -- the teams were telling me about a win that they had, where they're saving upwards of $15,000 per month on a specific location at a customer, creating a payback of compressor to be anywhere into the 1 year. Not everyone is going to be like that, but I mean, I think that is really part of what we're very focused on, how can we help our customers lower those energy costs with the technology that we have.

Your next question comes from Amit Mehrotra with UBS.

Sorry to revisit this, but I just want to sort of revisit the triangulation between organic growth in the quarter, orders both kind of flat to down, and then this 1% full year organic growth, and then the comps actually get a little bit harder as we progress through the year on organic growth. So I'm just trying to triangulate those 3 things and if there's kind of this embedded expectation of demand that we're not seeing yet as we progress through the year? Or maybe that's not? Maybe you can clarify that for me.

Yes. Sure, Amit. I'll start. So I think as Vicente indicated here, first and foremost, the short-cycle side of our business, whether you look at either on the ITS side or the PST side, is the piece that we're definitely seeing, I'd say, stabilization and even, I'd say, improvement on as we think back to the last few quarters. So that's obviously very encouraging. It's kind of the base of the business and obviously, what will be a driver of the improvement that we see in the demand environment.

As far as the order numbers you saw in Q1, I think as Vicente said here, clearly more impacted by the longer-cycle projects. Those are projects that you typically book in the first half of the year, they go into backlog, and those might be 6 to 18 months in duration, right? So yes, obviously, we want to continue to see those get to the finish line. But one, our expectation is a lot of it was just timing and transitory. We do expect those projects to kind of not just stay in the funnel, but ultimately get to the finish line. And those will continue to feed the backlog, not just in the back half of this year, but even into 2027. So again, yes, we do want to see that longer-cycle, those projects hit the finish line. But that for us is more of the longer-term side of the equation. We're very encouraged by what we're seeing on the, let's say, shorter-cycle in some of the book-ship businesses as well as some of the momentum we continue to see on the Life Sciences side as well.

Okay. And I just wanted to follow up on that point and maybe, Vicente, the short-cycle stuff seems encouraging underneath the surface, but ultimately, it's not piercing its way through to the organic growth profile of the business. And I'd like to get maybe your perspective on this because, obviously, you know the business better than anybody else. And my understanding and my feeling is that you guys took a lot of price over the last several years. I'd love for you to opine on whether there's a demand elasticity. I mean, because energy prices are high and surged during the quarter, which arguably would create a little bit of a cycle for your products. Maybe just opine on whether there's a demand elasticity issue vis-a-vis pricing or market share? Like is there something else going on where some of this short-cycle momentum that we're seeing across the broader industrial is not really piercing through your organic growth in the moment?

Yes. I'll say, Amit, we're -- I mean, underneath, obviously, all the data that we have, I mean, we're kind of clearly seeing it. I mean, if I think about the PST side, when you think about the 2-year stack organic orders on PST, they're basically up mid-single digit organic. And when you kind of unpack what we saw in the first quarter, Precision Technology, which is kind of the more short-cycle in nature, we saw the short-cycle in nature piece actually continue to do fairly well, offset by some long-cycle kind of year-over-year comps. I mean, some of the long-cycle, I think we tend to like to look at it better more on a first half and second half kind of comparison versus on a quarter-to-quarter basis.

Within the ITS, when you think about the blower and the vacuum side of the business, those tend to be more short-cycle. We have always indicated in the past historically that we have our vacuum business that is based in Europe as a good leading indicator for upswings in manufacturing demand based on short-cycle, and we're seeing that. I mean, we see that clearly -- so kind of when we unpack at a high level and you kind of start excluding some of these long-cycles, we definitely see that short-cycle continues to improve.

And keep in mind, I mean, the demand elasticity based on price, I mean, we have a lot of statistics and a lot of analysis. We see that as long as we continue to innovate and we sell based on cost of ownership and payback that remains strong, that's how our sales teams, they sell today. They sell based on that total cost of ownership on the ITS side, but also on the PST side too as well.

Your next question comes from Nathan Jones with Stifel.

Vicente, I'd like to just ask about the -- you've made a couple of comments on the call today about the potential for high oil prices, high energy prices in Europe to be a catalyst. We had a similar circumstance in 2022, and I believe there was a surge in demand for your products then. I'm hoping you can kind of compare where we are today in Europe to where we were maybe in 2022. I know there were some government programs that helped there. But maybe just any color you can give us on the similarities that you see and differences that you see between now and then and how rising energy prices or high energy prices impacted the business back then?

Yes, Nathan, well said. I mean, as you can imagine, we're looking at a lot of those indicators to see how comparable it is. Gas prices are not at the same level as what it was back then, but definitely have spiked and increases, and even also gasoline and oil prices. I mean, I was just in Europe with the team not too long ago, and diesel prices are actually higher than petrol prices, which in the European market, they have not seen in quite some time. So it's going to take a little bit of time.

I mean, I think as you can imagine, we're still early into, what I would say, the conflict in the Middle East, and we're still early into that acceleration of the oil and gas prices. But clearly, that is definitely going to help us. And we're leveraging our demand generation tools, we're leveraging going back into the funnels and reassessing that return on investment and communicating with customers as to that energy efficiency that we can achieve based on our new technology. So again, staying optimistic in terms of being able to provide better solutions to our customers that will allow them to lower that energy cost.

And I guess my follow-up question, you guys have frequently talked about the time from RFQ to booking as a sign of customer confidence. Can you talk about any changes you've seen there? Has it got any shorter? Or are we still waiting for that to come?

Yes. It has improved. It is definitely not to the early days when we said that a marketing qualified lead will take 4 to -- I mean, we said historically, before all this elongation, it could take anywhere between 6 to 8 weeks. And clearly, it got elongated. It has improved a little bit, but it's nowhere near back to the levels that it was before.

Your next question comes from Joseph DeBlase (sic) [ Nicole DeBlase ] with Deutsche Bank.

Yes. It's Nicole DeBlase. I don't know where that came from. I guess maybe first, organic growth for PST, pretty strong, and I think it was better than your expectations for maybe flattish originally for the first quarter. So if you could unpack that a little bit? And do you think that, that 4% growth that we saw in 1Q is sustainable throughout the rest of the year, meaning that maybe PST outperforms ITS in 2026?

Yes, Nicole. So we definitely were pleased with what we saw, and very pleased with what we saw, as we mentioned, on the Life Sciences side of the business, and kind of the short-cycle nature that we saw on the [ PPE ]. And I think we said too as well that we're pleased with what we're seeing here as we kind of move into the month of April, too, as well. So I think we're encouraged also. I made the statistic that when you think about PST organic 2-year stack, I mean, they're in the mid-single digit, which is kind of where we always said that, that segment should be operating at that mid-single-digit plus.

Okay. Got it. Understood. And then just thinking a little bit more about the progression of short-cycle. I know this has been asked a lot of times, so I don't want to beat a dead horse. But did you guys actually see improvement in order activity on the short-cycle businesses throughout the quarter and then into April? And Vicente, if you could just remind us like roughly what percentage of your total sales are short-cycle today?

Yes. Nicole, we definitely saw -- we saw progressive improvement, I would say, on the short-cycle through the quarter and kind of as we continue, as I said, here, moving into the month of April. But order cadence continues to go fairly well in terms of -- in line with expectations. And so I think we're pleased with that.

Yes. And Nicole, on the second part of your question about the kind of short-cycle versus long-cycle, probably the easiest way to frame it up would be, at the enterprise-wide level, roughly 40% of our revenue is aftermarket, which obviously has more of an activity-based kind of book-and-ship kind of dynamic to it. And then when you kind of peel that apart on the whole goods side or the balance of the original equipment side, it's approximately 75% to 80%. 75% is probably a good proxy, is more shorter-cycle in nature, and that leaves about 25%, which is more of the, I would call it, longer-cycle project type business. And you do see a relatively equitable split between both segments. Both segments have that longer-cycle dynamic, as we've mentioned before.

Your next question comes from Chris Snyder with Morgan Stanley.

I understand that price cost is, I guess, basically a net neutral for you guys throughout the rest of the year when we net out all the tariff changes and any sort of mitigation. But I guess, is the expectation that the company will push more price in 2026 than what you thought coming into the year in response to inflation and just kind of part of that mitigation efforts? I mean if so, any way to think about how much more price in '26 versus the expectations in January?

Yes, Chris, let me unpack that and clarify a few things here. So I think the price cost being more neutral, particularly here in the first quarter, as we're continuing to lap some of the tariff dynamics, I think that's more of a fair statement. I think as you move into the back half of the year, we do expect the price cost dynamic to turn a bit more positive. And what I would point to that is, are we taking what I would call incremental tariff-related actions at this point? No, I don't think that's the case anymore.

As we indicated as we came into the year, we expect pricing to kind of revert back to that kind of more normalized 1% to 2% that you've seen in historic times. That does include just some of the, I would say, normal course pricing actions you would expect, again, not kind of peanut butter and vanilla across the entire enterprise, but targeted pricing where it makes sense. And so that's the piece that's still, I'd say, in play here, which does drive some of the more second half, particularly Q4 price cost being positive. So again, nothing necessarily more on the tariff at this point in time, just given things have kind of stabilized. It's much more what I would call normal course pricing.

I appreciate it. And then maybe if I could just follow up on the Middle East. I understand there was an impact on orders in Q1. But for the full year, you guys are saying no impact on sales or orders, it seems like for the full year. But I guess, did the Middle East have an impact on Q1 sales? And is there any impact that you expect to come through in Q2 on the Middle East and again, just on the revenue side?

Yes, Chris, to keep it fairly simple, I think the teams did an exceptional job here in Q1. So on the shipments or revenue side, no, no meaningful impact one way or the other in Q1. At this point in time, obviously, not expecting any material movement here in Q2, but obviously, clearly an area that we're watching just like everyone else in terms of how the conflict continues to play itself out.

Your next question comes from Stephen Volkmann with Jefferies.

Most of it's been answered, but I guess I'm curious, we're approaching the 2-year anniversary of ILC Dover now. Is there anything qualitative you can say around how that asset specifically is performing relative to the segment, maybe in terms of, I don't know, growth or margin, just kind of bring us up to speed on how that's doing?

Yes, Steve, we don't tend to go into kind of unpeeling each of the businesses particularly across any of the 2 segments. But I mean, after a 2-year anniversary, we're pleased with all the investments that we have done. I mean, we have a full lineup of new team, team really leveraging the tools that we have around IRX. And really, as you can see, obviously, that and investments that we have done in commercial investments to really accelerate and penetrate more. And you're seeing it now here in the numbers.

I mean, obviously, ILC Dover is a good part of the PST segment today. And as we said, and particularly the Life Sciences and Life Science Technology at a double-digit kind of order run rate, we're pleased with that, because we have now created a really good platform for the M&A. And as you remember, that was kind of what we were looking for with the ILC Dover, too, as well. And now we have embedded quite a few of these now bolt-on acquisitions into the Life Science business of ILC Dover. So continue to be pleased. I think the team is executing very well, and we see a bright future ahead.

Okay. And then just follow-on to that. Is there anything in the M&A funnel, maybe of the 10 LOIs or something that would be even close to that size of ILC Dover? Or is this all more like what we've seen year-to-date?

Yes. I think on the LOIs, it's kind of more on the bolt-on in nature. Having said that, I mean, there's definitely a couple of transactions, particularly one that is not of the size of ILC, but about a little bit more than $1 billion purchase price transaction. But that one is not on the LOI. It's in the funnel, and we're having great conversations, but it is not one of the 10 LOIs.

Your next question comes from Andy Kaplowitz with Citigroup.

Vicente, you mentioned, I think, 40% of the business now aftermarket. I think we've talked a lot about recurring revenue. I think it exceeded $450 million last year, and you talked about a backlog of $1.1 billion in future revenue. Has that continued to grow? And what do you see in terms of mix for '26 and sort of moving forward?

Yes, Andy, I think it continues to be an area of emphasis and focus. And yes, particularly continues to do very well. We have launched new solutions, and we're pleased with making the great progress towards achieving that $1 billion recurring revenue target that we set by kind of run rate at the end of 2027. So it's an area of focus. The team is putting a lot of attention. And as you can imagine, it has created incredible customer loyalty and stickiness when we have these solutions to the customers. So it's going to continue to be an area of investment for us.

That's helpful. And then just one more on the Middle East. You mentioned you got 1/3 of the delayed $40 million of longer-cycle orders back in April. But could you give us more color on what the nature of these orders are? And do you think you need the Middle East conflict to end to get all of the orders back? Or are your people telling you that it's just a matter of time, even if the conflict lasts that you get these delays back?

Yes. So these were really kind of plant expansion and production capacity expansions related kind of long-cycle project orders. We don't need -- at least at this point in time, we don't expect that it needs the conflict to end. And it was just a matter of kind of putting the final details of these purchase orders. But obviously, as you can imagine, I mean, the teams and the customer were not able to, even in some cases, leave their homes to be able to have that kind of close communication and finalizing things. So I think it's just -- at this point in time, we think it's timing. There's definitely going to be a rebuild in a lot of the petrochemical facilities that have been kind of damaged. So that -- I mean, we clearly have products that participate in that regard. So I think it's going to be good for the long term, we also believe.

Your next question comes from Nigel Coe with Wolfe Research.

It's been a long time since I asked this question, but what percentage of the current portfolio, Vicente, do you think is levered to energy, be it process markets, oil and gas, chem, et cetera?

Yes. Nigel, good question. A lot of our technologies are very applicable to multiple industries. And they're, in some cases, kind of agnostic. And clearly, we're pivoting and kind of trying to help, in some of these cases, situations as we see expansion into production capacities like petrochemical facilities how, for example, our Nash liquid-ring vacuum that is widely used in the pulp and paper, it's also and can be very well utilized in the distillation towers of petrochemical facilities to be able to decompose products even further. So I think we're putting attention to obviously help our customers where help is needed. And that percentage of total revenue kind of could fluctuate based on the approach that we give to certain customer levels.

Okay. Okay. So what you're saying is that it doesn't matter what it is today, there's opportunities to grow that number. Okay. And then just maybe a follow-on to Joe DeBlase's (sic) [ Nicole DeBlase's ] question. The Life Sciences, do you think that the double-digit Life Sciences revenue growth can continue? And I guess what I'm asking here is, was there anything unusual on the destocking or restocking activity there? What do you think about Life Sciences can be sustained? And how does the Life Sciences margin compare to the average within PST?

Yes, Nigel, this is Vik. I'll take that. So maybe I'll answer it kind of backwards here. So I'd say on an overall basis, the Life Sciences margin profile is comparable to the overall segment. Clearly, it's the area where you've had more of the integration with the ILC Dover assets with the legacy Life Sciences assets of Ingersoll Rand and things of that nature. But it's also probably the area we see continued opportunity, particularly as some of those Life Sciences businesses continue to show good growth momentum. It's solid margin profile, particularly areas like biopharma. So again, I would say, relatively in line with the overall segment, but clearly an area for opportunity.

As far as the growth cadence, things like that, Listen, I think clearly, we're encouraged by what we saw. Obviously, a double-digit growth cadence over the entirety of LST is not necessarily something we've called for over the entire year or anything of that nature. But clearly, we're encouraged by what we're seeing here. We expect to continue to see good momentum. And I think to Vicente's point earlier, the fact that you have a 2-year stack on orders that's in that mid-single-digit realm, I think definitely is kind of where we have been targeting this segment to operate, and we continue to expect to see continued momentum here as we move forward. So I think we're really encouraged by what we're seeing here. And we definitely see continued margin expansion, particularly as we move sequentially through the course of the year.

Your next question comes from Joe Ritchie with Goldman Sachs.

A lot has been covered. Maybe just kind of just parsing out the ITS margins this quarter. I know you've attributed it to volumes, tariffs and investments. It seems like tariffs probably had the outsized impact this quarter. I don't know, I'm estimating maybe something in that $10 million to $15 million zone. Can you maybe just give us some quantification on the tariff impact this quarter? And then ultimately, if we're getting back to neutral as the year progresses, I guess we should probably see that come back in the upcoming quarters.

Yes, Joe. So I think without question, I think the 2 drivers you mentioned there, both the tariff-related dynamics as well as just the flow-through on organic volume, which obviously this is a healthy gross margin business, so clearly, those are the 2 biggest factors. We haven't necessarily quantified one versus another, but those are the 2 bigger drivers. To your point, yes, clearly, as we move into Q2, remember, the tariff-related noise really started in April of last year or kind of in the second quarter of last year. So I think on a year-over-year basis, this is where the comps on the margin side of the equation start to moderate a bit more, and that's why the margin expansion expectation is more back-end weighted here, particularly now with all the pricing actions and mitigation actions and things like that have really gone into place.

I think it's also worth noting here that even over the course of the last year and even into Q1, we've continued to invest on the cost side of the equation and on the SG&A side, really feet on the street, R&D, the same areas we've talked about quite a bit. And so for us, that's an area that we wanted to be hyper focused on, continuing to invest, because that's going to drive the ongoing organic growth moving forward. So I'd say those are the biggest drivers. But yes, your point is valid that as we move sequentially through Q2 and really into the back half of the year, that's where those tariff-related headwinds moderate.

Okay. Helpful, Vik. And then maybe, Vicente, just on the M&A pipeline and the LOIs. I know back in the day, I think you guys had a goal ultimately to get the PST business up to like a $2 billion-ish type run rate business from a revenue perspective. As you think about your pipeline and whether that's the LOI or maybe the broader company pipeline that you're looking at, like how much of that is centered on the PST business versus ITS going forward?

Yes, Joe. So I'll say that on the PST side, back to your commentary about making it larger and bigger, I mean it's kind of doubled in size since we started talking about PST. And those 10 LOIs, I would say, a good blend between both ITS and PST. But again, we continue to see a lot of great prospects in the PST side that we're very excited about.

Your next question comes from David Raso with Evercore ISI.

For the second half of the year, ITS, the margins, can you give us a sense of where do you think that growth will come from organically between compressors, vacuum and blowers, and the lifting and power tools segments? And just remind us on the relative margin between those 3?

Yes. Sure, David. I'll kind of give you a quick overview. So obviously, the power tools piece is relatively small. It's kind of the smallest piece of the equation. To keep it very simple, the margin profile between compressors, blowers and vacuum is actually quite comparable. You don't see a dramatic mix impact between them or things of that nature. Clearly, some of those technologies maybe have more aftermarket than others, but in totality, fairly comparable. So I think the simple answer to your question here is, and clearly, with compressors being upwards of 65% of the revenue base, clearly, that's going to be the biggest driver just because it's the biggest piece.

But I do think that we expect to see, I'd say, positive contributions from all the underlying technologies. And as Vicente said here, when you think about the shorter cycle kind of momentum, we've seen it in the blower and vacuum side, we've seen it in pieces of the compressor side. So I think we're encouraged at least by, I'd say, some of the underlying market activity that we're seeing that should kind of lend itself to some of that expansion you see in the back half of the year.

All right. So sort of mix agnostic, just we just need the volume essentially regardless of either subsector.

Generally correct. Yes.

And the tariff impact, you say it gets better as the year goes on. Can you just clarify, in the first quarter, is that pricing you put in against tariffs and they're dropping revenues at 0 margin? Or are we actually getting an EBITDA hit and we need the price to catch up to that in the second half of the year?

It's more the former of what you said. So the pricing actions related to tariffs have largely all been taken through the balance of 2025. You're seeing that come through now offsetting tariffs. I would say it's dollar neutral, but obviously margin dilutive. And now obviously, on a year-over-year basis, as you move through Q2 to Q4, you're seeing the tariff piece of that start to normalize because you had the tariffs in prior year. And clearly, with the mitigation actions we've taken, combined with some of the ongoing pricing actions we're taking, that's why we expect to see better momentum, particularly exiting the year and in Q4.

Your next question comes from Andrew Buscaglia with BNP Paribas.

Looks like I got one last question even this far in the queue, but I think no one's brought up China yet, and I want to say that your comment there was, as I recall, orders still outperforming underlying market. Is that a comment around like improvement off of the stabilization you've been commenting on the past couple of quarters? Or what are you seeing in that market?

Yes. Andrew, China for us, again, we have been able to outperform the market that we're playing in China with basically new technologies, taking technologies from other acquisitions and localizing that in China for China. And the team has done now consistently a pretty good job over the past, I'd say, 3 quarters of being positive on an organic quarter basis. And so again, we're pleased with the execution. It's just another form of kind of highlighting the self-help commercial that we continue to push on a global basis, yes.

What do you see for the China market this year? Like what's your sense in terms of where that market is going for you guys?

I think we still don't see the market itself outgrowing. Now what we see is us outgrowing and taking share in the market itself. The market is not -- we don't see China market shrinking. It is obviously highly competitive, but we still see a lot of good opportunities based on the technologies that we have and how we're approaching the market. I mean, we got hundreds of examples. I was in China earlier this year at one of our medical device facilities. And in China for China for that medical device operation, its opportunity is very high, as an example.

That is all the time we have for questions. I'll turn the call to Vicente for closing remarks.

