Q1 2025 Earnings Call Transcript

Hello, and welcome to the Ingersoll Rand Q1 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Matthew Fort, Vice President of Investor Relations. You may begin.

Thank you, and welcome to the Ingersoll Rand 2025 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 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 as 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 2025 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. Starting on Slide 3, we're off to a strong start in Q1, as we delivered 10% total order growth with a book-to-bill of 1.1 times. Additionally, organic orders increased by 3.3% and we delivered a record Q1 free cash flow of $223 million. We remain encouraged as April orders continue to show stability finishing in line with expectations.

We continue to focus on controlling what we can control, staying agile and leveraging IRX to offset all known tariff impacts. On Slide 4, I want to spend a minute, highlighting why in this current environment, our in-region,-for-region footprint provides us with a competitive advantage. We have built a footprint that allows us to serve our customers with a wide range of technologies via an in-region,-for-region model. This, in combination with our proprietary demand generation tool, has very well positioned to take market share in this environment by serving our customers locally with technologies and solutions that offer the highest ROI.

Turning to Slide 5. Our durable financial profile combined with our strong cash flow generation, provides us with multiple levers to drive value creation. Our capital allocation strategy remains unchanged with M&A continuing to be our top priority. As a reminder, our M&A strategy is centered around making smaller bolt-on acquisitions that complement existing technologies. And with a highly fragmented addressable market of approximately $57 billion, we believe there are still plenty of opportunities for bolt-on acquisitions across all of our businesses.

Our nine deals, currently under LOI and more than 200 companies currently in the acquisition funnel are largely centered around these smaller bolt-on acquisitions, which are mainly in-region, for-region and are also primarily internally sourced. As part of our balanced capital allocation strategy, our Board has authorized an additional $1 billion of share repurchases, bringing our total value authorization to $2 billion. This provides us with optionality for outsized opportunistic share repurchases over the short and medium-term. We remain confident in our long-term value creation and we'll leverage our strong cash flow generation to continue our focus on bolt-on acquisitions as well as share buybacks.

At this point in time, we're expecting to execute up to $750 million of share repurchases by the end of 2025. Even with these accelerated share repurchase activity, we continue to be committed to our expected 400 to 500 basis points of annualized inorganic revenue to be acquired in 2025. Moving to the next page. We're highlighting two additional transactions that were closed during the month of April. Bolt-on in nature, these acquisitions expand our capabilities in core technologies, focusing high-growth, sustainable end markets. With both acquisitions at nine times or less pre-synergy adjusted EBITDA purchase multiple, we continue to demonstrate our disciplined approach to M&A and expect to meet a mid-teens ROIC for both deals by the end of the third year ownership.

We're off to a strong start towards achieving our 2025 annualized inorganic revenue target with six transactions already closed this year at a weighted average purchase multiple of approximately nine times. I will now turn the presentation over to Vik to provide an update on our Q1 financial performance.

Thanks, Vicente. Starting on slide 7. Organic orders got off to a strong start, up 3.3% year-over-year with a book-to-bill of 1.10. We were pleased with the organic order performance across both segments and specifically within ITS, which saw organic order growth within all three regions. Aftermarket revenue finished at 38% of total revenue, which was up 110 basis points year-over-year. The 6% growth in aftermarket revenue underscores the focused efforts and progress we continue to make on aftermarket and recurring revenue.

The first quarter finished largely in line with expectations for revenue, adjusted EBITDA and adjusted EPS. It's important to note that approximately $15 million in revenue initially anticipated to be recognized within the first quarter has been deferred to the second quarter due in large part to customer requests. Additionally, we continue to make requisite investments for growth in the business, which did impact our year-over-year margin profile. The company delivered first quarter adjusted EBITDA of $460 million with an adjusted EBITDA margin of 26.8%.

Adjusted earnings per share was $0.72 for the quarter and free cash flow for the quarter was a Q1 record of $223 million. Total liquidity was $4.2 billion with a net leverage of 1.6 times, demonstrating the tremendous strength of our balance sheet, which we believe enables value creation optionality in volatile environments like the one we are currently facing. Turning to slide 8. For the company, total Q1 orders were up 10% and revenue increased by 3%. Book-to-bill for the quarter was a robust 1.10 times, showing great momentum.

And total company adjusted EBITDA was flat compared to the prior year. Corporate costs came in at $36 million for the quarter. And finally, adjusted EPS for the quarter finished at $0.72 per share, including a Q1 adjusted tax rate of 22.6%. On the next slide, free cash flow for the quarter was $223 million, including CapEx, which totaled $34 million.

Total liquidity now stands at $4.2 billion based on approximately $1.6 billion of cash and $2.6 billion of availability on our revolving credit facility. As Vicente mentioned earlier, we are off to a strong start towards realizing our 2025 commitment of 400 to 500 basis points of annualized inorganic revenue acquired in 2025. Leverage for the quarter was 1.6 turns, which was a 0.9 turn increase year-over-year and flat sequentially versus Q4 2024. As a reminder, the year-over-year increase in leverage was driven primarily due to the purchase of ILC Dover in June of the prior year. Specifically, within the quarter, cash outflows included $163 million deployed to M&A, as well as $18 million returned to shareholders through $10 million in share repurchases and $8 million for our dividend payment.

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

Thanks, Vik. On Slide 10, first quarter orders for ITS finished up 6% year-over-year with a book-to-bill of 1.1 times. Organic orders grew 3.5%. It's important to note that we saw organic order growth across all regions, including Asia Pacific, and we remain encouraged by the market activity we're seeing in China.

Revenue finished down 2%. We continue to be encouraged by the growth in recurring revenue, which was up double digits year-over-year. Adjusted EBITDA margin declined year-over-year, driven by the flow-through of organic volume, the expected dilutive impact from recently acquired companies and continued commercial investments for growth in the business. Moving to the product line highlights.

Compressor organic orders were up mid-single digits. Industrial vacuum and blower organic orders were up low single digits. And power tools and lifting organic orders were up low single digits. Highlighted here in our innovation to action section is an example of our Innovate 2 Value process or I2V.

The North American compressor team harmonized core components across multiple offerings of our oil lubricated products, driving a 23% reduction in total cost. This is one example of how we continue to see gross margin improvement opportunities even with technologies that have been in our portfolio for a while. Turning to Slide 11. Q1 orders in PST were up 28% year-over-year and up mid-single digits sequentially from Q4 '24 to Q1 '25. Organic orders finished up 3%, and it is important to note that we saw organic orders growth in both the Precision Technologies and Life Science businesses. Revenue finished up 23% year-over-year driven by M&A and finished down 3% organically.

PST delivered adjusted EBITDA of $106 million, which was up approximately 16% year-over-year with a margin of 29.1%. Adjusted EBITDA margins improved 150 basis points sequentially and finished in line with expectations. For PST innovation in action, we're highlighting a great I2V solution for c progressive cavity pumps. This new solution optimizes the maintenance process for the replacement of key consumable components, reducing critical downtime for our customers and improving margins by 10%.

As a reminder, Seepex was a company we acquired with mid-teens EBITDA margin, and in less than 3 years, we improved that to PST fleet average. And as you can see from this example, we continue to find ways to increase value in both to the customer and to the financial profile of the business. As we move to Slide 12, I wanted to provide an update to the potential tariff impact on our business and how we're mitigating it. Starting on the left side of the slide, based on announced tariff rates as they stand today, our in-year exposure for tariffs is approximately $150 million.

You can see the tariff rates outlined on the slide. And it is worth noting that the approximate $150 million estimate also includes the secondary impact of tariffs, which refers to price increases we're anticipating largely from our domestic US suppliers, who are procuring components from outside the US. On the right-hand side of the page, we're showing the mitigation actions that we have currently deployed and which are well underway. Turning first with pricing actions, we have taken a multistep approach with list price actions across our impacted businesses put in place as of April 1st, followed by targeted surcharges effective the week of May 1st.

Based on these pricing actions, we expect to offset the impact of tariffs one-for-one. In addition to pricing actions, we have launched a tariff war room to operationalize our tiered supply chain mitigation plan. And these include operational and/or routing changes at Ingersoll Rand manufacturing locations, supply chain relocation of existing supplier production to alternative manufacturing locations, and leveraging the global supply base to source from new suppliers. It is worth noting that many of these actions will take some time to fully implement.

So, we're not expecting a material impact from these actions in year, but we'll continue to utilize IRX to drive these actions to completion in an accelerated manner. On Slide 13, regarding our current guidance, we decided to take a prudent view by maintaining total revenue consistent with prior guidance despite the tailwinds we're seeing from a strong start in organic orders through April, incremental pricing actions to mitigate the impact of tariffs, FX tailwinds, and incremental revenue from recently completed acquisitions. In order to maintain total revenue, we're including a contingency in organic volume as outlined on the table.