Thank you, Sarah. Just finally, I just want to pass one more thank you to our employees for their ongoing dedication and commitment to having that ownership mindset and controlling what we can control and continue to deliver performance for our shareholders, which, by the way, all of our employees are, and they have that rewarding skin in the game to continue to deliver long-term value performance for all of us. So thanks again for the interest, and we'll talk soon.

This concludes today's conference call. Thank you for joining. You may now disconnect.

We're going to get started again. We are very excited to have Ingersoll Rand with us. We've got Vik Kini, who is the CFO of Ingersoll Rand.

And Vik, as I walk over to you, it's been about 5 years since you closed the RMT. Lot's gone on. I think you had a vision then to be the premier industrial compounder. So maybe what's gone right and if there's anything that you wish you could do better?

Yes, for sure. So first of all, Andy, thanks for having us as always here. It's great to be here. Yes, first and foremost, it is kind of crazy. I think it's been 6 years now since 2020 until now, so we're coming up on the 6 years here very shortly.

I think, first and foremost, incredibly proud of kind of the Ingersoll Rand that we've kind of built and developed here over the last 6 years since the RMT. If we think about what the business has executed and operated through to first have completed the merger in the midst of COVID, integrating 2 companies, I'd say, delivering on and exceeding synergy targets. But then really setting up what I would say is a real industrial kind of premier compounder that you've seen solid organic growth momentum over the course of that 5, 6 years complemented by, what I would say, solid margin profile, kind of, obviously, margin profile that's improved over the years, strong free cash flow and then really been able to recompound that into M&A.

And so if you think about the last 6 years, we've done -- since the merger, we've actually done 76 acquisitions to date. And they've really been, I would say, global in nature across the entire portfolio. So I think we're really encouraged by what we have built to date. I think it's all underpinned by our kind of ownership mentality. As I think everyone is aware here, all of our employees are owners in the company. And I think that really drives a culture and a mentality of how we can continue to drive the company together, 20,000-plus employees strong kind of moving forward.

Now that being said, I feel like it's still early days, right? We're approaching roughly $8 billion in revenue in a $65 billion-plus addressable market. So as far as what are those areas that we can continue to push on, I would say, as much as we're encouraged by what we've seen, I feel like all those areas have continued room for opportunity. So whether it be on the organic growth side of the equation, continuing to push on innovation, demand generation and recurring revenue, which I know we'll talk about. While we've done a great job on the margin front, I think there still are very much areas for opportunity on margin expansion, particularly in areas like PST and the free cash flow side of the equation. We're continuing to look for ways to optimize as much as we're encouraged by the $1.2 billion to $1.3 billion of cash that we've been generating on an annual basis here in the last few years.

Are there areas for optimization, whether it be working capital? I'd be remiss if I didn't look at myself and things around tax rate and things like that, of course. So I think we still have plenty of levers and plenty of opportunity moving forward. And clearly, the inorganic side, right? The M&A engine is not slowing down, bolt-on driven. We did, like I said, 16 deals last year. We've already gotten one bolt-on completed this year. And I see no reason why you won't continue to see that momentum continue.

Got it. So Vik, I like having you up here because you're like the owner of the guidance. So like I can ask you about it. And just this is the third year in a row, right, where we're all kind of like seeing some hints of short cycle recovery. But if I look at your guidance, it doesn't look like you're baking much of any recovery and your numbers, maybe you can talk about that. Did you take a different approach this year than past years in how you set your guidance?

Sure. Yes. So I think a couple of things to say here. So first and foremost, I think whether it be Q4 or the second half of 2025, I think we're encouraged by the momentum that we're seeing kind of across the enterprise. Obviously, you've seen organic growth from an orders perspective kind of be on the positive side. I think Vicente mentioned it on our earnings call, for example, in ITS, we saw organic orders momentum across all of our regions from a total year perspective.

If you look at the second half of the year, roughly speaking, low single-digit organic orders momentum. And so as we look to 2026, yes, encouraged by that momentum we're seeing. I'd say PMIs being above 50%, albeit for 1 month. We wanted to take what I would call a prudent view from a guidance perspective. And so yes, we said organic growth expectation 0% to 2%, so at that midpoint 1%. So very consistent with that kind of low single-digit kind of momentum we've been seeing for a few quarters.

And as far as our guidance, it doesn't bake in what I would call any kind of, I'd say, broader industrial recovery or things of that nature at this point in time. We want to see that kind of materialize a bit more, see a few more months of, what I would say, momentum. Obviously, we want to continue to watch the leading indicators. And hopefully, organic volumes are something that we can kind of revisit as the year goes on, and that's something that's hopefully a little bit of upside opportunity. But yes, I think as we think about the guide this year, I think there was a conscious effort to be a bit prudent in the kind of expectation setting upfront, and that's hopefully something we can revisit here as the year unfolds.

That's helpful, Vik. And I want to delve a little bit more into the like leading indicators you talked about. For the earnings call, you kind of said, look, MQL to order, that's marketing qualified leads for everyone to order is still kind of like a little bit slow. It hasn't really changed much. And in terms of large project timing, it's still kind of like a little bit slow is kind of what I heard. But at the same time, your shipments in Q4 did pick up a bit versus, I think, your own expectations. So is that a sign that customer delays are starting to unlock?

Sure. I mean, I think customer conversations are definitely constructive. I think we'd say maybe the peak of uncertainty is kind of in the rearview. And that every month that transpires thereafter, I think, hopefully, we can say the customer dialogue is getting more and more constructive.

As far as the comment around MQLs or long-cycle funnel, from an MQL perspective, I think as we indicated in the call, still healthy from a growth perspective year-over-year. Yes, we would acknowledge that, that kind of elongation in the context of MQL to order is still existent. And from a long-cycle funnel perspective, similar. Funnel itself healthy. Yes, maybe there's still a little bit of elongation in terms of getting the finish line on POs. But in the same breadth here, you did see good project momentum even in 2025. And you saw book-to-bill from a full year perspective being slightly above 1. So we did build a little backlog here coming into 2026.

So I think the simple answer here is continue to have constructive discussions. We do continue to see things getting better as that uncertainty kind of continues to be behind us. And I think this is an area where Q4, for example, was just solid execution. Typically, Q4 is a quarter where you see a healthy amount of long-cycle project shipments. Just from a seasonality perspective, Q4 of 2025 was no different. So I think generally, things continuing to play themselves out as we would expect, Q4 was no different.

So Vik, I wanted to ask you because I get this question a fair amount, so I kind of need to ask you. As you know, you're compared to a large European competitor -- compressor-focused competitor quite often. And certainly, other large U.S. short-cycle focused industrial peers, when we look at those peers, at least lately, they tend to have orders in the mid-single-digit plus range, and you guys are kind of low single digits. So maybe give more color why you think your growth is trailing some of these peers? And what do you think could be a catalyst against your growth to be equal or higher than these peers?

Sure. I'll take the first part of the question, at least compared to kind of that larger other peer. I think the simple answer here is there are some product technologies that are not similar between the 2 portfolios, which I think is driving that kind of that wedge. We cap out a certain horsepower range from a compressor perspective, that peer plays in a much higher range, which I think is where a lot of that said growth and at least that differential is coming from.

When you look at what I would consider to be the more classical, call it, more small, medium type compressors, whether it be on the legacy oil lubricated or even on the oil-free side, I think you'll see performance to be much more in line even areas where North America and areas where you can kind of measure share and there's some third party, I think those third parties would reiterate and kind of reinforce that as well. So I think from a market performance, whether we look at North America or any of the international markets, whether we look at the product technologies, we actually feel pretty comfortable with where we're operating and where we're executing to.

As far as the broader industrial peer set, obviously tough to comment. There's a lot of different end market exposures. We don't have what I'll call classical, for example, data center, aerospace exposure and things like that. But that all being said, I think the second half momentum that we saw, which you did see a little bit broad-based, right? We can talk about fourth quarter here that you saw momentum, not just in the kind of classical short-cycle industrial compression side, you saw good momentum in our Precision Technologies business, which is the niche legacy kind of positive displacement pump business as well as the Life Sciences business, which was actually up roughly mid-teens from an orders perspective in Q4. So I think we're really encouraged by, I'd say, the pockets of growth that we're seeing. And that, like I said, things continue in this respect. Hopefully, there's a little bit more organic volume type of upside that we can continue to see hopefully here as the year plays itself out.

Yes. So Vik, you just mentioned it. Life Sciences is actually your biggest business. It's almost 20% of the company, right? And it was up mid-teens. So I don't have to be very good at math to know that if it continues in mid-teens, you're -- and everything else is flat, you do the high end of your organic range for the year, right? So how do you feel about Life Sciences? Is that kind of momentum sustainable? And where is it coming from?

Yes. So maybe just to level set on the math here for a few seconds. First and foremost, so the comment about mid-teens up on Life Sciences, that's really pertaining to the classical what I'll say, Life Science business within Precision and Science Technologies, which is a component of Life Science. We also then have what I would call the compressors and air compression technology...

I'm not really good at math. That's what...

So no, no, it's just to clarify here that the mid-teens is much more from the Precision and Science Technologies, Life Sciences, but the point is still valid. Very encouraged by what we're seeing there. Our Life Sciences exposure, you've got kind of 3 different components of life Sciences and Precision technologies. You've got the legacy, what we used to call Gardner Denver Ingersoll Rand Medical business, which is kind of more OEM components to medical lab, life sciences, diagnostic tools manufacturers. You've got our biopharma business and then you've got a kind of medical device manufacturing business. And the good news is you're seeing momentum across all 3. They're all playing in slightly different aspects of the Life Sciences business. But they're -- one, I'd say, showed healthy growth in Q4. And I think the expectation of whether you call it short to medium term, I think those trends are still encouraging going forward.

So we're very, I think, pleased with the growth that we're seeing on the Life Sciences side. I would also correlate that to some of the margin expansion you continue to see now on the Precision and Science Technology side. As you've seen those Life Sciences businesses grow, you've obviously seen some of the commensurate flow-through come with that, which is why you've seen now margins sustained over 30% for a number of quarters, which we'd expect to continue going forward.

Got it. So I wanted to ask you about your demand by region because you're known as more exposed to regions such as Asia and China, right? I think you said 3 quarters now in a row of positive organic order growth, and you're growing low single digit there. You've got product innovation, you're bringing acquired technology to China. So is it fair to say that at least the underlying China market has stabilized for you guys and then your ability to outperform the market seems like it's improving. So maybe talk about that.

Yes. So maybe we'll just kind of level set on China in general. So first and foremost, China for us is about a 10%, 11% exposure from a total company perspective on a revenue base, actually comparable levels of exposure across both ITS and PST. Now it's worth mentioning that roughly 2, 3 years ago, that number was probably closer to 15%. So yes, you have seen, obviously, China reset a little bit, which is not unexpected given the market in China and things of that nature.

Now that being said, I think that team has done a really good job from an execution perspective in what has been a pretty tough macro backdrop. To your point, if you think about kind of what we've seen in 2025, multiple quarters of what I'll call low single-digit organic orders momentum. And this is a market that -- it's a competitive market out there. Obviously, the business there historically has been largely compressor-centric. That's because the roots of our China business is much more on the Ingersoll Rand compressor side of the business.

Where you've seen, I think, a lot of that outperformance outgrowth is what I'll say, is solid performance on the compressor side, but then also leveraging what I would say those differentiated technologies that our China business historically didn't have as much access to. So whether that be the blower or vacuum portfolio from the Gardner Denver side, whether that be even relaunching the Gardner Denver compressor series itself, air treatment technology as we bought SPX FLOW and things of that nature and seeing some of those technologies.

And then like I said, 76 bolt-ons over the last 6 years, some of those acquired technology being localized. And I think that's where the team is showing nice differentiated performance in what is still a pretty tough market. So yes, I mean, we're encouraged by what that team is doing. The China business is still 10%. It's still a very healthy business, very healthy margin profile. And that business continues to execute well in what is obviously a different backdrop than it was 3, 4 years ago.

Do you think the potential now is different? Like can you grow mid-single digits plus in that business? Or like...

Yes. I mean that's not necessarily our expectation at this point in time. And again, I think it's probably a bit of just one, waiting to see the China market in general, get to some degree of what I would call rebounds like I said. Yes, I don't think we expect it to be back to where it used to be once upon a time, but some degree of sustainable growth. And also just making sure that level setting expectations from a prudency perspective. But that being said, I'd say that team has done a really nice job. And it's also worth noting and probably a question we'll touch upon here that, that team has also done a great job doubling down on the non-China components.

Yes, so let me ask you about that, Vik. So you're up 20% in Q4 in organic orders in the rest of Asia. It's a big number, right? I know it's a small part of Ingersoll, but that kind of growth is difficult to ignore. So maybe talk about that. Should we be paying attention to that? And how big is that versus China?

Yes, for sure. So obviously, it's a smaller piece of the equation. So the non-China pieces of APAC, we're really referring to would be Korea, Australia and Southeast Asia. Would I say, we should be paying attention? Yes, in the context of, yes, it's smaller. Obviously, China is a bigger component of the equation comparatively speaking. But we have mentioned a number of times that there are certain areas of the world that we kind of consider to be underpenetrated from an Ingersoll Rand perspective. And what we mean by that is there are kind of 4 key regions that we've talked about explicitly that we have a presence in, we have had a presence in, but our share in those respective markets, we know is not at the same levels as what you see in more developed markets like the U.S., Western Europe and China. And so those areas would be Latin America, particularly Brazil, or Latin America in general with Brazil being kind of our biggest component, Middle East, India and Southeast Asia. And yes, Southeast Asia, obviously, there's, I'd say, some dovetails to places like Australia and areas like that.

So in Q4, I think what you're seeing there is a combination of that focus and some, I'd say, good momentum in certain areas as well as some nice project wins. Obviously, you're not going to see 20%-type growth every single quarter. That's not the expectation. But I do think this is an area much like Brazil, much like India, much like Middle East, where you should continue to see, I'd say, comparative outperformance just because we know our share has room to grow there.

And we're making the targeted investments. I think that's also the key part here. So in Southeast Asia, we've been making some very concerted, I would say, commercial investments to make sure that we have the right feet on the street. India and Latin America, commercial investments, where we actually opened 2 new facilities last year for in-region manufacturing in India, our second compressor manufacturing facility; in Brazil, our first-ever compressor manufacturing facility to really just be able to have more in-region, for-region presence, which is very consistent with our in-region, for-region model around the rest of the globe. So I think we're really encouraged. Obviously, Q4, we specifically talked about Southeast Asia or the non-China piece of APAC. But I think we're very encouraged by, I think, the momentum here that we'll continue to see for the medium to long term.

Got it. And just as an aside, when you build all these things out, I think to myself that it could add extra costs. So you're being careful about keeping -- because you have very high margins, as you know, you can get the margins you need in a place like India, for example?

For sure. I think one thing that's important to note here is that, obviously, we talked about a lot of the headwinds and whatnot that existed in 2025, whether it be tariffs and things of that nature, which obviously created uncertainty from a growth perspective, so forth and so on. But I think it's worth noting that from an ITS perspective, for example, still maintained 29-ish percent EBITDA margins, right? So to your point, what we consider to be a very healthy margin profile, that was in the face of, I'd say, some known macro headwinds like tariffs, an environment that didn't, frankly, have a lot of organic volume momentum and we were still investing for growth, right? And you can see that in the SG&A dollars and things like that.

And that's a concerted effort, whether it be in areas like that, whether it be for recurring revenue or things of that nature. We're going to continue to make those investments. In fact, we have a requisite amount of investments still baked into, for example, 2026. But I think it also speaks to the ability of the teams to be able to whether it be drive pricing excellence, drive productivity. You saw in our financials here in the second half of the year, we took some very targeted restructuring actions enterprise-wide. And that really continues to be to, I'd say, bolster the quality of earnings, continue to rightsize, particularly back office and things of that nature, while still being able to invest for growth in areas like you mentioned.

For sure. So I want to do the other 2 big regions for 1 second, just in Europe. I think orders were down in Q4, but Vicente mentioned strong growth in Central Europe in '25. And you seem positive for Europe to have some growth in '26. So where does it come from? I know Europe is more of a sustainability market, like is that growing? Like what do you think about that?

Yes. I mean, I think it's a continuation there. So I think from our Europe perspective, encouraged by what was probably over the course of the last 18 months, probably a most stable region comparatively speaking to China and what we saw in North America, seeing good momentum in areas like, for example, France, Italy, Spain, countries of that nature. Yes, sustainability kind of being a driver there. But I'd say also good execution across both short cycle as well as some of the long-cycle project-type opportunities.

India is an area that we obviously also kind of manage together with Europe. And India, obviously, it's arguably probably for the last 5 years has been our single best growth region itself, where you've even seen double-digit type momentum in India. Like I said, we've invested in a second compressor manufacturing facility there, and we actually have very good presence in both our ITS and PST businesses. You've even seen inorganic opportunities there. We've done multiple bolt-on acquisitions in India, just given the attractiveness of that market. So I think we continue to be encouraged by what we're seeing there.

Would we expect to see dramatically different performance? No, I think it's continuing to be relatively stable in those markets that we played and a continued, I'd say, balanced execution. It's also worth noting, and I know we'll talk about it here probably shortly, the recurring revenue piece of the equation, continuing to see very good traction outside of just the U.S. where that recurring revenue model kind of grew up. So that's what you're also seeing, I think, help bolster not just the top line side of the equation, but also the margins because our recurring revenue model is quite margin accretive. When it's done, it kind of its highest standard. And you're starting to see that pick up momentum in areas like Western Europe and even Asia.

Yes. No, I'll definitely get to that in a second. I'm going to open it up to the audience in a minute. Just rounding on into the Americas, I think you've talked about it being sort of for now a low single-digit grower. But it seems like things are setting up for you guys over there. You talked about pharma bio, maybe reshoring could help you. Obviously, electricity prices are going up, that should lead to shorter paybacks for things like compressors. So why can't you have a little more torque in the Americas? Is there anything holding you back there?

Yes. No. I mean, I think the factors you mentioned, whether it be Life Sciences momentum, reshore or onshoring, obviously, energy pricing being higher. And just to put it in perspective, compressor typically is at the top of the list in terms of energy consumption in any degree of a manufacturing setting, you find yourself up, up to 30% in a certain case, can even be more than that. So I think I'll go back to kind of how we started, encouraged by the trends we're seeing. But we also want to see that continuation, right? And so I think from our perspective, it's just prudency as we kind of come into the year.

Is there anything holding us back, per se? No. I think from a capacity perspective, execution perspective, supply chain, no concerns whatsoever from that perspective. We just want to continue to see that momentum build. And obviously, that's an area that we'll hopefully be able to revisit here as the year goes on.

For sure. Any questions from the audience over there?

So just a question on that big peer of yours. They had very strong growth in gas and process in the quarter where you have less exposure. But just curious on sort of market share movements on the larger and small and midsized compressors. You mentioned that you're outperforming a bit in China. And I'm just curious whether you think that you're taking some market share in China on the compressor side.

Yes, sure. So inherently difficult to kind of measure. There's no like empirical third-party or things like that, that measure the stuff. So I'll say, one, the competitive suite that we operate against is great competition, very, what I'd say, prudent rational, very established as well as ourselves.

I think from a China perspective, I feel like we're holding our fair share without question. Like I said, I think where we're seeing those pockets of incremental opportunity are some of those differentiated technologies, not just compressor, but around the compressor spectrum where either historically we haven't operated in or historically, we just haven't had those offerings in region. And so yes, obviously, compressors without question is still the biggest piece of our China exposure. And so to even have low single-digit organic, there has to be a contribution from the compressor perspective, right? You can't have compressors going down and the other piece is going up. That equation still won't get to low single digits. So you are seeing contributions from the compressor perspective. I think it's also then leveraging the Ingersoll Rand name, the channel there to be able to leverage a lot of the other different technologies that I spoke to earlier.

A quick follow-up is on replacement demand relative to sort of capacity additions on the larger side in China. I mean what we're hearing is replacement is coming back. The fleet is quite old, but anything growth is basically off the table. Is that how you see China as well?

Yes. I mean, obviously, when you look at kind of China growth in general, it's not what it was. So I think your statement is very fair in the context of at least where demand has at least been trending over time. The good news, though, is like replacement when we have the presence that we have, then also be able to supplement that, not only with the differentiated technologies, but also with the recurring revenue model. We're very comfortable that, that is still an equation and an environment where we can do quite well in. And then obviously, yes, if true, true growth, greenfield or otherwise comes back in the future, listen, we're well poised to be able to execute there. But the concept of just being able to execute on replacement of older technology services through the aftermarket and hopefully convert the recurring revenue where possible, that's without question, I would say more in the control what you can control, almost self-help perspective of continuing to perpetuate where we see a lot of our opportunities, particularly on the recurring revenue side.

So let's talk recurring, Vik. So you're up to $450 million in 2025, $200 million a couple of years ago. Your target that you said at your Investor Day a couple of years ago was $1 billion for '27. So it's a big number versus where we are last year. So I mean, do I just think big step-up in '26 and '27 when we get there? How do I think about it?