We're taking that contingency in volume at normal flow-through which creates a change in adjusted EBITDA and adjusted EPS also shown in the table. For the rest of the components of our full year guide, we anticipate our adjusted tax rate to be roughly 23%, net interest expense to be about $220 million, and CapEx to be around 2% of revenue. Finally, our guidance does not include the impact of any anticipated share repurchases we spoke about or incremental M&A, which we expect to complete over the balance of the year. At the bottom of the slide, we have also added commentary regarding the current market indicators we track, which continue to show good signs.

MQLs were up double-digits in Q1 2025 and remained strong in April. Large loan cycle funnel activity continues to be robust with projects continuing to progress through the decision-making process and April orders have continued to show stability and in line with expectations. While we are operating in a dynamic environment, business conditions remain solid and we're encouraged by the organic order growth we saw in Q1 and the continued momentum we have seen in April. We're focused on controlling what we can control and our teams continue to execute very well.

We remain committed to leveraging our robust balance sheet to strategically deploy capital and drive value for our shareholders. And finally, on Slide 14, as we wrap-up this portion of the call, I would like to highlight that we remain nimble but are prepared to pivot in what continues to be a dynamic global market environment. We will continue to leverage our robust global in-region for-region manufacturing capabilities and pivot towards opportunistic end markets, remaining aggressive, and focused on taking share regardless of the macro conditions. We have multiple levers to deliver shareholder value, which differentiates Ingersoll Rand as an investment.

To our employees, I want to thank again for your part in delivering another strong quarter, remain focused on controlling what we can control, and staying agile through the use of IRX. With that, I will turn the call back to the operator and open it for Q&A.

Thank you. [Operator Instructions] Your first question comes from Mike Halloran with Baird. Your line is open.

Hey, good morning, everyone.

Good morning, Mike.

Good morning, Mike.

So the last comments on the guide. I just want to make sure we're all on the same page here. Essentially, could you bridge previous guide to current guide? It seems like you are taking the organic volume assumptions down, but it's more precautionary as opposed to anything you're seeing today from an order trend backlog, et cetera.

And so maybe you could just break that out on how you're thinking about the volume, price, confirm the precautionary FX and just kind of walk through those moving pieces?

Mike, yeah, you're absolutely right. It is what we call a precautionary or prudent. And because when you -- what we decided to do is to keep the total revenue guide consistent with the prior guide. Even though when you look at the components, we could have increased the guide in sense that tariff pricing goes up 2% in incremental growth.

When you look at combination of FX and M&A and I'll say FX as of the end of March, the combination of FX at the end of March and M&A should have given us another two points of growth. And when we decided that in order to keep the total revenue guide consistent based on this environment, we felt it was prudent to not raise that revenue We decided to then take the offset in organic volume, which then basically plugs in at down 4%, which we believe is both prudent and also derisking the year and holding the total revenue guideline.

Helpful. And then a twofold question. Can you just talk to any nuance you're seeing on the short-cycle businesses versus the long-cycle businesses, more on the ITS side there? And then on the PST side, you've had positive orders for, what, four quarters or so in a row now. At what point does that turn to positive organic growth on the revenue wise?

Yeah. Mike, in terms of the short-term cycle, I would say we saw a very good balance in both. As you remember, we have spoken a lot about MQLs being up double digits for also a couple of quarters, but the elongation of decision-making was taking longer and also on the long cycle. We also highlighted in the previous quarter, too, as well that that -- and the same thing now is we're not seeing any of those orders or potential orders kind of leads in the funnel getting canceled.

It will just take in a little bit longer. So we're seeing still good momentum on kind of flushing those through the system and getting good orders. And that we're seeing it on both. I'd say, as we said, and you kind of saw on the slide, MQL in the first quarter and also through April continue to be very positive, double-digit and.

And also loan cycle continues to be fairly robust, not only in terms of the total size, but in terms of projects that we're adding on.

Then the PST question?

Yeah. Hey, Mike, this is Vik. So yeah, I think first of all, to your point, I think similarly, we're encouraged by the momentum we've been seeing on the PST side. I think a couple of comments I think we made in the upfront comments here that we did see organic growth on both components of PST, so both the Precision Technology side as well as the Life Sciences, and so that Life Sciences is really referring to the piece of that, that's organic, is the legacy, what we call being the medical business.

So obviously, that has had probably the most challenging comps for a period of time. I don't think we'd say we've seen necessarily an inflection point fully yet, but we are encouraged that we're seeing a little bit of a return to organic growth. So I think we're encouraged here about kind of what we're seeing going forward. And that will lead to better growth momentum as we move particularly into the back half of the year, which should also help the margin profile as well.