Yes. So let me just kind of level set here that it was a little over 2 years ago at our Investor Day late 2023, where we kind of rolled out the recurring revenue initiative. And we said at that time, squiggle $200 million of recurring revenue, but it was really a model that existed I wouldn't say 100%, but it was -- the preponderance was in the kind of legacy Ingersoll Rand North America compressor side of the business, which is really where this model grew up. And we saw a meaningful opportunity, the numbers you kind of outlined there, $1 billion in 2027. And we kind of outlined it and kind of laid it out at that point in time.

And if you kind of flash forward here, we've eclipsed $300 million in 2024 and now eclipsed $450 million in 2026 (sic) [ 2025 ]. So I think the momentum from having gone from roughly $200 million in 2023, and by the way, it was like $100 million, not but a few years before that. To go from $100 million to $450 million plus in a handful of years, I think it speaks to the power of kind of this model. I think what we're really encouraged by is twofold. One, the fact that you're now seeing this have global adoption, right? So yes, of that $450 million plus, is North America compressor still the biggest piece of that? Of course. But is it at the same percentage as what it was? No. Obviously, you've seen the rest of the portfolio start to adopt the model quite nicely. You're also seeing it outside of just compressor-specific technology. So blowers, pumps, even parts of our Life Sciences portfolio that have parts or service needs, there's a care or care-like model that can be adapted. So I think we're incredibly encouraged by what we're seeing.

As far as the '26 and '27, obviously, we haven't guided on specifics there. But do we expect to see, I'd say, a continued ramp as we move through the next few years? Yes. I think one thing that we mentioned on the call that I think is a nice milestone that we've hit is we have what we said at the end of 2025, $1.1 billion in the backlog or $1.1 billion in what we'll call the bank. And what that really means is $1.1 billion in future contracts that we already have kind of inked. So that by no means is the endpoint that's a nice solid building block as we know execute now for the next couple of years. Obviously, we expect to see continued momentum and ramp on in-year orders and as we go into 2027 and as expected, a nice ramp as we move from the $450 million. But if you look at even the sequential momentum we've seen, you've seen solid double-digit growth here, which we would expect to continue here moving forward.

Got it. That's helpful, Vik. And then I think one of the ways that you're getting there is by focusing on the digitization of your products. So maybe given AI is a dominant theme right now in industrials, how are you using AI to improve your deliverables such as improving the connectability and efficiency of products?

Yes. I mean, exactly. I think when you think about some of the kind of megatrends here, AI obviously has strong applicability in our space, and that's kind of going for more historical kind of mechanical industrial assets to more smart connected industrial assets. And so yes, using AI to the connectivity, the preventive maintenance, kind of those predictive models, how can we use AI embedded in our machines to actually drive that type of efficiency and whatnot.

Also just from an efficiency of our commercial force, right? How do we actually make doing business with Ingersoll Rand, how do we equip our commercial teams to be able to execute, deliver quotes in a much more faster real-time manner, you're seeing applicability on both sides. So I would say, one, from a true product technology perspective and one from just what I'll call it a sales and commercial efficiency perspective. Of course, things in the back office or like that, of course, we'll continue to focus on that. But I think we're hyperfocused on how do we improve the connected aspect of our machines and then sales force efficiency, which are still, I would say, early days, but areas that we are hyper focused on from an AI perspective.

Got it. And then, Vik, with the understanding that you do have high margins, like when I look at your price versus cost, right, to look at tariffs, in particular, it's been kind of holding you back a little bit on the margin side, as you know, price cost neutral in the first half of '26, positive in the second half that leads to margin expansion in the second half. But maybe talk about why there does seem like there's a lag for you guys versus maybe some other short-cycle industrial peers? And how do we feel about the risk that commodity prices are still all over the place? Can you price that?

Yes, for sure. So I think as far as the price cost or the tariff equation, I think we've been pretty transparent about the fact that a couple of things. One, we weren't looking -- we're not looking to make margin per se on tariffs, right? We've been very clear that where we have to take price, it's really meant to offset tariffs from a one-for-one perspective. Other than a little bit of timing aside where, yes, there are situations where tariffs hit you a little bit more kind of real time. And then when you have to go take price increases, you have to get the channel a certain time of notice and thing like that. So there's maybe a little bit of a lag there. We indicated that even as we move into Q4 of last year. And I'd say the team has actually executed quite nicely. You actually saw us kind of deliver at the higher end of both our revenue and our earnings expectations in Q4 specifically. So I'd say, yes, maybe a little bit of lag, but I'd say even that the team has done a nice job executing.

As we move into 2026, I think the simplest way to think about it here is those pricing actions have largely been taken, as we've indicated really in the back half of this year. So the fact that price is offsetting tariffs in the first half, that's a fair statement. I would call it price cost dollar neutral. Obviously, that is a bit of a headwind to margins. And then as we lap that tariff equation moving to the second half of the year as well as, I'd say, a combination of maybe some targeted normal course in-year pricing actions that will materialize more in the back half of the year, some of the normal productivity that you would expect, which typically follows your cost of goods sold and seasonality, which tends to be a little bit more back-half weighted as well as some of that restructuring we talked about materializing through, probably partially offset by some of the commercial investments for growth can make. That's that equation what brought, I'd say, second half margin expansion.

But I think the team has done a really nice job executing. It's been a very, for lack of a better way to say this, dynamic environment in the sense of tariffs. And I think the team has executed quite nicely in terms of taking the requisite actions, moving with pace. And yes, generally speaking, a little bit of timing aside, you've seen those match up pretty nicely.

So Vik, we already talked about, again, ITS, 29% margins, nothing to snuff at, but it's been kind of flattish for a while, right? And I think it's just easily because organic growth has also been flattish. So if you start to see better organic growth, let's say, starting in the second half, can you get sort of normalized incrementals of 35% to 40%? Or should maybe you see even more torque than that? You've been doing a lot during the time you mentioned some restructuring. You're always doing I2V. So can you get inflection in margins that maybe is better?

Yes. So like you said, I mean, I think it's probably worth noting here that 29% margins despite all the headwinds we've mentioned here, it speaks to the fact that the team has been, I'd say, very deliberate and focused on maintaining margins despite some known headwinds that have been moving against us the last few years. So very encouraged by what the team has done there.

As far as to your point, yes, with -- I would say, organic volume, if you see any degree of kind of torque on that side or return to kind of organic volume growth, as you indicated, the concept of, what we'll call it, 30% to 40% incrementals and it will play across that spectrum, depending on month and quarter and things like that, yes, there's no reason that those types of numbers aren't possible. Can you see potentially higher than that in certain periods? Perhaps, I'd say that, that's -- you've seen that before. So there's no reason to say you couldn't see that again. But I do think you're going to continue to see prudent reinvestment. For us, it's about maintaining that organic growth momentum for not just a quarter or 2, but sustainably over the medium to long term.

So we are continuing to be very focused on the requisite investments, whether it be a lot of the areas we talked about, innovation, R&D, feet on the street in those underpenetrated markets, commercial resources, even our developed markets and the recurring revenue model, we're going to continue to reinvest in that. So you saw that even in '25 in an environment where you obviously do not see as much growth, but we're committed to that kind of reinvestment in the business. So I think the answer here is yes, normalized incrementals absolutely should be part of the equation. But we also want to be very conscious of making the reinvestments from a growth perspective that we need to make.

Sure. And so PST, you finished just over 30% EBITDA margin. You're guiding towards triple-digit margin expansion in '26. You seem pretty optimistic actually about margin expansion for '26. So -- but I know you're aware, you still have a mid-30s P&ST adjusted EBITDA margin target for '27. It does seem like kind of a big jump. So well, can you get there?

Yes. I mean, so a couple of things here. I think we're really encouraged by what we've now seen. It's no secret that PST margins, if you look kind of from the merger up until even kind of '24, '25, it had gone from roughly 30% to 30%. And if you look under the covers over that time frame, there were a lot of moving factors, COVID, you saw some upticks there, but then you saw a downturn in the legacy IR Medical business, which came with some healthy flow-through. You've seen the Seepex business, which we knew was coming in 15% EBITDA margin. That business now plays around fleet average. So despite the fact that you went from 30% to 30%, there were some known headwinds in there, and the team has done a nice job offsetting that to still stay at 30%.

Now to your point, how do we kind of sustainably kind of get this now moving forward into that kind of mid-30s range? A couple of things here. One, as you saw, I think, good momentum here as we move through 2025, right? We indicated that a couple of aspects here. As you get, I'd say, IRX and kind of some of the I2V and kind of just some of that blocking and tackling mentality really embedded within not just the Precision Technology side of the equation, but also the Life Sciences side, particularly the ILC Dover acquisition, that was going to be a catalyst for opportunity, one.

Two, Life Sciences growth just in general. Obviously, we talked about the orders momentum we saw in Q4. This is a part of the business we expect to see, I'd say, better than the rest of portfolio growth moving forward, and it comes with, I would say, a healthy margin profile as well.

And then three, we talked about restructuring and some of the productivity measures and things like that. That's not just an ITS comment, right? So in the second half of the year, when we took, for example, targeted restructuring, that was enterprise-wide, ITS, PST as well as even the corporate enterprise. And so I think those will all be catalysts here. But I think the simple answer here is, again, we're being prudent on the growth expectations. I think incremental organic volume will obviously be an even a kicker on top of that, for lack of a better way to say that, and even things like recurring revenue. Again, very small, comparatively speaking, in PST versus ITS, but even starting to see some, I'd say, early wins there and some momentum in parts of the portfolio that historically never thought about recurring revenue. I think that will also be a help as well.

It's helpful, Vik. And so you ended up having a good year, I think, in M&A in '25, 16 acquisitions, $275 million of acquired revenue. So we know you're guiding to, again, 400 to 500 basis points of annualized inorganic revenue for '26. But maybe characterize the environment in terms of the pipeline you have from -- we always -- we sit here together in February, like how does it compare to last year? Is it the same, better, worse? How do you think about it?

Yes, I'd say it's very comparable. And the reason I say that is our M&A engine and model isn't necessarily predicated on waiting for third parties to come to us and bankers and whatnot. Our deal model and the way we kind of run it, 90% of our deals are sole-sourced, right? So we are typically going out and cultivating deals. A lot of these are multiyear kind of duration in terms of the cultivation of these assets. To put this in perspective, last year, we did 16 bolt-on acquisitions kind of at the low end of the 400 to 500 basis points, but still very comfortably kind of executing to what we expected. As we sit here today and when we did earnings last week, we announced, one, we've already done one bolt-on in January, actually in our Life Sciences business, a nice complementary bolt-on to our kind of parts of our legacy kind of Ingersoll Rand Medical business.

Two, we have 9 additional deals under LOI. And I would say those 9 are very much down the middle of the fairway, smaller bolt-on type deals.

Three, we have roughly over 200 types of assets in the funnel itself, which indicates the health of said funnel. And I would point to the fact that it's a very good equitable mix across the entire portfolio. Otherwise, to say, we're not diverting capital to just one business or another. You're actually seeing a good healthy mix across the business.

Just to put this in perspective, the 16 deals we did last year plus the one we just did in January, so the 17, 4 in the Life Sciences space. So you're starting to see some good momentum there, but that also means 13 between the kind of core ITS and Precision Technologies businesses. So a good equitable mix.

And I think as we think about 2026, our expectation right now is you should probably expect to see something very comparable, which is on 2025. So smaller bolt-ons. Yes, I know on the earnings call, we did indicate that there's a couple of maybe slightly larger bolt-ons, maybe $1 billion-ish type purchase price. But don't think of those as outside the norm. Those are still very much within, I'd say, the wheelhouse of compressor blower, vacuum pump, life sciences kind of core technologies. They might just be a slightly larger size, but very comparable to what you've been seeing.

And the other thing to note here, and I'll reflect back on the last year. Not only have we seen the good momentum, but I think you continue to see us do it from a very prudent perspective. The blended average of those 16 deals, roughly speaking, 9x pre-synergy adjusted EBITDA purchase multiple, return profiles in the double digits, mid-teens, like you've seen us do before, the ability to reduce that purchase multiple, multiple turns. Nothing is different. Obviously, I think this year, we would expect to see comparable dynamics.

Vik, I think to your point, '25 was kind of about getting back to your roots in terms of M&A because the year before, you did ILC Dover, right, which was larger. And I think I sometimes in covering industrials for a long time, worry about like the law of large numbers for companies. You get up to a size, you start competing with private equity and then you do a big deal, and it's harder to sort of see what's going on in a big deal. So I probably asked you this before, but sort of now that you're further away from ILC Dover, any sort of thoughts or lessons learned? And was it really just a one-off around space suits and there's still...

Sure. Yes. I mean, I think, first and foremost, maybe to level set high level. One, we said that an ILC Dover size type acquisition or something a little bit larger every few years, no concerns whatsoever about being able to execute on something like that. In between, you're going to see us kind of be right down the middle of the fairway in terms of the smaller bolt-ons. And that's exactly what you saw in 2025.

As far as lessons learned and things like that, yes, the space, as we talked about it kind of at length here, that dynamic is behind us, right? And so I think what we're more focused on here is if you look at that business, particularly from a Life Sciences perspective, a couple of things, one, the business has been restructured. It's now being run exactly like the rest of the enterprise with new GMs kind of running top to bottom, no matrix P&Ls, things of that nature. You've now gotten good foothold on, I'd say, some of the kind of key aspects of IRX demand generation, things of that nature, the productivity equation. The business themselves, we talked about the order rates in Q4. So we're encouraged by the momentum we're seeing in the Life Sciences side.

And then the other piece here is -- and I think one of the parts of the original thesis of the deal that very much is still playing itself out is that now we have a very established, what I'll call, true life sciences beachhead, that's $600 million, $700 million in revenue that now you can look to start doing that bolt-on routine that you've seen on the ITS and pump side of the equation historically. And like I mentioned, we've done 4 now bolt-ons. By the way, private -- largely from private ownership, sole-sourced the economics, whether it be purchase multiples or return profile look very similar to what you've seen on the ITS or Precision Technology side. So yes, I'll say a lot of that noise is kind of behind us that you referenced. And more importantly here, I think we're encouraged by what we're seeing going forward as well as not just the organic side, but also that ability to compound from an inorganic side as well.

So we're out of time, but let me ask you this for 15 seconds because I just should ask you, what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years?

Yes, real quickly here. I think we talked about AI, so I won't belabor that one any further. The other one is just energy efficiency, right? When you think about a compressor in any degree of manufacturing setting or whatever it is, it's at the high end of the list in terms of energy consumption and things like that from a total cost perspective, typically up to 30% in terms of the energy being consumed. In certain cases, it can be even higher than that. So continuing to see energy efficiency, how do we continue to show good returns for our customers, that's going to continue to be, I'd say, a focal point. And so that is obviously probably the single biggest buying criteria. And then how do you service it, frankly, through the aftermarket and recurring revenue.

Awesome, Vik. Thank you very much.

Appreciate it. Thank you.

Great. Thanks, everyone, for being here. It's my pleasure to have up next Ingersoll Rand, Vik Kini, CFO. And thanks very much, Vik, for continuing to come to this conference.

Yes, of course.

Maybe first question, just how have you seen the demand environment in recent months? I think a lot of investors' attention is focused on kind of prospects for U.S. short-cycle industrial recovery. Are we seeing it yet? Or it's all as usual x months into the future?

Yes. So first of all, thank you again for having us. As far as the demand environment, let me start -- I'll start with the U.S. and then kind of make it a little bit broader. So I think in Q4, definitely encouraged, I think, by the momentum we saw, not just in the U.S., but kind of I would say, across both segments with positive organic growth from an orders perspective.

On the U.S. side of the equation or North America, definitely seeing, I'd say, kind of the peak of uncertainty kind of being behind us. We're encouraged, I think, by some of the momentum we saw coming out of Q4. And I do think that's actually a comparable statement to what you've seen a little bit more globally, right. So even, for example, China, which for us is about 10% of our revenue, you've seen positive organic growth on the order side for the last roughly a couple -- 2 to 3 quarters, obviously, in a market that hasn't been seen that, broadly speaking. And so I do think it speaks to some of the self-help and things of that nature.

Now Julian, as far as the go forward, I think we're encouraged by some of the momentum we're seeing. I think, obviously, with some of the leading indicators like PMI and whatnot starting to inflect a little bit more positively, I think we're encouraged. But I do think we still want to continue to be prudent in terms of expectations going forward. And I think you saw that in our guidance framework that we put forth on Friday in terms of, I'd say, prudency coming into 2026 just in terms of the organic growth equation and hopefully, an area that as we move through the year, hopefully an area for opportunity, particularly on the organic volume side as we move into the balance of 2026.

Perfect. And I think in recent years, there's been various kind of rolling headwinds. You have the sort of ITS hangovers from the China EV build-outs, the European bump post the Ukraine invasion, COVID hangover in PST, and then in the U.S., some of the sort of sustainability-type projects got put on ice 12, 15 months ago. So when you look at all those things today, is it fair to say they're kind of in the rearview mirror? Anything else that's bubbled up recently that could be a new kind of headwind or roll-off to think about?

Yes, you're absolutely right. I think the last few years, whether it was coming into '24 or '25, we had a market or a region that had some degree of a headwind. You mentioned a number of them. I think the simple answer here is moving into '26, no. We don't have something comparable to the U.S. RNG like you saw last year or the China EV solar that you saw a couple of years ago. So I think the comps in that respect are a little bit cleaner comparatively speaking, no meaningful headwind of that nature.

Obviously, quarter-to-quarter, you're always going to have some of the project timing and whatnot, but that's pretty normal. So generally speaking, no, it's a little bit cleaner in that respect as we move into the 2026 framework.

And as you think about the broad sort of U.S. customer base, any difference in sort of behavior in terms of distribution versus OEMs or long-cycle projects versus kind of MRO activity?

Nothing dramatically different. Let me take those in pieces here. So on the distribution base, this is an area that we pay -- and we do -- we go multichannel. So we go to direct and distribution. On the distribution base, this is an area that, one, we watch very closely. It's not a channel that inherently builds a lot of inventory or things of that nature, just given inherently some of the customized nature of compression technology and things like that. So I'd say from that perspective, very comparable.

And on the direct side, yes, nothing dramatically different, I would say, as we've kind of exited the back half of the year. Like I said before, I think the peak of uncertainty is probably a little bit behind us. But we do want to continue to see a little bit more of that momentum on a go-forward basis. I think one area that we've been very strongly pushing on, I'm sure we'll talk about it here even more is the recurring revenue side, where we continue to see, I'd say, a nice uptick, not just in North America, but also on a global basis.

We mentioned during our earnings call in 2025, we eclipsed $450 million of recurring revenue on an Ingersoll-wide enterprise basis. Just to put that in perspective, back in 2023, that was circa $200 million and $100 million in years before that. So, to see that part of the business more than double, obviously, its very encouraging in the kind of, I'd say, ramp-up and the build-out of our recurring revenue initiative that we've talked about pretty explicitly over the last few years.

I think the piece, though, for us that's even more encouraging is the fact that you're seeing it, I'd say, broadly based in terms of regions and product categories. Compressors in the U.S. are still, I'd say, the biggest piece of that equation, but you will see a very measurable baseline now across, I'd say, the other product technologies as well as the other regions. We have 9 P&Ls that kind of comprise Ingersoll Rand. And generally speaking, every one of them now has some form or fashion of recurring revenue that they're operating to, some obviously much bigger than others. But today, we're talking about recurring revenue in parts of blowers and pumps and things like that, which is frankly not something we talked about years ago. So encouraging, I'd say, to see the momentum that has kind of taken place over the last 2 years and frankly, expect that to continue to ramp as we move here into '26 and '27.

Perfect. And if you're looking about the demand environment, you said it's a little bit better signs on short cycle exiting last year. It doesn't seem to be dialed into the guide for '26 in the sense that you have kind of pretty similar organic growth every quarter or both halves dialed-in. Is there something to do with comps that explains that? Or it's just, as you said, a determined effort to have a prudent guide this year?

Yes. So let me start with -- I'll answer kind of both sides of that. I'll start with first. I think what you're seeing is prudency in the context of while we're encouraged to see some of the momentum in Q4 and some of the kind of leading indicators, we want to see a little bit more sustainment of that. So obviously, the guidance framework and the 1% organic growth at the midpoint, I think that just reflects the prudency as we come into the year. Now as far as seasonality, comps, things of that nature, I think it's important to note that the seasonality for 2026, we expect to play itself out almost exactly like you've seen in years past. right.

So inherently, Q1 is a little bit of your lightest quarter, Q4 is typically your heaviest. But the first half, second half in terms of, let's call it -- phasing, whether it be on the revenue, earnings, EPS side, you're going to see it look exactly like it's seen in prior years. And that's also on the earnings growth. We have about 5% earnings at the midpoint on an EPS basis, and you're seeing a comparable level of earnings growth in both the first and second half at that kind of mid-single-digit realm. So I would say prudency in terms of the guidance framework, but continue to expect to see a comparable level of phasing from a growth and earnings perspective on the year.

Great. And you've touched on already recurring revenue and a broad push there. How much of that recurring revenue base is kind of the CARE effort that you talked about a lot at Investor Day 2 to 3 years ago? And how much is kind of broader tools that you use depending on the P&L?