Really appreciate it, guys. Thanks for all the help.

Thank you.

The next question comes from Julian Mitchell with Barclays. Your line is open.

Yes. Good morning. Just wanted to start with the organic growth outlook. So as you said, it seems like trends year-to-date in orders have been as you thought.

There's some sales sort of moving around as normal. But when we're looking at the sort of seasonality of revenue this year, maybe help us understand how the quarterly organic sales are expected to progress. Anything abnormal seasonality wise and what sort of exit rate for the year from the year does your guidance embed on organic sales?

Yeah, Julian, let me maybe kind of kind of take that in two pieces, including also just talking about maybe half one, half two, probably is the right way to frame that up. So first and foremost, I do think that from a seasonality perspective, when you think about either a percentage of revenue or a percentage of earnings first half or second half, very comparable to what you've seen historically, not being really out of sorts from that perspective. I think when you think about the moving components, and I'll probably answer your question here in terms of the organic. First and foremost, we do expect, obviously, organic growth trends to improve moving into the back half of the year as compared to the first half of the year.

So I would think about the first half of the year at from an organic perspective in total being down approximately 3% to 4%, with price contributing approximately 2% of growth, including, I would say, the beginning of some of the tariff-related pricing actions here in the April and May time frame. And as you move to the second half of the year, we're expected to be up approximately 3% to 4% total organic, with organic volume expected to be down low single digits and the balance coming from full run rate of pricing, including the tariff-related pricing actions. So that can kind help frame it up, including the pricing and volume components.

And it is worth noting here that the comps in the back half of the year do moderate a bit, which does help with that comparison point.

That's helpful. Thank you, Vik. And then just my follow-up would be looking at the EBITDA margins, those were down slightly year-on-year in the first quarter. I think the guide for the year, they're sort of flattish overall.

So maybe help us understand kind of any effects on the margin rate from tariffs as we go through the balance of the year? And should expect sort of margins to just be up a bit in each of the remaining three quarters year-on-year?

Yes, Julian, I think the way I would explain it and to keep it relatively simple here is you're completely right. The total year, it implies relatively flattish. I think that's essentially what you will see in ITS, a little bit better on the PST front. In terms of the biggest the biggest drivers, single driver is the tariff pricing.

We are taking pricing actions that are one-for-one offsetting the tariff costs. So that's sized at approximately $150 million, both the price and cost. And obviously, with that being a zero flow-through, that is, let's call it, dollar cost and margin essentially, it's not -- it's dilutive to the overall. So that's essentially the biggest driver.

I think when we look at other factors of productivity, normal pricing actions, things that nature, we actually feel relatively good kind of very much in line with how you've seen us historically behave. And then in terms of the quarterly, yes, a little bit of moving parts, but generally speaking, right around that kind of flattish expectation Q2 to Q4.

Great. Thank you.

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

Hey, thank you. Good morning, everyone. I'm a little bit late. But just coming back to tariffs, if I could.

Vicente, I think you -- when you're kind of explaining the hedges of sorts in the guide, right? You kind of characterized the tariff impact is 2% of sales. But it doesn't sound like you're going for it all in price. Can you -- if you haven't already, can you just provide a little bit more color on how much you think of it as kind of price versus kind of cost or other sourcing actions to offset this gross amount?

Yes, Jeff, I'd say it's a pretty good plan between price and surcharges. Everything that we did in April 1 was 100% on price. And then what we did on the -- as of May 1 included a good combination between price and surcharges. And we're doing that to give us plenty of flexibility as we kind go into the second half and better understand, too, as well what happened here with the surcharges kind of what stays or doesn't stay.

I will also kind of emphasize, I mentioned, too as well, Jeff, that typically, when we do a price increase, it stays. So we have been very disciplined and diligent that when we do a price increase, we don't then discount that price. I will also mention kind of what I said on the call is that a lot of these tariffs today, does not include some of the meaningful cost mitigation. That is not included here, but we're also working on a lot of cost mitigation.

And that means whether supply chain, relocalization or moving one product from one factory to another, as you saw, I mean, we have a pretty vast global footprint, and we have the ability and capability of moving product from one facility to another. So that is not included in our guide. But clearly something that, as you know us very well, we are always actively working on cost mitigations.