Yes, for sure. So I think CARE and obviously, as a gold standard, you have PackageCARE, but you also have PlannedCARE, PartsCARE, you have different kind of tiers of the CARE model. Clearly, that's the biggest piece. Compressors is obviously our biggest piece of our total portfolio. So the CARE model that follows it clearly will be, I'd say, the biggest piece.

But what you've seen to-date is kind of, I'd say, a couple of different kind of differing kind of pushes as well in addition to this CARE. One, you've seen a CARE-like model probably adapted. So it's actually called CARE, but it has a kind of -- it's a similar look and feel, but adapted for other parts of the portfolio. So whether it be our Blower portfolio or different Pump Technologies, they are adapting to what I would call differing recurring revenue type models that kind of mimic CARE in one way, shape or form. But you also have other aspects of the portfolio, whether it be some of the Air Quality, the Ecoplant, some of the other kind of, I'd say, offerings that are kind of now bundled into that kind of overall recurring revenue model that are now starting to get, I'd say, much better traction.

So I think we're kind of looking at this from all sides. CARE obviously will be -- is and will continue to be the biggest piece of that equation. But unlike 2, 3 years ago, it's not the entirety of it. I think we're now starting to see good traction on other parts of the, I'd say, recurring revenue model. And clearly, those are areas we're going to expect to see accelerating at a comparable, if not faster growth trajectory as we move into the next few years as we kind of continue on that journey to $1 billion.

And when you think about the profitability profile of the recurring sales, kind of how should we think about that?

Sure. I think at its, I'll call it, gold standard, the risk transfer kind of PackageCARE, you can see gross margin profiles playing in that 60%, 70% -- you can -- they're very, very profitable. First and foremost, aftermarket in total for Ingersoll Rand is quite profitable. This just probably happens to play at that kind of upper end. Clearly, though, there also are areas that we want to continue to invest in, right? This model is, I'd say, based in large part based on service techs, density of your service kind of network across the globe. Clearly, there are areas we're going to continue to invest in. So I think you're seeing us take that opportunity. Even areas like the Ecoplant platform, that's a business that's more software-oriented and as such, requires kind of more investment today, comparatively speaking, to its earnings profile. So I think you're seeing that all happen today.

So I think on a gross margin profile, quite healthy. I think we're taking the opportunity to reinvest for growth, both on recurring revenue and other areas. And that's, I think, what you're seeing kind of now in the kind of margin profile, which even for ITS, which is where the preponderance of recurring revenue sits, we finish still operating at 29% EBITDA margin. So I think you're seeing a nice balance of continuing to see the growth in recurring revenue, but also continue to invest for future growth.

And then within the Compressor side of ITS, I think tariffs had a big impact last year on the cost base and still do Section 232 and the pre-existing sort of country-based tariffs. How have you seen the industry respond to those, say, in the U.S. compressor market? How is pricing and kind of market share played out? And I realize it feels a long time, but it's fairly recent in a way to the Section 232.

Yes, for sure. So I think the way you characterized it is quite appropriate. Obviously, ourselves as well as peers and have seen our requisite share of, I'd say, tariff exposure and also, quite frankly, even the ebbs and flows as this has kind of, I'd say, migrated over the course of the last number -- like the last year, even as of late, India now going from 50% back down to, I think, roughly 18%. So you continue to see ebbs and flows in terms of the tariff equation.

I think as far as how has the market responded to pricing whatnot, I think it's been quite rational. Obviously, our exposure tends to come much more from just our global supply chain. Otherwise said, it doesn't really come from what I would call intercompany dynamics or things like that. We tend to be much more in-region for-region, which has always been the strategy of the company. And I think even in this environment and the situation, I think, tends to be a nice -- hopefully, competitive differentiator in that respect as well. But we clearly have a global supply chain. And as such, we've seen our fair share of tariff exposure.

I think much like others, we've taken, I'd say, the requisite pricing actions to offset. For us, we've been very clear from day one that, that pricing is meant to offset tariffs one-for-one. We're not necessarily looking to make margin on tariffs. And that's generally what you're still seeing to this date. Yes, we do have, I'd say, a carryover impact into this year. Clearly, with tariffs really starting in the April-May time frame last year and then ramping from there, you kind of have, I'd say, more of a first half of this year kind of carryover on the tariff side. But pricing is matching that fairly well. What I would call it is price/cost dollar-neutral. Obviously, that's margin dilutive. And as such, that -- so it kind of plays a little bit more of a headwind on the ITS margin profile in the first half of the year, and we do expect that to kind of normalize and get back to margin expansion in the back half of 2026.

So I think as far as share and things of that nature, I think we're maintaining very nicely. We're encouraged, I think, by how the teams have operated even in Q4, where we did mention, I think, in our last earnings cycle, there was maybe a little bit of timing on [ tariff ], that's a little bit quicker than price. I think the teams executed very well. You saw us kind of delivering towards the high end on both revenue and earnings profile, which I think was the team is executing very well as we move through Q4. And I think as we move here into 2026, no expectation that should be dramatically different.

And when you look at what competitors have done, I think a lot of in compressors, they may have a more global sourced approach than you. They're less in-region for-region. So in the U.S., did you see them respond yet with big price increases? Or they're more kind of trying to balance out?

Yes. I mean we've seen -- I think we've seen a varying degree of responses for a better way to say it. I think what we're very focused on here is, one, making sure that we -- from a quality of earnings perspective, are kind of protecting the bottom line, which I think we've done a nice job of. We obviously have, I'd say, certain degrees of tariff mitigation that have been in place, and I think is in motion as we speak in terms of whether it be shifting sources of supply in very isolated instances, shifting some of our internal supply dynamics. Like I said, we're very much in-region for-region. So that part is a little bit more limited for us. Clearly, the pricing side of the equation, taking requisite price. But I'd say this is a very rational market, and I think continues to behave fairly rationally in that respect.

Great. And ITS margins, they've got to a very high level in the last few years. You have been comparable with your main global peer on margins for a couple of years now. What's the sort of next leg to getting margins up if there is one? Is it around the recurring side or adjacent products to get bigger and away from Compressors? How to think about where margins could go in ITS?

Yes. So we've hit 30% EBITDA margins in ITS. We're planning around 29-ish percent now with some of the tariff headwinds. I think if you take a look at the last few years with some of the headwinds we've seen, particularly whether it be on the tariff side and things like that, first and foremost, given some of those headwinds and frankly, an environment that you haven't seen a lot of organic volume growth, actually quite encouraged by how the team has been able to maintain margins at that upper 20s to 30% level, which speaks to pricing discipline, productivity, we've been very explicit. We've taken some restructuring actions and things of that nature, including some of the second half of 2025.

As we move forward, we've said very explicitly, we don't necessarily see a cap per se on margins, right? Obviously, playing against that 29%, 30% it's hard to see the level of margin expansion you saw back in the 2021, '22, '23 days. But I think as far as going forward, I'd say the concept of being able to deliver 1% to 2% price, continuing to see the productivity equation, any requisite volume growth obviously comes with pretty healthy flow-through. I think can be the catalyst inclusive of recurring revenue for continued margin expansion. But also, we're going to be very conscious of continuing to reinvest for growth, right? We've talked about it very explicitly, whether it be growth from an innovation perspective, recurring revenue or quite frankly, just the feet on the street, the R&D, things of that nature, not just in the areas we talk about quite a bit often U.S. and Western Europe, but also those under-penetrated markets, right? And those under-penetrated markets being Latin America, India, Middle East and I'd say, Southeast Asia, kind of the balance of Asia, that's not China.

And just to give that a little color, in Q4, you saw actually 20% plus orders growth in that non-China part of Asia, which I think speaks to some of that focus and some good project wins and things of that nature. Brazil has continued to show very nice growth. India tends to be kind of probably our best growth region if you look across a number of years. So I think we're going to continue to be balanced in terms of continuing to drive that reinvestment for growth. But absolutely, I think the concept of requisite pricing with organic volume and the productivity, there still is opportunities for margin expansion.

And then PST struggled for 3, 4 years to get margins towards that mid-30s range. It's been much better performance in the last kind of 5 quarters or so. Help us understand like what's driven that improvement? And kind of what should we expect for margins? I think this year is just over 1 point of margin. Is that a good -- I don't know, placeholder until we get to the mid-30s and then you kind of get fresh...

Yes. I mean just to give it a little bit of color, historically, to your point, this was a business that moved from approximately 30% EBITDA margins in the 2021 timeframe to about 30% EBITDA margins in 2024, 2025. And it's worth noting that there were a lot of ebbs and flows in between, whether it be the legacy Ingersoll Rand Medical business, which was kind of probably the biggest beneficiary of COVID and then obviously saw the biggest headwinds thereafter, a business that plays above segment average margin profile. You had some acquisitions like Seepex that were intentionally acquired at certain levels, but you've seen that get to fleet average. So as much as we move, let's call it, 30% to 30%, I would say a lot of good efforts from the team to be able to offset some known headwinds that were kind of occurring under the covers.

Now that being said, going forward, to your point, seen a lot better momentum here over the last couple of quarters. And I think that's attributable to two big factors. One, continued integration of some of the recent acquisitions, particularly on the Life Sciences side, where you're seeing good growth. And now as those acquisitions are getting much more firmly embedded and integrated as well as aspects of IRX and productivity starting to play themselves out, you've seen better margin performance.

And then two, we always mentioned that particularly on the kind of, I'll call it, more legacy part of PST, so the Precision Technology, the kind of legacy Pump business, it's probably that historically speaking, back post-merger, it probably didn't have as much of the focus in terms of the integration. And that's really just because a lot more of the effort was spent around ITS. Now that being said, the concept of IRX taking hold, I2V, productivity, even some targeted cost actions, you're seeing that taking place now on the balance of that PST portfolio, which I think is helping to drive some of that margin expansion. And listen, similar story at ITS, with some of that kind of organic volume growth, you're seeing some of that leverage come through. So yes, 2026, the kind of guidance framework embeds a little over 1 point of expected margin expansion. Is there any reason that we shouldn't be able to expect similar levels as we move into '27? No. And I think that speaks very well to the expectation of continuing to drive this business to that mid-30s EBITDA margin profile, which has always been the target.

And ITS, I suppose, not a firm -- the target you hit the target and then we're sort of waiting, I suppose, for a new one at some point?

Yes. I think that's probably the best way to say it. I'll say, one, is there still opportunity for margin expansion we talked about? Yes. Do we expect to be seeing the triple-digit margin expansion that you saw back in the 3, 4 to 5 years post the merger? No, not to those levels, just given where the margin profile is, some of the opportunities that were evident back then in terms of the merger and things like that.

Now that being said, I still think the margin expansion is still an opportunity there. We'll obviously recalibrate that as we move forward in terms of more forward-looking expectations at our Investor Day and things of that nature. But clearly, we've been at 30% plus EBITDA margins before. I don't think we see any reason why that can't exist again in the future. And we haven't -- we've said it before, we don't necessarily see a cap on margins, but I think we also want to be prudent in terms of the expectation there. It's not the same level of opportunity as what you saw back in a few years post the merger.

And then you mentioned the Life Sciences acquisitions in PST. How is ILC Dover performing now? Its more than 18 months, I think, just since the close, organic growth, sort of progress on margins?

Yes. I think we're really encouraged by what we're seeing. To your point, it's, I guess, coming up on 2 years here in the not-too-distant future in terms of the acquisition of ILC Dover. I think the Life Sciences side continues to execute and operate quite well. We talked about it in Q4, you saw double-digit orders growth in that Life Sciences part of the business. I think whether it be the biopharma side, which still has as many of the same kind of opportunities with GLP-1s and things of that nature going forward as well as kind of the more kind of Med Device business, which I think the -- way I think about that is continuing to see that multiyear trajectory as we kind of ramp up on platforms that you're kind of getting spec-ed into. So that business, yes, does have a book and ship dynamic and kind of a shorter nature to it. But I look at it kind of more from a medium-term perspective in terms of those multiyear platforms you're getting spec-ed into that you live that kind of duration of that life cycle with your end customer. And I think we're encouraged by what we're seeing on both ends.

I think the other piece here that, that team has done a really great job on is we talked about it before, really adapting, I think, a lot to -- a lot of the IRX processes. So whether it be IRX demand generation, the productivity equation, rightsizing the cost structure, the first, call it, 6 to 12 months, there was a lot of change in that business, new GMs, new structure, changing from a more matrix and P&L environment to a more straight line, today. I'd say that's kind of really all cleaned up here. And so I think we're really encouraged by the momentum we're seeing going forward. And you're also now starting to see that bolt-on M&A approach, right? We've done multiple acquisitions, 4 or 5 acquisitions now that have been put into Life Sciences, including the one we just closed here in January of Scinomix.

And I think we're really encouraged by now having that, we'll call beachhead in Life Sciences that you can now see the kind of Ingersoll Rand bolt-on M&A kind of playbook starting to replicate itself. And that's -- it's no different. We're doing low double-digit pre-synergy adjusted EBITDA purchase multiple acquisitions there, driving a similar return profile and synergy de-leveraging like you see in ITS and in the legacy Pump business and no reason why that can't continue on a go forward. So I think we're actually really encouraged by the momentum we're seeing there as well as now that platform for future growth, both organically and inorganically.

And on the non-medical side of PST, any particular focus areas for share gain, whether on the type of pump or end market? It can be hard from the outside to sort of understand what's happening in that non-medical part.

Yes. I'd say the best way to probably describe it is it kind of behaves in a comparable manner to what you're seeing in IT. So it's obviously got a number of different end market exposures, whether it be wastewater, agri-tech, [ aquatic ], core industrial, more process-oriented, but it's actually very global in nature. In fact, the revenue profile of the legacy, we call it Precision Technologies, but the legacy pump portfolio looks very similar to what you're seeing in ITS.

So generally speaking, and also has a long cycle component to it as well in some pieces. So similar, very similar, I'd say, to what you're seeing on the ITS side. And actually, the growth trajectory there, inclusive in Q4, you saw a very comparable orders trajectory as what you saw in ITS. So I would correlate it fairly well to what you're seeing in ITS, which obviously, we're encouraged by some of the momentum, but we want to stay prudent in terms of that expectation going forward.

Great. And then capital deployment, obviously there was a large transaction announced about 2 years ago now, just under -- what's the -- I think you had mentioned on the earnings call, a couple of billion dollar-plus deals in the pipeline. So what's the likelihood that we see an ILC Dover-sized acquisition this year?

Yes. So I think maybe just to take a broader kind of view on capital allocation. I think in 2025, you saw, I'd say we did roughly a little over $500 million of M&A from a capital deployment perspective, 16 bolt-on acquisitions, right at kind of the lower end of that 400 to 500 basis points of annualized inorganic growth. We did do a bit more outsized on the share repurchases, close to $1 billion. And obviously, the dividend, the same dividend profile we've seen before.

As we move into 2026, what I would tell you is the expectation for continuing to see M&A being kind of the catalyst to capital allocation, absolutely. Typically speaking, historically, we've always targeted something around 80%, 85% of free cash flow typically goes towards M&A. I don't see any reason that should be dramatically different. Share repurchase at this point, probably targeted at that $300 million to $350 million range on a full year basis and really no expectation to change anything on the dividend side at this point in time.

To your question on the M&A front, yes, I think as Vicente mentioned on our earnings call, a couple of slightly larger bolt-on acquisitions. I'll still call them bolt-on at $1 billion, roughly speaking. So I think there's maybe opportunity for something a little bit more sized in that respect, still bolt-on in nature. Much larger than that. Right now, I wouldn't say that there is necessarily an expectation of actually the ILC Dover size per se, but still $1 billion plus complemented by, I'd still say, the concept of doing the smaller bolt-ons, just like you saw in 2025, no reason to expect anything different. In fact, we've already done one in January, actually in our Life Sciences business, 9 more under LOI as we sit here today. So I think the funnel remains as healthy as it's been historically. No reason to expect that the equation to be dramatically different than what you saw in 2025.

And in terms of the type of asset that you'd look for, you mentioned Ecoplant as a sort of software business and the software sector has taken a bath recently because of AI concerns. Does that derating make it more appealing potentially for Ingersoll to do software M&A? Or it's just not on the radar?

Yes. I wouldn't go that far. I mean I think for us, where we've done software like an Ecoplant, it's because it made sense for the ecosystem where we play, right? Connectivity of compressor assets or driving efficiency from a compressor perspective. So valuations and things like that aside, yes, I would say if there's something from a software perspective that makes sense from the ecosystem we play in or connectivity, perhaps.

But I would expect that you're going to see M&A look very much like what you've seen in years past. Meaning what I would call core compressor, blower, vacuum pump assets, something that's really close to core, targeted channel where it makes sense and a good distribution between both segments. So we are allocating capital to both segments in A, I'd say, equitable prudent manner. So you're not seeing M&A capital just going to Life Sciences or vice versa. So it's going to be a good spread just like you saw in 2025.

Fantastic. Well, with that, I think we'll pivot to audience response survey questions, please.

So the first one is current ownership of Ingersoll Rand?

So 70%, no, which is fairly typical of these answers.

Second question is around sort of current bias to the stock today?

So fairly evenly spread.

Third question is around EPS growth profile kind of versus the multi-industry average?

Sort of in line-ish to above.

Next question is around cash usage. Where should -- we just talked about M&A, but what's the best use of cash?

Almost all bolt-on M&A and very little appetite for larger deals.

And I suppose the point on the buyback was the $1 billion, it was really because average purchase price, I think, was just under $80 a share. So quite a bit higher than that for the buyback to be at a similar level, you'd need some kind of similar share price action?

Correct. And as such, M&A is clearly the focal point as we move into 2026.

Great. And next question is on sort of valuation. What's the right PE multiple for Ingersoll this year?

So I don't know, 20x, I guess.

And then last question. What's the main reason why the multiple shouldn't be higher?

So organic growth, yes, it's been tough for a couple of years.

So with that, thanks, everyone, and thank you very much Vik for being here.

Thank you.

Hello, and welcome to the Ingersoll Rand Fourth Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Matthew Fort, Vice President, Investor Relations. You may begin.

Thank you, and welcome to the Ingersoll Rand 2025 Fourth Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer.

We issued our earnings release and presentation yesterday afternoon, and we will reference these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today.

Before we start, I want to remind 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, both of which are available on the Investor Relations section of our website.

On today's call, we will review our company and segment financial highlights and provide our full year 2026 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow time for other participants. At this time, I will turn the call over to Vicente.

Thanks, Matthew, and good morning to all. Beginning on Slide 3, we ended the year on a strong note. Delivering low single-digit organic order growth for both the fourth quarter and the full year. Additionally, our return to organic revenue growth reflects positive momentum heading into 2026.

We're also very pleased with the momentum we continue to see on our recurring revenue initiative, which exceeded $450 million in 2025. With a backlog of recurring revenue of approximately $1.1 billion in future revenue from existing contracts. This is a clear demonstration of how we continue to make great progress towards achieving our recurring revenue target.

Turning to inorganic growth. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline remains robust with a strategic focus on enhancing our existing portfolio.

Finally, our teams remain nimble through the use of IRX and continue to leverage our economic growth engine to outperform in the markets in which we serve.

On Slide 4, our inorganic growth flywheel remains robust, underpinned by a strong pipeline and disciplined deal execution. The value creation flywheel remains a core engine of performance, delivering durable free cash flow and enabling consistent high-return capital deployment.

In 2025, we demonstrated both efficiency and precision in our execution, investing $525 million across 16 transactions which collectively generated approximately $275 million in annualized inorganic revenue. These high-return acquisitions averaged a 9x pre-synergy multiple and expanded our technological capabilities. demonstrating that our M&A engine continues to help us drive above-market growth, and we're off to a great start heading into 2026, with nine additional transactions currently under LOI.

In January, we completed our first acquisition of 2026 with Scinomix, a leading manufacturer specializing in technologies that optimize workflow solutions to improve throughput accuracy and traceability across multiple life science and markets. This dynamic acquisition advances our Life Science strategy by combining complementary technologies to deliver high-value end-to-end laboratory solutions.

Now I will hand it over to Vik, who will share an update on our financial performance for Q4 and the full year.

Thanks, Vicente. Starting on Slide 5. Orders showed continued strength in the fourth quarter, up 8% year-over-year or up 1% organically, with both our ITS and PST segments delivering low single-digit organic order growth. Consistent with normal seasonality, fourth quarter book-to-bill finished at 0.93 turns. As Vicente mentioned earlier on the call, we finished the year strong with revenue up 10%.

Organic revenue grew 3% year-over-year, which included both positive price and volume. We delivered fourth quarter adjusted EBITDA of $580 million and adjusted EBITDA margins remained strong at 27.7%, reflecting the durability of our operating model with year-over-year margin pressure primarily driven by tariff impacts and intentional commercial investments for growth.

Corporate costs were $31 million, our Q4 adjusted tax rate was 21.2% and adjusted earnings per share was $0.96 for the quarter, up 14% year-over-year.

Moving to the full year results on Slide 6. Orders were up 9% year-over-year or up 1% organically. Heading into 2026, we are well positioned, finishing 2025 with a book-to-bill above 1 and both the ITS and PST segments delivering low single-digit organic order growth for the full year.

Total revenue was up 6% year-over-year, while organic revenue finished the year down 1% due in large part to tough first half comps with a clear improvement in trajectory as the year progressed and positive momentum exiting 2025.

For the full year, our results exceeded the upper end of our prior guidance range for both adjusted EBITDA and adjusted earnings per share. The company delivered adjusted EBITDA of approximately $2.1 billion with an adjusted EBITDA margin of 27.4%. And adjusted earnings per share for the year was $3.34, up 2% year-over-year including a full year adjusted tax rate of 22.8%.

On the next slide, free cash flow for the fourth quarter was $462 million. With $3.8 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Leverage continues to be well under 2x even as we continue to strongly deploy capital in 2025, including $525 million in M&A, $1 billion in share repurchases and $32 million in dividends. This performance reinforces our ability to effectively deploy capital while maintaining top-tier balance sheet flexibility.

Now I'll hand the call over to Vicente, who will go over our segment results.

Thanks, Vik. On Slide 8, ITS orders finished up 9% in the fourth quarter. Book-to-bill for the quarter was 0.93 and finished above 1 for the full year. The segment delivered organic orders growth in the low single digits making all 4 quarters of positive organic order growth in 2025.

All three regions, Americas, EMEA and Asia Pacific saw positive organic order growth for the full year. Revenue grew 11% year-over-year, including organic revenue growth of 3%. Adjusted EBITDA margins finished at 28.9% and which was down year-over-year, largely driven by the dilutive impact of tariffs and continued commercial investments for growth. For a more detailed breakdown on organic orders at a regional level for Q4 Americas was up low single digits. EMEA was down mid-single digits and Asia Pacific was up low double digits, driven by China up low single digits and the rest of Asia up mid-20s.

Compressor organic order trends were in line with the regional trends just mentioned for Americas, EMEA and China. This marks the third quarter in a row where we saw organic order growth in China, underscoring our agility through the effective use of IRX and the success of our demand generation activities, delivering consistent growth in what remains a very challenging market.

In our Innovation inaction section, we're pleased to introduce the latest aeration technology for wastewater applications developed by one of our recent acquisitions. This advanced technology has been integrated with one of our high-efficiency blowers, allowing us to deliver increased oxygen while reducing power consumption. This combination allows us to achieve up to 34% in [ AG 7 ], creating a strong return on investment for the customer. This initiative demonstrates our commitment to leveraging both established and new acquired technologies to offer greater energy efficiency to our customers and expand our aftermarket revenue opportunities.

Turning to Slide 9. Q4 orders in PST were up 6% year-over-year with a book-to-bill of 0.96. Organic orders were up 1% and including our life science businesses, which delivered mid-teens organic order growth. For the full year, PST delivered organic order growth of 2% with a book-to-bill of 1 time.

We're also pleased to highlight that both our Precision Technologies and Life Science Technologies businesses saw positive organic order growth for the full year. Additionally, we are encouraged by the acceleration in the organic order momentum as the second half of the year finished up mid-single digits. Fourth quarter revenue finished up at 8% year-over-year with organic revenue growth of 4%. PST delivered adjusted EBITDA of $127 million, which was up 19% year-over-year with a margin of 30.4%. Adjusted EBITDA margin improved 280 basis points year-over-year demonstrating continued strong execution against a relatively easy comp from Q4 of prior year.

For the full year, adjusted EBITDA margin finished at 30%, which is up 40 basis points year-over-year. For our PST innovation in action were showcasing our award-winning EZ JetFlo product from our Life Science business. EZ JetFlo is a disposable single-use mixer designed for biopharma production. Featuring a sealed transfer system that improves safety by reducing cars contamination risk and yielding operator from airborne powders.

When payer with EZ BioPac Bags, it allows for fast turnaround without the need for cleaning or validation while delivering straightforward operation for quicker powder dissolution compared to competitive alternatives.

As we move to Slide 10, we're issuing our full year guidance for 2026. Total company revenue is expected to grow between 2.5% and 4.5%, driven by organic order growth of 1% at the midpoint, 1.5% growth from M&A which includes a carryover from all transactions completed in 2025 as well as the previously announced dynamic acquisition and 1% FX tailwind. Total adjusted EBITDA for the company is expected to be in the range of $2.13 billion and $2.19 billion. Corporate costs are planned at $170 million and are expected to be incurred evenly per quarter throughout the year.

Adjusted EPS is projected to fall within the range of $3.45 and $3.57 which is approximately 5% growth at the midpoint. We anticipate our adjusted tax rate to be approximately 23%, net interest expense to be about $230 million and share count to be approximately 394 million. Free cash flow to adjusted net income conversion will be around 95%. The phasing of revenue, adjusted EBITDA and adjusted EPS is expected to be consistent with what we have seen in prior years as outlined in the table.

In addition, based on our guidance at the midpoint, we expect EPS to grow at a similar mid-single-digit growth rate in both the first and second half of the year.

Finally, on Slide 11. As we wrap up this part of the call, I'm confident that are strong finishing 2025, puts us in an excellent position for success in 2026. We maintain agility and readiness to adapt to the ongoing changes in the global market landscape. Our teams have consistently demonstrated resilient and high level of execution, achieving strong results in this very complex environment. We remain disciplined with our approach of capital allocation leveraging our robust balance sheet to generate durable earnings growth and long-term shareholder value.

Finally, I would like to thank our employees for your ongoing dedication and commitment to embracing an ownership mindset. Thank you for your help in delivering another robust quarter and full year.

Now I will hand the call back to the operator and open it for Q&A.

[Operator Instructions] your first question comes from Mike Halloran with Baird.

I want to start on the -- in the guidance, what sort of end market trajectory is embedded in the guidance? And then the shorter cycle side of your businesses, are you seeing any signs of change in what would the businesses that you would look at to internally for leading indicators on your side?

Sure, Mike. So let me start with the end market commentary first, as it relates to what we're currently seeing in the market, which is the basis of our initial guide here. portfolio continues to demonstrate resiliency. As you have seen, I mean, as a reminder, 40% of our revenue is aftermarket, which tends to be very stable. And from a high level, some end market commentary, life sciences is progressing and improving sequentially.

As a reminder, we demonstrated our growth with orders in the mid-teens during the performance and kind of double click on the life sciences more pharma and biopharma production. We continue to see very good funnel and booking activity both in the U.S. and outside the U.S. Our Medical Device business, which is there in region for region is driving some very good funnel activity. I was actually with a team in China last week, and there's just a lot of good potential to serve our customers in China, for example, on the medical device side.

The lab analytical diagnostic equipment market, very good pipeline activity, given some of the U.S. resharing of drug discovery and development and the need for automation to mitigate resharing costs, therefore, the acquisition that we made with Scinomix, which plays very well in that kind of end market.

On the general industrial side, we have seen more stability, especially in the back half of 2025 as we kind of have passed the peak of uncertainty related to tariffs. And that being said, we're cautiously optimistic about the improving trends moving into 2026.

Long-cycle project perspective, we haven't seen any kind of dramatic changes as the funnel remains very healthy. And I think it's -- the other important point of note is we'll continue to remain very encouraged about the recurring revenue.

In terms of some of the indicators that you were asking, Mike, I mean, PMI, for us, continues to serve as a good overall gauge for short-cycle businesses, and we're optimistic about the uptick we recently saw in the U.S. PMI here in January. And however, we think it's too early to call a meaningful inflection and as a result of just one data point, which has been down for such a long period of time. And therefore, the reason why we took a prudent approach here as we started here.

So it sounds like the guidance itself assumes just the current trajectory continues as opposed to some sort of inflection up in any of the pieces? And then Related to that, are there any end markets that you're specifically worried about this year, maybe better put, if you look at the last couple of years, where there's been headwinds, do you think those persist into '26 here? Or are we at the point where we've at least flushed out a lot of the headwinds. I know the China piece has been a headwind from a market perspective that you've turned to growth. Any other things there you would point to or areas you would point to?

Yes. So related to the guidance, you're exactly as you said, Mike. We're not embedding any market recovery here. I'm very stable sequentially here from what we are seeing today. So that's what we're embedded in the guidance. In terms of the end market, some of the headwinds, as you very well -- as we kind of articulated, whether RNG, electric vehicle, photovoltaic, a lot of that is behind us. And I think also the good news here too as well, as I mentioned on the early remarks, our team in China, now 3/4 of delivering positive organic order growth the past 3 quarters in a row, not what the market is doing, but also sticks loudly as to what the team is doing. I was with the team in China last week and it's very impressive, the amount of innovation and technology and new end markets and new solutions that they're launching in order to penetrate the market and see that organic growth.

The next question comes from Julian Mitchell with Barclays.

Just trying to understand the seasonality through the year a little bit better. So is it fair to assume the guidance is based on roughly that 1 point of organic revenue growth year-on-year fairly evenly through the year. And then on EPS growth, I think you mentioned mid-single digits year-on-year in both halves. Are you starting out first quarter around that mid-single-digit EPS growth as well?

Yes, Julian, I'll take that one here. So as far as the organic growth comment, first and foremost, starting with Q1, we expect Q1 organic to be, I'd say, roughly flat to maybe very slightly down. But then as we move through the balance of the year, we expect, I would call it, comparable low single-digit growth -- organic growth for Q2, Q3 and Q4.

So as Vicente said here, a bit of normalization perhaps as we get from Q2 to Q4, but no meaningful market recovery or anything like that necessarily baked into the guidance. As far as the EPS question, generally, the way you're characterizing it is a fair way to think about it here. As we indicated, we expect to see a relatively even earnings growth on a quarterly basis and particularly on the first half versus second half as well.

That's helpful. And then maybe my follow-up would be on the EBITDA margins. So I think the guidance embeds full year EBITDA margins are flattish. Is the way to think about that, maybe a small decline year-on-year in the first half because of price cost and then that flips around. And in light of some of the commentary in the last sort of 8 hours or so. Maybe help us understand kind of the scale of the price cost headwinds that you have been seeing, whether dollars or margin percent?

Yes, sure. Julian, I'll start. As far as the margin profile and kind of the way you've talked about it, you're completely correct. I think even as we talked about on our last earnings call, we did expect some headwinds on the margin front, particularly in the first half of the year, particularly as we lap kind of some of the annualizing of the tariffs.

So that's largely impacting the first half of 2026. And then clearly, as we move to the second half of the year, we would expect some of the results of, what I'll call, in-year pricing actions, some of the productivity measures as well as some of the controllable, I would say, actions that we've taken internally to drive a better margin profile into the back half of the year.

As far as the price cost piece of the equation, let me just start by saying, one, I think the fourth quarter largely played itself out as expected. Worth noting though that I think the teams executed really well, which you saw specifically in that Q4 performance. And as far as the price cost equation and things of that nature, kind of going back to my earlier comments. One, we do expect price cost to be positive for the full year.

Now if we take that in terms of the two components, first half and second half, like I said, price cost is expected to be a bit more constrained in the first half of the year given the timing of the tariff impact. However, we do expect to be price cost neutral in the first half. And then we expect to see that margin expansion take hold in the second half for the factors I kind of earlier described.

The next question comes from Jeff Sprague with Vertical Research.

Thank you. Good morning, everyone. Just a couple of things. First, just back on the short cycle, yes, we've all seen the PMI semi, I just want to kind of clarify a little bit, though, are you not seeing any actual pickup in short-cycle pockets, whether it's, I don't know, tools or small compressors or the like is sort of question number one.

And then does the guide actually anticipate volumes turning positive by the time we get to the back half of the year? Obviously, you've been running on negative volumes, positive price for the better part of 8 quarters here, I guess.

Yes. No, Jeff, I -- we're seeing some pickup in the short cycle, clearly. I mean as you saw from the order rates as we kind of deliver here in the fourth quarter, and we see somewhat of the momentum continuing here as we enter 2026 and into January.

So the order momentum, I'll say, continues. I think with the remarks that I made is PMI just turned above 50 in the U.S. for the first time in 38 months or so in January, and we're just saying, hey, that's only 1 data point. But we're seeing definitely that better momentum and kind of inflecting points. We just want to see more data points of kind of continued better market performance.

Yes, in terms of -- go ahead, yes.

Go ahead, sorry.

Just a question on the volume side of the equation. Again, the best way I would probably describe this as we do expect volume performance to improve as we think about the second half versus the first half. I think it's probably closer to probably somewhere in the flattish realm, if you think about it as we get to the back half of the year and as we exit the year, but as Vicente said here, we haven't baked any what I'll call a meaningful recovery per se. And obviously, I mean as markets continue to hopefully improve, we would expect that to be an area for potential outperformance in the future. We just obviously want to see it materialize first.

And just a follow-up on capital deployment, if I could. It's not clear that maybe you have capital deployment in the guide, the share count number. Maybe we can get close to that just on the annualization of what you did on the repo. I do see interest expense coming down a little bit. I don't know if that's rates or cash generation debt reduction. Can you just clarify what if anything is in the guide from a capital deployment standpoint?

Yes, sure, Jeff. I would say the approach is very consistent with how we've historically. So essentially, I'll take the pieces here. One, from the share count perspective, you're just seeing the annualization of the actions already taken in 2025, where we did approximately $1 billion of share repurchases. So you're just seeing that now materialize into the share count piece of the equation. From an M&A perspective, consistent with how we've historically kind of guided, you've seen the M&A impact is just the carryover of acquisitions completed in 2025 as well as the one deal that we have completed here thus far in 2026, which is the Scinomix acquisition that Vicente indicated.

As far as the balance of the equation, whether it be interest expense or things of that nature, I would say it's fairly consistent with 2025 level. So everything there is generally as we've historically indicated and guided.

Next question comes from Joe O'Dea with Wells Fargo.

Can you dig in a little bit on the acquisition opportunity set when you talk about the 400, 500 bps of annualized revenue expected to be acquired in just in terms of the composition of the pipeline right now, it sounds like primarily in the bolt-on side of things, but anything that could be in the larger side as well. what that would mean, what your appetite is for anything in that kind of larger category.

So the opportunity in the funnel remains really strong, already executed one acquisition with Scinomix and currently have nine companies under LOI. A characterized pipeline still as being bolt-on in nature, but there's definitely a couple that we have been cultivating for quite some time that could be on the larger purchase price or maybe billion or so. But again, it's -- the current pipeline is bolt-on in nature today. But we're definitely seeing a lot of good activity and particularly on what I just referred to. I mean, the -- our cultivation process continues to remain very strong, and we're seeing better bolt-on years to as well.

And then on the recurring revenue side, I think this has gone from $200 million a couple of years ago to $300 million to over $450 million. Just a little bit of color around what's kind of driving some of the traction there, where you're most pleased. And then how you think about the opportunity in '26 and sort of where that could get to? .

Yes. Absolutely. I mean, we're very excited about some of the milestones that we achieved here in 2025. And not only the $450 million of revenue, which, as you very well said, a couple of years ago, it was approximately $200 million. But the fact that we now have approximately $1.1 billion in future revenue from existing contracts in what we call in the backlog or in the bank. So that gives us good confidence here as we can continue.

The ramp, we always said that will not be linear and will require continued run to achieve our long-term Investor Day target. And we will provide an update to that on our next Investor Day. But I think it's -- we're seeing the good resiliency from the team, not only as we expand into some of the regions, but as we expand the recurring revenue into many other technologies. But we're pleased with the performance supplier, and the teams are working very hard to continue to accelerate.

The next question comes from Nigel Coe with Wolfe Research.

Thanks. Good morning, everyone. Hope as well. Lots of details so far. Vik, I just wanted to go back to your comments on 1Q being flat to maybe slightly down. relative to the, call it, 3% organic you posted in 4Q. So that would imply a pretty significant kind of Q-over-Q deceleration. So just wondering, was there any timing of shipments that benefited 4Q that informs that view? And then just maybe just if you could just dimensionalize the price cost and investment spending that you are highlighting. And any sense on how we should think about [indiscernible] margins again, first half is the second half?

Yes, sure, Nigel. Let me take the first one. So as far as I'd say the revenue from Q4 to Q1, Remember, I would characterize what you're seeing really as normal seasonality. If you look at typically speaking, in any cadence of the year, you typically have. Q4 is typically our strongest quarter of the year, typically characterized by a lot of the shipments in some of our longer cycle project businesses. That business typically has a little bit more of a stronger orders profile in the first half of the year, a little stronger shipment profile in the back half of the year. 2025 was very much in line with that.

So I think what you're referring to here as far as kind of the sequential movement between Q4 and Q1, very standard. And in fact, I would say the revenue and earnings seasonality that's baked into our 2026 guide is almost -- it's actually exactly what you saw in prior years. So again, I would characterize that as standard and not being atypical compared to kind of what you've seen in prior years.

As far as the price cost and really more so of the investments, obviously, we haven't necessarily quantified the exact number here for you. But what I would characterize it as is a couple of kind of moving factors, and we can also talk about kind of the ITS margin profile as well. I think in terms of the investments. It's the same continued, I would say, commercial investments that you've seen us talk about historically. So whether that be at the corporate level, things around centralized demand generation, things of that nature, some of the kind of normal course investments for growth, as well as within the actual business, really much more front-end commercial, engineering and related innovation, if I will say, in commercial-related investments.

So again, I would say that's a continued trend in theme. You've seen us be very consistent with that in 2025 as well. So I think is much more of a, I'll call it, continuation in that respect. As far as the margin question, I think you asked about ITS, I think the best way to kind of describe it here is our expectation for ITS margins is that on a total year basis, we do expect to be relatively flattish year-over-year on a full year basis.

That's largely driven, I would say, by the two factors that we mentioned here, the tariff-related expenses, really the carryover there. We are offsetting with price, but obviously, that's still kind of dilutive from a margin perspective. as well as the, I'd say, continued targeted commercial investment for growth.

PST, we do expect to be up triple-digit margin expansion in the sense, really, frankly, strong operational execution, I would say, the continued integration and execution on some of the acquired assets. And then what I would say is probably a slightly easier comp particularly in the first half of the year comparatively to the rest of the business. And then we obviously highlighted kind of corporate costs at a total company level, which we expect to be roughly even per quarter through the course.

That was great color. And just a quick one on the PST orders. Obviously, great momentum in Life Sciences. I think you said up mid-teens. But that implies there was a significant decline in other business units. Just wondering if you could just touch on that quickly.

Sure, Nigel. So I mean, basically, very, very happy and excited with what we're seeing on the Life Sciences side. The precision technology, also the delivery deliver fairly nice, which is about 60% of the total segment, and that business is performing in line with what you have seen in [indiscernible]. So the last piece is basically the Aerospace and Defense business, which is down due to order timing, nothing unexpected. The business is generally moving sideways from 2025 to 2026. But that was basically kind of the offset in the segment.

The next question comes from Nicole DeBlase with Deutsche Bank. .

Can we just start with -- when you look at the full year guidance for organic flat to up 2%, are you looking for something similar magnitude in both PST and ITS.

Sure, Nicole. I'll take that one. Yes, I think the simple answer is it's comparable, right? I think in terms of the overall, I would say, we expect a slightly healthier overall full year from PST as compared to Obviously, that kind of blends to the midpoint, if you will, of what you see as far as the overall guide. But yes, I think relatively comparable trajectory as you think about the sequential movement from Q1 into the back half of the year.

Okay. Understood. And then can we just dig a little bit more into what you're seeing from a longer cycle project perspective? The sense you had talked about for several quarters in 2025, like delays in decision-making activity or decision-making process from your customers? How did that kind of go in the fourth quarter and into the early part of 2026?

Yes. I mean I'll say that the positive side is that the long cycle project funnel continues to be very, very active. We saw even some resurgence of adding more into the funnel as we were kind of gravitating here at the end of the year and a very good start here into the beginning of 2026.

In terms of the delays in decision-making and kind of what we call about the elongation, that kind of continues to still be there. But the good news is that projects are not getting canceled. And that we continue to see some good momentum. So again, it continues to build upon basically seeing that the funnel continues to grow and which bodes well for us as we kind of come here into 2026 from an order perspective.

The next question comes from Nathan Jones with Stifel.

I guess I'll just start off with a question on the EBITDA guidance. I mean it's pretty clear you're not planning on much in the way of volume growth. You get a little bit of addition to EBITDA from M&A. It doesn't seem to really embed any cost actions or any product in the guide. Can you talk about any expectations you have to for cost out or for productivity gains during 2028?

Yes. Sure, Nathan. I'll start with that one here. So I think the guide does include some requisite, I would say, productivity or cost action. Let me kind of take those in pieces here. So clearly, I'd say the headwind from a margin perspective, kind of earlier stated is really the kind of the carryover of the tariffs, right? So even though there are pricing actions that are offsetting on a full year basis, but still is a little bit of a headwind from a margin perspective. Despite that, you're still seeing that we are growing earnings per share in a requisite comparable manner, quarterly or first half, second half.

The driver of that or the kind of the offset tends to come from some of those cost actions. So first and foremost, you have seen in our financials here that we have taken some proactive restructuring actions in the back half of 2025. Those will continue to materialize into savings into 2026. I'd say payback periods on those actions are very much in line with what you've seen us do historically. So that clearly is, I'd say, kind of the first item.