Yes, great. No, that's what I was sort of getting at. So yes, the plan is all priced, but you're obviously doing a lot of other stuff. Could you also just speak to the China business, specifically, China for China, kind of the tone of demand that you're seeing there and sort of any evidence of backlash against US companies or anything of that nature?

Jeff, actually I'll say I was actually with the China team a couple of times already this year. And I'll tell you that the team continues to be fairly optimistic about what could happen here in this year based on some of the push that the government seems to be doing now here in China for China, and how everything that we do in China really stays in China. So we're kind of being viewed as a very local company in China for China. So things seem to be very stable.

Clearly, throughout the quarter, we saw better improvements. Still for the year, we're predicting that China is going to be materially -- is going to still be down, it's kind of what we imply in our guide. But we're encouraged by what we're seeing and how our teams continue to really accelerate the process of localization and also share taking in new technologies and products such as blowers and vacuums. Also highlight, as well, Jeff, you heard us talk a lot about how outside of China, we have put a lot of attention on how do we accelerate our share take or market share, which is underpenetrated.

We call it the underpenetrated regions. Pleased to say that obviously, overall, within the ITS, we saw Asia Pacific up organically in orders. And that speaks to the fact that we continue to see good momentum outside of China with the organic investment initiatives that we have done outside of China. And that remains to be a great, good encouragement to offset any potential softness that China may seem to be continue to see throughout the rest of the year.

But again, China, I will say, encouraged and no negative retaliatory, I would say, gestures that we're seeing from customers against us.

Thank you for that. I'll leave it there.

Yes.

The next question comes from Rob Wertheimer with Melius Research. Your line is open.

Thank you. I'm curious how you think about acquisitions, your desire to close, how conversations changed just given obviously, there's more uncertainty that you reflected in your own guidance? Do you assume a safety factor and are willing to go forward? Or what is the outlook for kind of closing deals in the year? Thanks.

Yes, Rob, I'll say it continues to be very strong formal that we have on the M&A, and you have seen that we have closed already quite a few transactions here in the year already. So we're off to a very good start. As you have seen us do, we're very focused on bolt-on in nature acquisitions. We're very disciplined with price.

You can see that the last two that we mentioned here, roughly nine times pre-synergy multiple with expectation that on a post synergy, we can lower that to another three turns. So very good return on those investments that we're making there. I'd also highlight that our funnel is consistent to what we have always done before, which is sole source. We go to family and companies.

And moments like this, in this macro environment provides a lot of uncertainty to those multi-generation families and also provides a good opportunity for us to continue to emphasize how we're a good home for those acquisitions. Clearly, in the financial diligence, we do a lot of work to understand if the macro kind of making changes or not, and we're being prudent on how we're kind of that right in the model to create that ROIC. Last two points I'll say, we're -- a lot of these acquisitions are very in-region for-region, which obviously proves again a very good concept in this environment. And the last point I'll say, Rob, is that a lot of these multi-generation companies, they are encouraged to come to us because of our ownership model.

I mean they're -- regardless of the macro environment, they view that we are a great home for transitioning their legacy, especially the way we treat we treat employees and how the long-term ownership of having those employees be part and owners of the company.

Thank you.

Thank you, Rob.

The next question comes from Andrew Kaplowitz with Citigroup. Your line is open.

Hey, good morning everyone.

Good morning, Andy.

Vicente or Vik, book-to-bill over onetime as you said, which was strong and still strong in April. And I know you said your MQLs remain strong. So maybe you could talk about your order expectations for the year. This year end up actually being normal for you where book-to-bill stays over one-time in Q2 and you end up booking book-to-bill at/or above one for 2025?

Yeah, Andy, this is Vik. Maybe I'll take that one. Obviously, we're not going to necessarily try to guide on orders. I think what we'll say is this.

One, encouraged by the momentum we saw in Q1. Worth noting that a good balance between both what we'll call short to medium cycle products, as well as longer cycle activity. And I think it speaks to a lot of what we've been talking about even in prior quarters that MQL activity has remained healthy. And we've been seeing that, I'd say, funnel activity and was just waiting for some of those longer cycle projects to get to the finish line, if you will, in terms of the PO. So we're encouraged that we saw a nice balance of that.

I think right now, listen, our expectation is that we're not expecting to see dramatic changes from what we've seen historically in terms of book-to-bills from a seasonal perspective and things of that nature. And that's the best view we have at this point in time just given the macro environment.

That's helpful, Vik. And then Vicente or Vik, can you talk about the Q1 margin performance in the segments? I know you got hit with operating deleverage in ITS given the $15 million moving to the right, as you said. But if I look over the last couple of quarters, margins at least versus high expectations have been a bit choppier.