The second one is what I would call the kind of normal course productivity. So that would be direct material as well as kind of Remember, those tend to follow, I'd say, the phasing of revenue very similarly to what you've seen in prior years. So those do tend to have a little bit more of a second half weighting, but that's just because they follow kind of the shipments.

And then the other piece, Nathan, would be that we are obviously taking, I'd say, some targeted pricing actions in the course of the year like we typically do. Those will obviously be taken business by business, region by region. Through the course of the year, and you'll start to see some of that materialize in the revenue base, particularly as move into the second half of the year. So I'd say those are kind of the moving factors here that are, I would say, offsetting both some of the tariff-related headwinds, some of the kind of, I'd say, reinvestments that you're seeing from a commercial growth perspective as well as some of the increased corporate costs on a year-over-year basis.

And then I guess in terms of forward-looking indicators, you talked about per margin a good reading in January in the U.S., obviously. You guys just over the last few years, talked about marketing qualified leads, as an indicator for your own business. Can you talk about what that's telling you in various regions and whether that's giving you any more confidence in the order rates in the short term.

Yes, sure, Nathan. So absolutely. I mean I think our marketing qualified leads is part of core of what we track ourselves internally by region, by product line, by -- even by end market. we continue to see some fairly good momentum on how the marketing qualified leads continue to grow.

Now a lot of that is because of, obviously, our kind of self-help engine on how we reach new customer accounts. So roughly half of those marketing qualified leads are coming in from new customer accounts. as we try to obviously continue to take share. So that's why we're seeing some good acceleration in terms of NPL continue to be strong. But as I said before, decision-making is kind of this elongation. But again, all indicators, PMIs and MQLs looking to be on the proper trend as we see here.

The next question comes from Chris Snyder with Morgan Stanley.

When we look at the pickup in Q4 organic growth, was this more so driven by momentum in the short-cycle businesses? Or did some of the longer cycle orders in the backlog begin to convert? And I asked because I noticed that this was the first quarter since the first half of '24 where organic sales outpaced orders. So maybe it's signaling some level of backlog release. I'm just wondering if could that remain a tailwind for the business into the first half of '26.

Yes, Chris, great question. So I'd start with, first and foremost, the Q4 performance, I saw, I would say, had a requisite, I'd say, a component of both, what I say, the base business or short cycle inclusive of aftermarket and recurring revenue as well as the long cycle.

I go back to my earlier comment that the second half of the year, particularly Q4 tends to be a heavier shipment quarter particularly on the long cycle project side of the equation, Q4 '25 was no exception to that. So I think that probably speaks to the drivers of that 3% organic kind of pickup that you saw.

And then as far as the organic order versus organic sales, probably the simplest way I'd probably describe that is the book-to-bill, first of all, from a full year perspective, slightly over one. So one, we're encouraged by the fact that you have seen some backlog build, which I think also provides some of that increased visibility but also just some of that backlog that we can execute as we move into 2026.

I think as far as the absolute book-to-bill in Q4 slightly below 1. Again, I would call it very standard, just again because of the long cycle nature and dynamics of the shipments we see. So again, I think, to your point, encouraged by what we saw in Q4. And clearly, we continue to kind of watch the leading indicators and see that hopefully continue here as we move into 2026, but encouraged by the contribution of both short cycle and the project side in Q4.

I appreciate that. And then maybe just a follow-up. Could you provide some color on what's expected for the life science organic growth in 2026 within the guide? And it seems like obviously, still really good momentum there with the Q4 order rates up mid-teens. But anything to call out on the slope of organic growth? Because I do imagine that the comps into '26 are getting a good deal more difficult than they were in '25 on the organic growth side.

Yes. Sure, Chris. As far as the guy, we're not going to kind of break the PST component into the different components. But what we can say here is I think the way you've described it is exactly the way we're thinking about it.

One, definitely encouraged and Vicente kind of provided a little bit of color on kind of the drivers we're seeing at the kind of different components of the Life Sciences business. So I think we're incredibly encouraged by what we're seeing, whether it be on really the biopharma side or even kind of the legacy kind of Ingersoll Rand medical business that we've had in terms of some of the improving trends.

Clearly, we talked about the aerospace piece, which is really kind of moving sideways from '25 to 2026, which is kind of a little bit of that, I would call more of the offset comparatively speaking, as it's kind of just part of that overall umbrella businesses. So I think the simple answer here is I think we continue to be really encouraged. The other piece I would mention here is the fact that the bolt-on M&A kind of playbook is really taking root as well in our life sciences portfolio. You see a number of bolt-ons in 2025 that will obviously become organic here at parts during the course of 2026, which we think will continue to contribute.

And then the Scinomix acquisition that we just did here in January, which we think is a very attractive kind of nice additive complementary bolt-on to our existing kind of life sciences portfolio. So again, I think your point is very valid. I think the comps clearly, they are there, but I think we're still encouraged by the momentum we're seeing, which you saw in the Q4 order rate.

The next question comes from Stephen Volkmann with Jefferies.

Just a couple of very quick ones for me. I'm curious, it seems like valuations are kind of going up across the board, not just yours, but I'm presuming in the M&A funnel as well. Just does that change anything in terms of how you manage your capital deployment?

No. No. No, Steve. I mean, we continue to actually, as you have seen, do really well with the pre-synergy multiple. In 2025, we averaged roughly 9.2x to be exact, pre-synergy multiple and even the one that we acquired here in January continues to be in that kind of range. So I think we're continuing to be very encouraged with what we're seeing now. What in our case, as you know, our M&A flywheel is differentiated in the sense that a lot of these transactions our sole source cultivation happens, family and companies. So I think we have a bit of an advantage here for us to be able to continue with that and be able to have a very good price multiple.

Got it. And then just with respect to kind of the order cadence, is there anything that you can see now that would make that different in '26 relative to kind of the last couple of years?

Yes. Sure, Steve. So we obviously don't guide on orders, but I think the simple way to think about it here is we don't expect anything here to be dramatically different in terms of I'll just say the book-to-bill being won on a full year basis and typically a little bit healthier than that in the first half and a little below in the second half just given normal seasonality and some of the dynamics I mentioned on our long cycle business. So not being at this point, we would point to that we expect to be dramatically different.

The next question comes from Joe Ritchie with Goldman Sachs.

Can you just touch on the margin profile of the recurring revenue business, the $450 million plus that you referenced I recall you guys talking about a gross margin profile that was north of 16%. I'm just wondering if that's actually coming through as expected? And maybe that will be question number one.

Sure, Joe. Let me start with that. So I think in general, the recurring revenue business, whether it be at its gold standard, what we call package care or the other components Yes, it is across the entire enterprise, typically a higher margin profile, comparatively speaking to, I'd say, the balance of our kind of normal course business.

Now that being said, Yes, margins can play in that range that you're speaking to. What I would probably tell you here, though, is we're also making sure that we're taking that opportunity to reinvest appropriately in the business. I've mentioned a few times here, some of those commercial reinvestments. Even on the recurring revenue side, A lot of our commercial reinvestments are in areas like service technicians and things of that nature to make sure that we can continue to grow our recurring revenue base on a go-forward basis. So Again, I think on margin profiles that play in and around areas like you've mentioned, but also could you reinvest [indiscernible].

Got it. Got it. So the way to think about it is like when you get the full run rate, you'll see probably a more accretive margin profile than what you're seeing today coming out of the business because of some of the red that you're doing. Is that a fair characteristic.

Yes. And then I guess the follow-on question is, look, I know that the M&A that's not completed is not part of the guide. But given your expectation that you'll do about potentially 4- to 5-point revenue contribution this year. What is the like first year margin profile look like for the things that you're looking at that you're hoping to complete in your pipeline today?

Yes, Joe, I'll start here. So obviously, a bit speculative because quite frankly, year-to-year and deal-to-deal, the margin profiles can clearly be a little bit different. The probably the best way I would describe it is that as Vicente said here, one, purchase multiple is quite prudent. The ability to drive double-digit returns, if not mid-teens returns by year 3 and as such, take multiple turns out from controllable cost action, synergies, things of that nature, clearly is still the playbook.

If I had to put a broad kind of sweeping statement around it, the acquisitions that are maybe upon acquisition, maybe in the lower 20s margin profile, but ones that we see a pretty direct path to being in line with, if not better, than segment average margin profile is probably the best way to maybe explain it. But clearly, each acquisition is a little bit different. And frankly, you've seen acquisitions that are immediately accretive upon acquisition in certain cases. So again, not all made equal. But that's probably the best way I would describe it.

The next question comes from David Raso with Evercore ISI.

I was interested to see the ITS organic orders in the quarter that EMEA was down mid-single digit, just we've heard generally more constructive things out of Europe. And I'm just curious if you're seeing -- was that sort of a comp sort of temporary? I'm just trying to see where there's areas that things that were down maybe or inflecting a little bit or just a unique dynamic. Can you explain to Europe? And then I have a quick follow-up.

Yes, just -- I mean nothing to read into it. I mean just project timing, basically, and that was basically -- I mean -- but again, we continue to be really encouraged. I mean you saw our EMEA business was basically driving very nice positive order growth for the full year. So even in IPS, with commentary being negative still for the full year was up orders kind of positive low single-digit organic from a full year perspective.

That's I'm curious. I mean do you see that business as up the order rates back up in Europe? Or are they truly running at a negative level? Because I mean, year-to-date, we don't have a K but year-to-date, the revenues have been up in EMEA with an ITS. I'm just curious if there's...

Not an issue in the fourth quarter. No. I mean, again, some countries are doing better than others. I mean Mediterranean countries like Spain, Italy, France, seem to be actually growing faster than the Central Europe and Germany at this point in time. But obviously, a lot of good activity that we see moving through for the Central European countries as we kind of move forward yes.

And then for a follow-up, maybe I missed it, but we're now essentially almost halfway through the quarter. Are organic sales currently running to your flat to down a little bit? Or you're just kind of given that guide and see how the rest of the quarter plays out. You just sounded a little more positive on the start of the year than the down flat to down first quarter organically?

Yes, David, I'll take that one. So I think the best way to say it here is that I think as we move through January, I'll probably reflect a little bit more on the orders side of the equation. Generally playing itself out as expected, nothing that we would consider to be atypical, whether it be from a seasonality perspective or even moving into 2026. So again, nothing that's happened thus far that would say anything different from either the guidance or kind of the commentary that Vicente provided earlier.

The next question comes from Andrew Buscaglia with BNP Paribas.

Everyone Andrew, you made a comment earlier on China just that it is improving, and that's been a little bit of a change, let's say, in the last quarter or -- and other companies are kind of talking about that a little bit more, where can you -- can you get more specific about where you're seeing this improvement? And how you see that playing out in 2026.

Yes. I mean I think the improvement is really coming from a lot of the launch of new products and technologies that our team is doing into the market. So taking also acquisitions that we have done in the U.S. and also Europe and taking that technology localizing in China and then selling in China for China. So it's a good combination of really, what I would call a lot of the self-help initiatives that our team is driving more so than there's an overall market improvement in China.

So I think the encouragement -- I spent the last week with the team in China is just seeing that, is that the level of innovation and the level of speed on understanding how we can combine technologies to create differentiated solutions for our customers is pretty unique.

We gave one example about the blower combined with aeration. That's actually something new that now the team in China is launching, gives them a competitive advantage against some other companies. And again, taking technologies that we acquired in the U.S. and localizing and driving that in China, for example.

Yes. More company-specific that [indiscernible].

Yes. And you sound encouraging on Life Sciences. And again, that's kind of something else other companies are getting a little more constructive on for '26.

I want to touch on ILC Dover, I think because with these acquisitions, sometimes they go quiet and the growth sort of moderated or I don't know if you might say slowed, but for that business specifically, I just want to check, are we -- is this -- could this be a source of a sneaky upside if this acquisition kind of comes back? And are there things you've done to it where we could potentially see it contributing to both overall growth and margins this year?

Yes. I mean we definitely have done a lot and encourage whether it is the setup with putting new leaders, very creation or kind of creating the P&L that were needed to really drive execution. The investments that were needed to really penetrate in some of better end markets and things of that nature that we have done a lot of work. And what we have done here is then created a platform for then the acquisitions. And so far, we have done four into that kind of platform that we have. So -- that is just a lot of work that we have done and we continue to push hard to do better.

The next question comes from Andrew Kaplowitz with Citi.

Chris Natalia on behalf of Andrew Kaplowitz. It was the first question that I'll ask, at China being a bit picky here, but historically, you got to 100% [ FCF ] conversion this year, your guidance is under 100%. Is there anything holding you back in terms of free cash flow guidance. Any color you can provide there?

Sure. Natalia, I'll start with that one. So I think first from us. I think if you kind of look over the course of the last few years, we've been in that kind of low to mid-90s realm. So I think 95% free cash flow conversion is I would say not just even consistent but even, frankly, a touch better than what you've seen in the last few years.

Now that being said, clearly, targeting closer to 100%, I think, is clearly the I'd say the goal, if you will, I think there's not necessarily anything holding us back I do think that, clearly, not just earnings growth, but I would call it working capital efficiency, probably continues to be one of our kind of major areas for opportunity as we move forward, not surprisingly, areas around inventory and things like that, particularly coming out of 2025 where some of the tariff dynamics created some inventory build and things like that. It's probably our biggest source of opportunity as we move through 2026.

But no, I would say, generally, otherwise, we expect very consistent cash flow conversion, if not even slightly better than what you've seen in the last couple of years.

Got it. That's helpful. And then just curious about just industrial energy efficiency in the sense that when I think about compressors consuming energy and our factory, can you maybe talk about the customer payback that you're seeing right now? Has that improved over the past year? Where you see it going? Any color on there would be helpful.

Yes, sure tell. I'd say that as price of electricity continues to rise, then that, for sure, will drive better performance in terms of the return on the investment for the customer. So we continue to see these paybacks clearly under 2 years. I mentioned maybe in China, I was actually visiting a very large customer in China where compressors we're consuming roughly 50% of the total energy at that facility.

Now this is a very, very large customer. But shows you the conversation was all about that. It was all about how can we help them connect that compressor and fine tune it to reduce that energy and therefore drive more efficiency for that customer. So I think it's encouraging to see that obviously, we have the right solutions here.

That is all the time we have for questions. I'll turn the call to Vicente Reynal for closing remarks.

Thank you, Sara. Well, so as we wrap, I just want to say thank you for the continued interest in Ingersoll Rand and more important, thanks again to all of our employees, our ownership mindset and the culture of ownership is what creates a differentiation of us, our team, things like owners every day because they are. And so we remain focused on disciplined execution very thoughtful capital allocation and building a company designed to outperform across the cycle. So thanks again, and we'll talk soon.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Good morning, and it's Wednesday at the JPMorgan Healthcare Conference here in San Francisco. My name is Ta-Von Wilson, an associate and Healthcare Group based in New York. I'm pleased to host and present or introduce the Ingersoll Rand team, starting with Vicente Reynal, who is the CEO; Vik Kini, who is the CFO; and Scott Watson, SVP and General Managers of the Life Science Technologies platform.

Thank you, Ta-Von, and thank you for the invitation to this prestigious conference. We're very excited to be here with you today, the first time for us to be presenting at the conference. And so what I'm going to do is first give you a quick overview of who we are at Ingersoll Rand. And then we're going to kind of double-click into our Life Science platform, and Scott Watson is going to provide you with that presentation.

Forward-looking statements, please read them at your pleasure and your time. So feel free to ask our CFO any questions on this.

So this is Ingersoll Rand today. I mean Ingersoll Rand today, we're a global company, $7.5 billion revenue company, generating 27% EBITDA margins and a free cash flow margin of roughly 17% market cap $34 billion. And we are kind of the new Ingersoll Rand. Our story really started back in 2017 when we launched the IPO of Gardner Denver. And later in 2020, we acquired Ingersoll Rand and therefore, kind of kept the name of Ingersoll Rand. And since 2017, our total shareholder return has been over 330%. You can see that we're a company that I believe in continue to growing. We have been able, despite some of the kind of headwinds in life sciences as well as industrials, where PMIs have been under 50 kind of now for the past 36 months. We've been able to grow a high single-digit CAGR over the past few years. And on top of that, being able to deliver double-digit CAGR on our EPS.

We're a company that has a great blend between selling equipment and having a very good consumable franchise. 37% of our revenue is what we call kind of consumable aftermarket in nature and one that we see continued progress for us to expand.

In terms of products and technologies, I mean, we're a market leader in mission-critical flow creation. The way to think about it is that we can create flow to move air, water, powder, matter, gases. And we best describe our company in 2 segments. We call the Industrial Technology Services, where -- or ITS, as we typically refer to, where we have a broad range of compressors, vacuums and blowers, as well as air treatment for treating the air or treating gases and obviously provide an incredible amount of solutions in multiple end markets.

And then we have the Precision and Science Technology segment of PST, which is basically all about precision liquid gas, air and powder handling technologies for life sciences as well as industrial applications. And that is a segment where we have our Life Science tools and system platform that we're going to describe even further today.

We're a pretty unique company in the sense of our culture. We're a company that we created our own operating system that we call IRX or Ingersoll Rand Execution Excellence process that gives us that ability to continuously improve. You saw how we've been able to improve our EPS at a double-digit CAGR. But in addition to that, our EBITDA margins have improved more than 600 basis points over the past 5 years. So we're continuously improving company and one that we still feel that we're at the early stages of our continued journey as a premier compounder of growth. That ability to continuously improve obviously gives us that cash generation that I talked about 17% free cash flow margin that we still also see plenty of room for us to improve. And what we do with that cash is then we have reinvested clearly organic but also inorganic. And you can see how inorganically, we have been able to acquire 76 companies and integrate them over the past 5 years.

And that is pretty unique to us. Our M&A flywheel is one that -- it is 95% sole source, family-owned, founder-based companies that we continue to cultivate. And obviously, it provides us that ability to every year, acquire numerous companies. You can see how in 2025, we were able to acquire 16 companies, bolt-on in nature with a pre-synergy purchase multiple of about 9x. And typically, with our IRX and continuous improvement, we take that around 3 turns down. And so we think this is a compounding effect that we continue to drive for many, many years.

Obviously, not only we've been able to acquire, but continue to improve our balance sheet. Our balance sheet continues to be very strong at less than 2x lever. And what is also very unique to us is our ownership mindset. All employees in our company have skin in the game because we provide them with a level of equity. Equity that is kind of unique to us. We tend to say that we think and act like owners, but our operators, our employees across the world, they are owners of Ingersoll Rand. Since 2017, we have given roughly $300 million of equity, and that equity has created a wealth value of roughly $800 million, and this is clearly excluding management equity participants. This is mainly equity that is given to hourly operators and across the world, where the operators are in South America, India, China, Europe, they feel and they know that they are owners of Ingersoll Rand. And then we teach them how to think and act like owners with tools like we have with IRX, the Ingersoll Rand execution excellence process.

And then that combination of IRX and execution excellence, combined with this ownership mindset is what has given us that ability to outperform the market. So when you think about the TSR for Ingersoll Rand over the past -- since our IPO in 2017, 330%, which is obviously roughly 13,500 basis points better than the S&P. And you can see how also outperforming not only S&P, but our premium life science compounders as well as premium industrial compounders that we have kind of watched over the past few years. And that has led to roughly $30 billion of value creation. Part of our story has been that back in 2020, our Life Science exposure was roughly 4%. And at the end of 2024, it's roughly 18% and it is one that we continue to see improvement opportunities for us to penetrate even further.

So I think with this, we're going to now double-click into the Life Science Technology tools. And for that, I'm going to have Scott Watson. Scott?

Thanks, Vicente, and good morning, everyone. Our Ingersoll Rand Life Science Technologies platform brings together a powerful portfolio of solutions that serve mission-critical material flow and material handling applications. Our brands such as ILC Dover and Flexan, Thomas and others listed here are recognized for the innovation and the reliability. These businesses have a diverse set of technologies and go-to-market channels. This allows us to target multiple life science value chain entry points and to participate in various growth trends wherever they may be. These entry points range from highly engineered equipment components to critical parts of a bill of materials for a medicine or a medical device.

The business is further broken down into 3 areas of focus. First, Flow Control Solutions, which offers precision pumps and other fluid and control components to highly engineered equipment manufacturers and applications like wound therapy, in vitro diagnostic equipment and bioprocessing equipment. SES also provides lab automation solutions to some of these same customers. Biopharma and Pharma Solutions is the core of the legacy ILC Dover business, which is required by Ingersoll Rand back in June of 2024. It provides highly specified material handling and containment products to biopharma and pharma manufacturers and their contract manufacturers. Primarily, this is for powder containment and bulk intermediate product handling and production environments.

And finally, Medical Device Solutions under the Flexan brand is a contract medical device manufacturer specializing in silicone micro molding for implantable devices and applications -- high-growth applications like neuromodulation, cardiac rhythm management and interventional and vascular access, catheter design and manufacturing. So together, these businesses position Ingersoll Rand Life Science Technologies across a broad range of very attractive markets with high-quality, sticky demand and optionality on the most favorable access points to those trends. The business is heavily weighted toward life science applications like large and small molecule pharmaceuticals, medical technology and diagnostics. And then within these segments, our solutions are tied to a variety of current growth trends such as weight loss therapies, oncology, which I'll show an example of later on, minimally invasive and interventional medical procedures and in vitro diagnostics, all of which have expected growth rates ranging in the high single digits to mid-teens.

We also have a diversified global footprint with, as you can see here, scale in North America and Europe to support the significant investments announced in new capacity in those geographies, specifically of large molecule and small molecule pharma investments focused in the U.S., which we are absolutely participating in today. Leveraging our existing footprint, we're also growing in Asia as our global customers regionalize their supply chains, and they look to us as a trusted supplier to support them there. One of the most important features of our business is the high proportion of recurring in nature consumables revenue. Approximately 85% of our revenue mix is consumables today. And as I mentioned before, our products tend to be critical components of our customers' bill of materials. We're also very thoughtful about designing products and manufacturing processes that are -- that can support that configuration at scale and help us drive operating leverage.

And as a result, our products tend to be highly configured and specified into our customers' applications. Just to kind of bring that to life a little bit for you, greater than 90% of our SKUs are 1:1 SKU to specific customer application. We're able to achieve that at scale with operating leverage. So as demand for our customers' product grows and we support the manufacturing scale up, so does durable demand for our consumable products. And as a result, we tend to view the business as stacking and compounding programmatic revenue streams over time.

One of the hallmarks of Ingersoll Rand's compounding value creation engine over the past, really, almost decade has been disciplined tuck-in M&A. The acquisition of ILC Dover back in 2024 and the subsequent creation of the Life Science Technologies business established a focused platform for deploying that tuck-in M&A approach towards high-growth life science markets.

So then we've been very focused and active in executing this strategy, completing acquisitions that deepen our participation in attractive segments like downstream bioprocessing, high-potency powder handling, drug development automation and advanced silicone molding. And we started 2026 hitting the ground running, announcing our fourth deal in the past year with Scinomix, and we're really excited about what these new teams bring to our business. Across these and future transactions we do, we've always been very consistent with Ingersoll Rand's historical disciplined capital deployment strategy, focused really on founder-led and family-owned businesses where, as Vicente mentioned, Ingersoll Rand's ownership works model is -- really resonates them. We're focused on strong strategic fit with our targeted high-growth life science end markets that we're prioritizing, looking for unique capabilities, sometimes niche capabilities and clear synergies with the rest of our portfolio.

Vicente mentioned, we're targeting attractive EBITDA multiples. And across these 4 deals that we've done in the past year, we've been able to achieve an average EBITDA multiple of around 10x. And obviously, also a clear path to mid-teens return on invested capital within 3 years. So today, we have a very robust and active inorganic pipeline that we continue to pursue, and M&A will continue to be a core part of our growth plans going forward.

Switching to organic growth. So an example of organic growth synergies between the new Life Science Technologies platform and then the broader Ingersoll Rand portfolio that Vicente described is in the growing small molecule API production setting. Here, we're showing a generalized example of those workflows and where Ingersoll Rand technologies apply. And as you can see, those technologies apply throughout every aspect of the workflow. We work with process engineers every day at ILC Dover, which is really well established across this workflow to solve material handling containment challenges from a material prep to chemical synthesis, crystallization, drying and packing steps. And based on ILC Dover's knowledge and experience in these workflows here, we've identified the relevant products from across Ingersoll Rand's portfolio that meet the very specific requirements for these applications. And we're starting to pull those products from the rest of the IR portfolio into the biopharma and pharma solutions channel to help our customers solve challenges that we couldn't solve before and address parts of RFPs that we couldn't address before.

Now it's still early, though some of the examples of where we see opportunity include air-operated double diaphragm pumps, which has been in the Ingersoll Rand portfolio for many years for intermediate product transfer. And quite frankly, those pumps are applied all throughout the production workflow here. Metering pumps to support more controlled dosing of ingredients during chemical synthesis to help enable better yields as well as uptime from 85% less maintenance required relative to competing products. And vacuum pumps for deliquoring and drying process steps, which is particularly important for contained lyophilization of oral solid doses.

Beyond the production flow, we're introducing customers to products like our peristaltic pumps that are used in their high-quality assurance labs as well as Ingersoll Rand's market-leading compressor products and related equipment that sits in the utility room like nitrogen generators and chillers. Given the need to staff the significant new capacity being built right now, we are having a lot of conversations with our pharma customers about the broader Ingersoll Rand portfolio. And those customers see a lot of value in the deep aftermarket service network of Ingersoll Rand to help them manage these new assets. We're maintaining full staffing even today is a challenge for them, where they're seeing some disciplines, 8% vacancy rates, and that challenge will continue to grow as they add new capacity in the U.S.

Ingersoll Rand's CARE programs, which is its aftermarket service offering packages have proven successful in other industries in addressing these issues, and our customers and us believe that it will apply in pharma as well. This then creates additional touch points and pipeline development opportunities for us for future business. So in this example, to us, it's very clear to see the potential to support our pharma customers with a more integrated, comprehensive and powerful offering, leveraging the broader Ingersoll Rand portfolio and deepen our relationships with them along the way. We're really excited about the growth potential we'll be able to drive across Ingersoll Rand here in the years to come.

I'll close by providing an example highlighting why we win with customers and high-growth outpatients for our products. Antibody drug conjugates combined monoclonal antibodies with highly potent toxins creating targeted therapies that are transforming cancer care. We expect the market here to grow in the mid-teens, driven by high clinical demand and a strong pipeline of molecules and the critical step of linking these highly toxic payloads. Customers rely on our products such as single-use isolators, product contact continuous liners and easy BioPac powder systems. Not only is eliminating cross batch contamination critical in this step, but customers need to maintain containment of 10 micrograms per cubic meter or less to protect operators from the highly toxic payloads. This is equivalent, just to put it in perspective, of 1 grain of salt relative to 6 Olympic swing pools in containment to protect operators.

Clean-in-place technologies today require customers to have days of downtime while cleaning and releasing and production line. This was further exposure to operators during the step and high cost for chemicals and hazardous waste disposal. With our technology, we've seen customers save up to 90% in labor and equipment costs that's net of the consumable. They've reduced change over time by days and reduce hazardous waste usage from their old clean-in-place technology by at the very least minimum 200 liters per batch. Another reason customers choose our single-use systems is because of our industry standard proprietary powder films. These product contact films have been proven across the industry for decades with data that we've -- testing that we've done over the years as well as decades of field testing done by our customers.

This enables our customers faster tech transfer and production scale-up and that's especially helpful when contract manufacturers are used, which tends to be the case in ADC production. Customers also trust the reliability of our quality systems, our redundant global supply base and proven containment performance, which is really unmatched by any alternative on the market today and validated through independent SME/PA testing.

So as with the rest of our LST portfolio, we're very focused on the consistent themes that we continue to invest in for why we win and those being unique technologies and expertise, that customers need access to, the deep engineer-to-engineer partnership and relationships that we have with customers in developing unique solutions that are fit for their specific needs and reliable execution and performance backed up by testing, data and years of experience in the field.

So before I turn it back over to Vicente, I just want to thank you for your interest this morning and learning more about this exciting diversified Life Science platform we're building at Ingersoll Rand. I also want to take a moment to thank our teams who work hard every day to innovate and deliver for our customers. With that, I'll turn it back over to Vicente.

Okay. So as we wrap up here before Q&A, just kind of some key takeaways. I think at Ingersoll Rand, we're proud and excited that to be able to deliver for shareholders, created over $30 billion of shareholder value creation in approximately 8 years. And we still believe that with the platform that we have today, we have continued room for expansion here as we're roughly $7.5 billion revenue company that plays in approximately $65 billion highly fragmented addressable market, where we believe that our flywheel on M&A and compounded results can definitely continue.

We believe that we continue to differentiate Ingersoll Rand as an investment. We have a proven track record of being pretty agile that despite a lot of the headwinds that we have seen over the past few years, we've been able to deliver double-digit EPS growth compounded for the past few years. IRX is very unique to us. It's our execution excellence tool that we have that compounded with our ownership mindset where employees are owners and have skin in the game of Ingersoll Rand, we believe that this is a catalyst for continued delivering long-term value creation.

So with that, we're going to pause here and go into Q&A.

Thank you, Vicente, and appreciate you and Scott for doing the presentation. We'll invite the audience if they have any questions as well, but I have a few prepared questions just to get us going here.

So, Vicente, to start, I mean, I think seeing the stock price start there was pretty impressive, right? I think we saw over almost 10 years, 300% increase in stock price. That's amazing. So when you think about that, narrowing the focus more into the Life Science technology space, why do you think it's become such a strategic end market for Ingersoll Rand?

Yes. So thank you for that. So for us, it's all about how do we continue to improve the portfolio at Ingersoll Rand. And that basically means you can see that is not only been able to achieve growth on a top line perspective, but to be able to continue to improve our margin and therefore, deliver that double-digit EPS results.

So part of that has been purposefully moving into end markets that have that kind of high-growth end market perspective, such as Life Sciences. And you see that also particularly others that we're highlighting. But yes, Life Sciences continues to be a good area of focus for us. Are we going to be 100% life science company? No. Are we going to go from that 20% to maybe 30% or maybe even 40%? Perhaps, yes, but we believe still to be highly diversified, not only diversified as a total company, as you have seen, but also diversified even in their life sciences, as Scott showed, how we're playing across a very fairly diversified life science end market perspective.

Sure. And Scott, for you, I know one of the key things I had seen here was just like the -- sort of like the flow of the Ingersoll Rand and ILC Dover. And so one thing that I'm curious about is just how are those commercial synergies playing out? And then maybe you could double-click on biopharma trends that matter most?

Yes. I think it's still early days as we're starting to map the Ingersoll Rand portfolio, the broader portfolio to pharma applications, but we're seeing a lot of opportunity there, both in technologies that Ingersoll Rand has in its portfolio that apply to customer requirements there. But also when we start to talk to customers about the solutions that Ingersoll Rand has, in particular, I mentioned in the aftermarket service space, there's a great deal of interest in how that can support them as they expand and have to deal with labor challenges as they drive that expansion.

And there's markets like GLP-1s and ADCs, which I talked about which are driving a significant amount of that capacity expansion. And that we view as providing opportunities for the rest of the Ingersoll Rand portfolio to be spec-ed into customer's utility room or their production process.

Got it. And I guess as a double click on the GLP-1 piece, how do you think about that into the total end market of the portfolio?

Yes. So we are exposed to GLP-1s today. We're spec-ed into many of the production steps of current and future GLP-1s that are coming to market, including oral solid dose forms. It is a material part of our exposure today. It's not all of our exposure. We have attachment to other high-growth therapies. The tides in general seem to be kind of having a renaissance, and there's a great deal of investment and growth behind them, and we're exposed to a lot of those tides as well as other biologics.

Okay. I'll pause here for any questions from the audience. We have a few more to still go through, but invite the audience if they have anything to say.

Yes. So Life Science tools is itself a diverse group of industries. You've got several acquisitions of bioprocessing. You also did an acquisition then in silicon molding, which makes me wonder about your direction within life sciences. And as you've done 76 acquisitions, I think you said over the last 5 years, wondering if you can about within Life Science tools, what direction broadly speaking, those acquisitions might take?

Yes. I'll say few things and then Scott, please add on. So when we think about the Life Science platform that we have, we currently have about 100 companies in our funnel. So fairly active, fairly deep into it.

What you saw is that we like to be diversified. So when you think about the Flow Control Solutions, the medical device and the biopharma, those are kind of very 3 distinct businesses that, in some cases, they kind of get together. But the Flow Control is not only about providing the pumps, the vacuums and things of the nature that we can provide components to a lot of the Tier 1 large diagnostics or 2 companies, but we're also able to combine unique solutions and create liquid handling automation for, call it, immunotherapies, research and things of that nature.

To your question in terms of kind of the CDMO, the Medical component business, we think that, that is giving us great exposure to medtech in pretty much good areas of growth around cardiovascular, neurology. So it's all about getting that diverse exposure. And then biopharma is giving us also a very unique exposure into a different subsegment of the Life Sciences.

Yes. And across each one of those different businesses, they're targeting high-growth trends and ways in which they can serve their customers with complementary assets and capabilities. And so each one of those businesses is pursuing different growth vectors and M&A vectors that support the growth of each one of those individual businesses. And then there are certain cases where we find opportunities that cut across all of those businesses or multiple of those businesses and maybe even also the rest of the Ingersoll Rand portfolio.

One of the things I think that's unique about how we think maybe about M&A that may be different from a pure-play acquirer in Life Sciences is we're not afraid of those targets that could have a mix of industrial applications in their portfolio because that fits with our Life Sciences platform, but it also can fit with the broader Ingersoll Rand portfolio. We tend to be able to -- that is sometimes a driver of the EBITDA multiples that we're able to get.

I guess a question for you, Vik, and more so thinking about more broadly, how should investors think about the long-term margin profile for the LST business?

Yes, for sure. So the LST business is a component of our broader PST segment. The PST segment is made up of our Precision Technologies business, which is kind of niche precision pumping technology as well as the LST business, which Scott kind of presented today. So while we don't necessarily report margins at that kind of subsegment level, what I will say is the PST segment business, you saw in Q3, operates around 30% EBITDA margins, both components, both Precision Technologies and Life Sciences, both healthy margin businesses.

And I think the way we think about it is, I'd say even in the medium term, the prospect of getting to that mid-30s EBITDA margin profile, we think it's very attainable, particularly given the growth trends that Scott and Vicente both highlighted and the fact that they come through what I will say, healthy incremental with that growth. So I think really excited about the prospects we see going forward here from a lot of the kind of key drivers and secular trends in the market.

Yes. This is a kind of a follow-on of the prior question. I mean you've done a lot of acquisitions, I mean, in life science or life science-related targets. But is there an ideal end state you guys have, right? Is that you wanted to be more in certain components, certain manufacturing process, certain therapeutic modality? Is there a kind of envision on the final, I mean, state? Or is that whatever critical to, I mean, life science manufacturing?

Yes. I think for us, it's -- on the pharma and biopharma side, it's anywhere from -- anything from drug development through to scale production. And the diversity of our solutions there allow us to play across multiple different trending molecules and growing molecules trending now and are expected to continue to grow like ADCs, like cell therapies, like gene therapy as well as monoclonal antibodies, and we're seeing a bit of a resurgence around small molecule as well. And we're able to participate across all of those trends. And we'll continue to look for technologies that really help us enable customers to enable flow and contain flow on multiple parts of their drug development steps and make that more efficient for our customers. Scinomix is an example of that. But then also as they scale up that production.

And then on the medical device side, we're really focused there on implantable medical devices really for high-growth trending market applications like neuromodulation, like cardiac rhythm management and then vascular access, which is also a growing market in medical devices. And we have capabilities to service our customers there. Sheridan was a great example of enhancing that capability to bring more technical expertise to our customers and help them solve problems that we couldn't help them solve before.

Scott, I actually have a sort of a follow-up question on the M&A piece there. And I appreciate you sort of laying out the vision. Maybe thinking more about 2026, calendar 2026 and 2027, what do you see as the pipeline look like or the funnel from an M&A perspective? And then even as like a double-click into that, I think what I've taken away from this presentation is that a lot of the M&A that you've done is very disciplined and very focused, right? It's very, very clear as to like why you are doing the acquisitions that you are. Could you maybe speak about the culture behind that and why that's such a big focus?

Yes. Well, the culture is very important. I mean it's been part of Ingersoll Rand's DNA for almost a decade. And that very disciplined approach, we bring that to the life sciences applications as well. And that's what's allowed us to find and execute on the 4 acquisitions that we've done in the past year and at very attractive multiples with very clear value creation plans to get that return on invested capital profile that we target. So we'll continue to do that.

Generally speaking, we are tracking about 100 companies and have active conversations with about 10 at any given time. And like I said, that is true today as it has been over the past year, and we'll continue to develop and cultivate that.

And I guess another question for you, and this is more of like a global headwinds and maybe it's both for Scott and Vik as well. But when we think about the margin profile, but also sort of the growth in the business, there are larger market, right? Like I know there's an idea that you're thinking about getting more into the Asia market and things like that. Like how do you look at global trends and yet still having a robust outlook on to expanding margin profile?

Yes. I'll start and I'll let Scott and Vicente kind of add on. I think, first and foremost, there's always going to be some degree of headwinds and tailwinds. I think the beauty of the portfolio and kind of what both Vicente and Scott laid out is that we do have a very diversified portfolio, right? And so yes, there may be certain headwinds that we're facing no different than years past, but there also are nice secular tailwinds that we're able to kind of offset that with.

And so when you think about even over the course of the last 4 to 5 years, we've had parts of this portfolio, particularly the Flow Control Solutions business as an example. That was probably the biggest beneficiary that we saw as a portfolio during COVID. It also probably was the one with the biggest headwinds. But despite that, the overall segment from point to point back from 2021 until last quarter, still maintained 30% EBITDA margins. So I think you've seen that the business is able to kind of offset known headwinds, still drive margin expansion.

And then the other part here is the M&A. So the bolt-on M&A, very prudently done, brought in at healthy margins, but there's always that, I'd say, a little bit recurring tailwind beneath the surface of integrating those assets. And when you're able to drive 3 to 4 turns of multiple reduction, that mid-teens ROIC profile, that obviously comes along with the ride with margin expansion. And that's done based on what we consider to be controllable synergies. So every deal that we do is underwritten based on things that we kind of feel within our control, largely cost oriented. We don't underwrite based on, let's call it, market growth or things that we don't kind of necessarily feel within our control. That hopefully is extra, if you will. So I think the team has shown that ability, and I don't expect that to be any different going forward.

Okay. Great. And I guess, Scott, double clicking into that as well as just how has customer sentiment been? We've seen funding has been curtailed in a lot of academic and biopharma spaces. Like how do you think that plays out from the customer lens?

Yes. On the academic and government side, our exposure there is very limited. Customer sentiment has been one of we need to move fast because there is a great deal of opportunity. They're really focused on speed to market for their molecules or their medical devices. And so customer sentiment has been one of really seeking us out to help them enable speed to market for their devices or for their molecules. And we've proven that we've been able to do that and support customers for decades, and they continue to look to us to help them there.

Great. I'll open to the audience. Any other questions you'd like to ask? Okay. Vicente, did you want to maybe say any key things, any outlook for 2026, specifically that you're looking forward to?

Yes. Yes. No, I mean, so we'll -- we're going to be reporting our earnings, and that's when we provide our guidance for 2026. But needless to say, we're very excited with where we're heading, excited into the journey so far as to what you have seen that we've been able to accomplish. We sincerely say it. I mean, we believe that we have now created a platform that can continue to compound the momentum that we have.

We're very global in nature. We're very in region for region, and that gives us a great ability to acquire the company in one country and then take that technology and expand it across. I mean one example that I was thinking about that before to your question is that we acquired a company in India that has a very particular very unique application in APIs in India, for India that we're now taking and reconstructing that and being able to expand that in other countries and regions. So again, very excited. We thank our employees, as we always do because they also have skin in the game, as we like to say, are owners of Ingersoll Rand, as you have seen. And we look forward to coming back again next year and telling you how we've been able to outperform in the market.

Awesome. Well, great. With that, thank you all for your time. Thank you, Vicente, Scott, Vik. I appreciate your time. And have the rest of your day, everyone.

Thank you.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Ingersoll Rand Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

I'd now like to turn the conference over to Matthew Fort, Vice President, Investor Relations. Please go ahead.

Thank you, and welcome to the Ingersoll Rand 2025 Third Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon, and we will be referencing these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today.

Before we start, I want to remind 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, today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release. Both are available on the Investor Relations section of our website.

On today's call, we will review our company and segment financial highlights and provide an update to our full year 2025 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to parts. At this time, I will turn the call over to Vicente.

Thanks, Matthew, and good morning to all. Beginning on Slide 3, in a dynamic macro environment, we continue to deliver durable growth driven by disciplined execution and the strength of IRX. Year-to-date, organic orders are up 2% with a book-to-bill of 1.04x. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline is robust with a strategic focus on targeted bolt-on opportunities that enhance our existing portfolio. Finally, our teams are focused on controlling what we can control and leveraging IRX to navigate the dynamic market environment.

On Slide 4, our value creation flywheel remains a central engine of our performance, generating strong free cash flow that fuels disciplined high-return capital deployment and strategic flexibility. It is our ownership mindset, employees acting and thinking like owners that propels IRX and drives our outperformance. This combination of culture and system delivers durable value creation. We remain committed to our capital allocation strategy, using our strong free cash flow and disciplined M&A approach to pursue targeted high-return bolt-on acquisitions that add market-leading products and technologies to our portfolio.

Year-to-date, we have executed with both pace and precision, closing 14 transactions with 9 additional transactions under LOI. These high-return bolt-ons averaging a 9.5x pre-synergy multiple expand our technological capabilities. Our disciplined M&A engine continues to compound durable above-market growth. We remain on track towards achieving our annual target of adding 400 to 500 basis points of inorganic revenue acquired on an annual basis.

Our acquisition of Dave Barry Plastics is the second addition that we have made to our Life Science platform this year. A designer and manufacturer of custom cleaning room solutions, Dave Barry Plastics enhances our capabilities within life science applications in biopharma production and their products are highly complementary to our existing biopharma business.

I will now turn the presentation over to Vik to provide an update on our Q3 financial performance.

Thanks, Vicente. Starting on Slide 5. Orders showed continued strength in the third quarter, up 8% year-over-year or up 2% organically with a book-to-bill of 0.99x. Sequentially, from Q2 to Q3, we saw low single-digit growth both in orders and backlog. It is important to note that since the end of 2024, backlog is up high teens from a percentage perspective. Order performance remains positive with both our ITS and PST segments delivering year-to-date organic order growth in the low single digits.

The third quarter finished largely in line with expectations for revenue, adjusted EBITDA and adjusted earnings per share, showing strong execution despite the dynamic market environment. The company delivered third quarter adjusted EBITDA of $545 million with an adjusted EBITDA margin of 27.9%. We have delivered solid sequential growth in adjusted EBITDA margin over the course of the year. Additionally, we have recently implemented proactive measures to optimize our cost structure. While these actions will have limited impact in 2025, they position us well heading into 2026.

The year-over-year margin decline was primarily driven by tariff-related dilution and targeted investments to support organic growth. Corporate costs were $30 million, largely reflecting incentive compensation adjustments, which are aligned with performance. Our Q3 adjusted tax rate was 23.9% and adjusted earnings per share was $0.86 for the quarter, up 2% year-over-year and up 11% on a 2-year stack.

On the next slide, free cash flow for the third quarter was $326 million and is approximately flat year-over-year on a year-to-date basis. With $3.8 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Leverage increased modestly to 1.8x, driven by proactive capital deployment, including $249 million in M&A, $193 million in share repurchases and $8 million in dividends within the quarter.

The $193 million in share repurchases made during the third quarter represented approximately 2.5 million shares. Year-to-date, we have deployed $460 million to M&A at an average pre-synergy adjusted EBITDA purchase multiple of approximately 9.5x and returned approximately $700 million to shareholders through share repurchases. This performance reinforces our ability to effectively deploy capital while maintaining top-tier balance sheet flexibility. In addition, with our strong balance sheet, we will continue to evaluate more share repurchases without affecting our M&A bolt-on approach.

I will now turn the call back to Vicente to discuss our segment results.

Thanks, Vik. On Slide 7, third quarter orders for IPS finished up 7%. Book-to-bill for the quarter was 0.99x, and it is 1.04x year-to-date. The segment delivered organic order growth in the low single digits, making the third consecutive quarter of positive organic order growth. Revenue declined slightly year-over-year, driven mainly by tough comps in renewable natural gas projects in the U.S., but momentum across other end markets remain solid.

Adjusted EBITDA margins finished at 29%. It is important to note that we view the current dynamic tariff environment as a temporary impact on our margin expansion. Additionally, we remain committed to delivering our long-term Investor Day targets of 30% adjusted EBITDA margins by 2027, and we see continued opportunities for further expand margins within ITS over the long term.

Moving to the product line highlights. Compressor orders were up high single digits, demonstrating continued momentum. Industrial vacuum and blower orders were up low single digits and power tools and lifting orders were up also low single digits.

On a regional view, we saw orders in Americas and Europe, Middle East, India, Africa up high single digits and Asia Pacific up mid-single digits. We're very excited to announce a game-changing leap in our innovation journey. This month, we introduced in Europe our META Contact Cool Compressor. Packaged in a remarkably compact design, this compressor offers unmatched best-in-class efficiency, thanks to very advanced newly engineered airs, motors and packaging for enhanced performance.

The META 45 produces up to an 11% increase in flow while occupying 40% less space. Additionally, the META compressor delivers a 14% reduction in energy consumption, delivering productivity and reducing total cost of ownership for the customer. Originally introduced under the CompAir brand, this product reflects Ingersoll Rand's multichannel, multi-brand approach as this technology will also be launched in 2026 under other key brands across the world.

Turning to Slide 8. Q3 orders in PST were up 11% year-over-year with a book-to-bill of 1.01x. Organic orders were up 7%. Year-to-date, PST has delivered organic order growth of 2% with a book-to-bill of 1.02x. Third quarter revenue finished up 5% year-over-year, driven by a relatively equal balance of organic growth, FX and M&A. PST delivered adjusted EBITDA of $128 million, which was up 8% year-over-year with a margin of 30.8%. Adjusted EBITDA margins improved 130 basis points sequentially and up 80 basis points year-over-year, demonstrating continued strong execution.

We continue to see nice sequential improvements and remain well positioned to meet our long-term Investor Day target of delivering adjusted EBITDA margins in the mid-30s. For our PST innovation in action, we're highlighting our Flexan product line within the Life Science business. Leveraging its expertise, Flexan successfully transferred the manufacturing of critical Class III implantable silicon-based devices without any disruption to downstream manufacturing or patient care supply chains. As a result of this seamless transition, customer product yield rates saw a substantial improvement, increasing from 55% to over 90%, reinforcing our value proposition in Life Sciences.

As we move to Slide 9, our full year guidance for total revenue and our expectations for organic volume growth remain unchanged. The midpoint of our adjusted EBITDA guidance has been modified to $2.075 billion, largely driven by 2 main factors. First, the effect of incremental Section 232 tariffs and other tariff increases announced in August. Pricing actions have been executed to offset these incremental tariffs. However, based on the timing of customers' notifications and the timing of those pricing actions to convert from orders to revenue, we expect this pricing to be realized in 2026.

And second, our backlog has continued to grow, resulting in a delayed realization of pricing actions previously taken in the second half of the year. These 2 drivers have been partially offset by lower corporate costs, which largely reflect adjustments to incentive compensation. As a result, the midpoint of adjusted EPS guidance has been reduced to $3.28 from $3.40.

Our revised view of 2025 incorporates a prudent view of Q4 based on both the timing of tariffs and price realization. We expect both segments' adjusted EBITDA margin percentage to be approximately flat on a sequential basis compared to the third quarter. It is important to note that our current guidance does not reflect any of the potential tariff reductions, which were announced yesterday.

For the rest of the components of our full year guidance, we anticipate our adjusted tax rate to be roughly 23.5%, net interest expense to be about $220 million and CapEx to be around 2% of revenue. We have updated our share count assumptions to approximately 402 million shares, which reflects the impact of the share repurchases made year-to-date. We remain committed to leverage our robust balance sheet to strategically deploy capital and drive value for our shareholders.

Finally, on Slide 10. As we conclude this portion of the call, I want to emphasize that we remain nimble and prepared to adapt to a continued dynamic global market environment. Our teams continue to demonstrate resilience and execute at a high level, delivering strong results despite ongoing macro volatility. We remain disciplined in our approach to capital allocation, leveraging our robust balance sheet to generate durable long-term value for our shareholders.

And to our employees, thank you for your continued dedication and focus. Your ownership mindset and the use of IRX enable us to stay agile and control what we can control, delivering another solid quarter of performance.

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

[Operator Instructions] Our first question will come from the line of Mike Halloran with Baird.

Maybe just some more color on what you're seeing from an end market perspective and how you see momentum playing out into 2026. If you could do that for both segments as well as maybe geographies. Thought process here, Vicente is you've kind of been floating around from an end market perspective for a little while now with choppy end markets. And so the question here is, do you see anything on the horizon that can break you out of that more systemically? Any green shoots and kind of just walk through the regions and some of the categories.

Yes, Mike, I'll say that, first of all, I'll say we're pleased how the organic orders have continued to progress sequentially so far in 2025. Clearly, they're going to translate here into the revenue. But I think from an order perspective, we -- this is the third quarter of positive organic orders. Q3, to put in perspective, it was positive across all regions, except basically the vacuum and blower business in Europe, which, as you very well know, this tends to be a little bit more lumpy, but we still expect that to be positive on a second half view perspective.

So I would say that the trend continues to improve. Clearly, you saw how PST has continued to accelerate the orders momentum. And I think in the ITS, indeed, we're seeing some better sequential improvements. You saw sequential orders kind of improve Q2 to Q3. Having said this, I think we need to see a bit more clarity on the tariff situation to remove completely the uncertainty in the industrial landscape, which is what I would consider maybe the main drag.

We think yesterday was definitely a very good step in terms of what the administration said about what the new tariff regime or new tariff policy could turn out to be. So -- but in the meantime, I think, Mike, we continue to focus on controlling what we can control. I think we're moving into 2026 with a heavy backlog. We expect a full year of 2025 book-to-bill to finish at or slightly above 1. You saw how Q3 also was basically approximately 1, which here, usually Q3 and Q4 tends to be below 1 in the 0.9 kind of range, but we did better than that.

And there is also the benefit we're seeing in terms of the good exposure that we have to some secular trends, whether markets around wastewater or even the life science investments that we have done, whether it could be biopharma, medical device and some of the tools business, just to name a few, that could potentially help us offset some of that slower recovery in the core industrial end markets. But again, if you think about marketing qualified leads, the long cycle funnel, all of that continues to move in the right direction, and we see no cancellations whatsoever, which again bodes well for when things will start getting unlocked that we see that incremental momentum.

And then just focusing on the margin commentary you made in the prepared remarks about confidence in the 2027 EBITDA margins for the 2 segments. Maybe just put that in context from 2 perspectives. One, as we get to '26, are we going to see a little bit of an uptick here as things balance out more on the price cost side and get back to that normal equation? And then maybe help just bridge what needs to happen for those 2 segments to get to those targets from here?

Yes. Look, I think as we said, so from an ITS perspective, well, let me just kind of first step back. I mean, we expect margin expansion to -- as we go into 2026 to maybe remain a little bit muted during the first half of the year as we will continue to come to tariffs, which have been put in place throughout 2025. We will continue to offset these costs through pricing as well as leveraging IRX for some of the self-help initiatives like I2V and also the operational tariff mitigation and continued target actions that we just talked about.

I would also remind that gross margins continue to be flat to maybe slightly up. So obviously, that reflects the fact that we continue to -- we have continued to invest in SG&A, particularly more on the sales and the commercial initiatives and that you've seen that kind of some of the offsets. ITS is at roughly 29% EBITDA margin. I mean, we're basically right there in terms of what we said we could get by 2027. Clearly, no concern based on all the activity that we're doing.

And you're seeing how the PST now at roughly squiggly 31% margin that we achieved here in Q3 and that has seen some good sequential improvement throughout every quarter in 2025, we see the momentum still relying there and the changes that the team are doing to continue to accelerate that. So again, that's why we get that level of confidence that by 2027, we'll definitely be able to get into the targets that we set out to be by -- during Investor Day.

Our next question will come from the line of Julian Mitchell with Barclays.

Maybe I just wanted to understand, so the -- I suppose the guide midpoint this year suggests that you're running at kind of incremental sort of EBITDA margins, total company is sort of in the mid-teens this year in terms of the kind of drop-through from 5% sales growth into EBITDA. That's clearly well below what you should be doing. So maybe just parse out for us the main headwinds within that, that there's maybe an M&A headwind, the price/cost aspect, maybe something in mix. And when we're looking at next year, should we assume that EBITDA margins remain muted in the first half, kind of flat or down year-on-year as you try to work through the tariff headwind?

Yes. Let me start with the first part of that. In terms of kind of the margin profile you've seen and kind of, as you said, the incrementals and things of that nature, I think there's probably 2 kind of probably, what I'd say, large drivers of that or 3 drivers of that here in 2025. First, clearly, the biggest driver is just the impact of tariffs that you've seen in the course of the year. Clearly, that's been probably the single biggest, what I would say, drag on the margin profile and obviously subduing what are typical incrementals. But that being said, as Vicente just mentioned, gross margins have effectively been flat across the board, which I think does speak to the proactive measures that the teams have taken with regards to pricing actions as well as kind of the general productivity equation.

The other piece, Julian, there is what I would say, I wouldn't necessarily describe it as mix, but I would say it's probably the deleverage you're seeing on the organic volume drop, which is being offset by what I would say, M&A and FX. But clearly, those come in at slightly different margin profiles, particularly on the M&A as we kind of bring it in, in first year. Clearly, that comes in at a lower margin profile than the overall segment or the overall company, but one that we bring to generally fleet average by year 3, if not sooner. So those are probably the biggest drivers as well as what Vicente just said on the ongoing commercial investment. This is something we've been hyper focused on across the businesses as well as areas like demand generation to continue to drive ongoing organic growth.

And then the second part of your question, yes, I think I'll go back to what Vicente just said, more muted impact as we move through the first half of the year, digest the comps on tariffs and things like that and then a little bit better coming out of that to the back half of the year.

That's helpful. And then just my follow-up would be, you called out price and the sort of lag on that working through on Slide 9. Just wondered if you could maybe kind of quantify for us that split of price versus volume in the third quarter and how we should think about the pace of price ramping up in the next sort of couple of quarters?

Yes, Julian, in Q3, from an organic growth, price was roughly 3%, 2.7% to be exact for the total company. And as you think about the change in the fourth quarter guide, is largely driven by 2 factors. I mean, 2/3 is the change driven by the incremental effect of the recently enacted tariffs that we just talked about. And the remaining 1/3 is the change driven by what we saw in Q3, which is the delayed realization of the in-year pricing due to the backlog growth.

And maybe, Julian, just to add another point to that. I think in Q4, you should expect to see pricing from a percentage perspective be relatively consistent to what you saw there in Q3, the number Vicente I just mentioned.

Our next question is from the line of Jeff Sprague with Vertical Research.

Maybe just come back to tariffs. Just a simple question. Can you just tell us what the gross headwind is and what the incremental impact of the 232s in August were?

Yes, Jeff, I'll take that one. So I think as you remember, in our last call, we said approximately $80 million in year. What we'll say here is that, that number is slightly in excess of $100 million at this point in time. And clearly, as Vicente mentioned in the prepared comments, we've taken the requisite price actions. It's just a matter of timing, and we expect that to kind of catch up as we move into 2026.

Yes. And then I understand the comment about kind of backlog and taking a little while to come through and maybe that impact on the first half. But also, you do have a lot of shorter cycle business where arguably the price should be coming through as soon as maybe even the fourth quarter, but certainly the first half. I mean, correct me if I'm wrong, are there some other kind of short-cycle versus long-cycle backlog conversion dynamic that we should be thinking about?

No, Jeff, I think the way you're thinking about it is correct. I mean, remember, we've taken pricing actions. It's not just been one pricing action over the course of the year. It's been a multitude of pricing actions just in relation to the tariffs and kind of how we operate as a global business. To your point, the short-cycle business does exist. It's -- but still, there's typical cadence and lead time on those orders.

So I think the way you framed it up is correct that with backlog having grown, we do expect that pricing to come through. It's just going to come through a little bit later than expected, and that's why we say this will catch up here as we move into 2026.

Our next question will come from the line of Andy Kaplowitz with Citigroup.

Vik, can you give us a little more color regarding how your end market verticals are doing in ITS, just focusing on clean energy. As you know, clean energy was the largest vertical of ITS if we go back to '23. And today, you mentioned renewable natural gas weakness. So could you give us some more color on that vertical? How much of a drag it is right now? And would you say comps begin to get a lot easier in '26?

Yes. Andy, as I mentioned on the call, it was definitely a drag as you think about the ITS, particularly in the America or call it, North America. I'll say Q3 was, from a revenue perspective, the one that we now comped that out. When you look at the orders, in reality, the ITS Americas, North America particularly was up mid-single digits from an organic perspective, orders. So that actually, as you can see, shows very well from that perspective that despite that industrial market, the Americas team delivering positive organic orders. And in addition to that, as compressors being up on a high single-digit basis too as well from orders.

So I'd say that some of the tough comps on clean energy are kind of gone. I think clean energy, as we said before, continues to be a good end market when you think about countries like Brazil or even some countries in Europe and even India that India is now pushing -- the government is pushing for some major investments in biogas. So it's all still a good end market. I think the large tougher comps that we saw due to the acceleration of IRA back last year that did not continue to happen this year is gone at this point in time.

And then PST orders, as you said, were up 7%, which is a relatively significant inflection versus last quarter. Was that just ILC Dover becoming organic and having easier comps? Or did you see more material improvement across the portfolio? And could you comment on your legacy Gardner Denver Medical business and how that's doing?

Yes. I'll say it was a good combination of all the different businesses within the PST playing fairly well. I mean, obviously, some better than others. But clearly, the Life Science platform, which includes the legacy Gardner Denver Medical performed very well. But even also on some of the other kind of short-cycle industrial businesses, we saw some good momentum too as well. So I'd say very evenly good performance across the entire segment.

Our next question will come from the line of Nigel Coe with Wolfe Research.

I just -- I don't know if you want to touch this third rail or anything, but any initial thoughts on 2026 based on what you've seen in the backlog, customer conversations, MQL momentum. I think if I just unpick what you kind of talked about in response to an earlier question, gross margins, I think you said flattish in '26, that imply overall margins flat in '26, but any color would be helpful.

Yes. Nigel, I'll say, as we kind of look into 2026, again, first of all, we're positive, enthusiastic about continued momentum on the organic orders, and particularly here in the third quarter, where we saw organic orders really across all regions, all businesses, except with one, and we call it out as that to be basically a timing perspective. And so as we move into 2026, yes, I mean, we're very pleased with how backlog continues to progress and build. We were expecting that full year book-to-bill is going to finish slightly above 1, which again, that implies very good momentum here still in the second half, which typically book-to-bill is less than 1 in the second half, but we're seeing -- we expect that to be slightly different here in 2025.

And so I think at this point in time, too early to call it out. We're going to provide you clearly more detailed commentary as we go into our next call. But so far, it seems to be more positive.

Okay. That's great. And Vik, you called out $100 million of in-year tariff inflation. Again, how does that look for 2026 when we just annualize and all the inventory turn stuff? So the full kind of -- the full sort of impact in 2026. And is it just price and surcharge actions you're taking here? Or are you adjusting supply chains to mitigate some of these 232 tariffs?

Yes, Nigel, so I will start with the kind of the second part of that question first. Clearly, it's a combination of both. I think as we talked about earlier in the year, we kind of took a dual approach surcharges and kind of more list price actions. I would say that's kind of more fading off to now more just everything kind of converting to normal course list prices, kind of which is what we've indicated kind of originally.

Absolutely, we are working on what I will call operational tariff mitigation efforts, and it takes on kind of all the forms you would expect in terms of whether it be resourcing, things around small, I'd say, supply chain from an intercompany perspective, things like that. And so right now, we expect that to probably have a little bit more of a meaningful impact into 2026 just because it takes time for those to realize and for inventories to bleed down and for those changes to happen. And clearly, there's been a lot of change over the course of the year.

As far as the 2026 impact, I'll just say, clearly, numbers are changing quite considerably. So we're not going to get into trying to size, quite frankly, the gross impact into 2026 at this point in time just because even frankly, as of yesterday, things have continued to change. But I think we feel quite comfortable that with the pricing and the operational mitigation actions we kind of have in place that we are -- we have those covered.

I will also go back to kind of what Vicente mentioned during the prepared comments that the way we framed up Q4 and kind of the tariff numbers that have been embedded, we do view as, I'll call it, a bit of a worst-case kind of view at the point in time and one that we'll obviously continue to monitor, particularly as the macro environment continues to change quite considerably.

Our next question will come from the line of Joe Ritchie with Goldman Sachs.

I want to maybe pull on the thread that Jeff started earlier on how pricing kind of builds and how your backlog builds typically through the year. And so typically, the way I think about it is like you've got your backlog build in the first half, then you ship the backlog in the second half. And this like interplay between tariffs and pricing and being able to kind of offset the increased tariffs. I just -- is it because like in the first half, as you're building your backlog, you're not contemplating the type of cost environment that has played out now through the second half of the year. And so you're off sides to some degree. I just want to make sure that I understand that correctly.

Yes, Joe. So I think a couple of things to think about. I think the way you're framing it out is the right way to think about it. As just kind of a reminder, the book-to-bill, you typically see above 1 in the first half, you typically say below 1 in the second half. That kind of gets to a rough average of 1 for the year. And I think as Vicente mentioned here, what is kind of the change at this point in time is we are definitely seeing book-to-bill kind of steady around that 1x number here in the back half of the year.

So what's happening here is the typical backlog burn that you see in the back half of the year is not as big as it typically is. And so what's happening here is as we've done pricing increases over the course of the year, I'd say more of those orders with recent price increases are going into backlog, whereas we would typically have seen those flush through the second half. And then clearly, with the -- I'd say, the Section 232 tariffs and quite frankly, all the other tariff-related actions that happened at that same time with India and Brazil and some of the other kind of components that happened in late August.

So as Vicente mentioned, as we've now taken the measures to counteract those with the normal notifications to customers and then the typical order to revenue conversion, that's just now pending now into 2026. The good news is, obviously, we feel like we've taken those actions. We see those actions coming through when we look at bookings and things of that nature. So we feel pretty confident moving into 2026 that, that equation will kind of get, I'd say, back more to normal.

Got it. That's helpful, Vik. I guess maybe just then the corollary to this. So what happens in an environment where tariffs go away? Like do we see like will we see a meaningful expansion in your profitability and your margins? I know you're using both pricing and surcharges. But in an environment where you have materially lower tariffs going forward, does that impact your business?