And we know your acquisition activities continue to be robust. So is there anything to read into here that acquisition noise and margins a little higher these days. Is there anything you could do to mitigate that noise?

Yeah, Andy. Let me start on kind of maybe the ITS and just remind everyone that Q1 2024, the ITS EBITDA margins were really strong. I mean there were 29.9% in the first quarter of last year, which was up 370 basis points. So still, when you look at a two-year stack, like Q1 2024 and Q1 2025, we're still up 260 basis points, which is we're very pleased with what the teams continue to do, including obviously, bringing new M&As and also, as you said, some of the deleveraging because of the organic decline.

So we continue to be very pleased with how the teams continue to execute within the ITS. And to your point, I mean, there's still plenty of runway for us improve. I mean you saw the great example that we gave in the slide of the ITS, how even on very kind of core technologies that have been with us for quite some time, we're still finding ways with the use of innovative value to really consolidate those product lines and still save. I think it was like 23% improvement in the bill of material cost of that specific product line.

So I think we're encouraged. We continue to see tremendous runway. We spoke a lot about how recurring revenue and things like that will also improve the margin profile of the ITS. On the PST segment, you saw sequentially great improvement, 150 basis points Q4 to Q1. We continue to be very pleased to what we see on what it was kind of that legacy PST that we call Precision Technologies now, they continue to see some very good improvements, and also the operational improvements that we saw on the ILC Dover business on a sequential basis Q4 to Q1. So I think everything seems to be moving along with expectations.

And clearly, there is still plenty of runway for us to see improvement on both segments.

Appreciate the color, Vicente.

Thank you.

The next question comes from Nigel Coe with Wolfe Research. Your line is open.

Thanks. Good morning guys. So just wanted to maybe sharpen update the 2Q kind of thinking here. You said previously, I think, 46%, 54% on EBITDA, but obviously, a lot of change since February. So, are we still on that sort of 46% phasing for the first half, Vik?

Yes, I think you're still very much right in line with that expectation.

So, about $505 million of EBITDA, $0.80 of EPS, in that kind of zone?

You're in the right ballpark, Nigel.

Okay. Fair enough, fair enough. That's helpful. And then a big picture question, I think, maybe for you, Vicente.

I mean the services growth, the aftermarket growth of 6% is really encouraging and shows resilience of that franchise. But that sort of backs into equipment down close to 10%, 9% to 10%, I think, is the number. That feels recessionary. So, I understand there was some push from 1Q to 2Q, but any sort of perspective you have on the cycle would be pretty helpful?

I'd say, Nigel, I -- keep in mind that we're putting a big effort on the recurring revenue that we said that recurring revenue kind of up double-digit. I think we still feel fairly good on the overall compressor product portfolio. And as you saw where the compressors, blowers, and vacuum technologies and even included in the power tools that we continue to see -- we saw a positive good order organic momentum. We do analyze a lot of the data that we kind of get from associations, particularly here and the one in the U.S., which continues to show that we're holding to taking share.

And so we remain encouraged. We have an amazing installed base of, kind of, core equipment. I think it's very important for us to start connecting a lot of that, which is what we're very focused on. And in addition to that, we continue to see more equipment across the world.

So, nothing that it is concerning here to us.

Okay. Thanks a lot.

The next question is from Joe Ritchie of Goldman Sachs. Your line is open

Hey guys. Good morning.

Morning Joe.

Hey, just tackling this new guidance from a little bit of a different angle. So, if I take a look at the kind of like midpoint of your EBITDA for the year, it's like $2.1 billion. It feels like we can get there just from your completed M&A. So, I want to make sure that I've got that straight. And then like all else being equal, it really isn't much baked in for the rest of the business?

Yes, Joe, let me take that one. Obviously, with regards to the M&A that we have completed, that we sized that in the earnings at approximately $330 million, which I think is a relatively normal flow through as you would expect for things that are completed kind of year one. As far as the other moving parts, remember, with the organic volume adjustments we talked about and the pricing, a meaningful component, which comes through it at 0 margin, it's a little bit atypical than kind of prior years, but we think, as we said, kind of prudent given, kind of, what we're seeing. So, again, are you, kind of, far off the mark in the kind of the moving parts?

No, I don't think so in that respect. But I would say that I'd say the composition of the growth elements, particularly the zero flow-through on tariff pricing is probably the unique aspect of this year compared to years past.

Okay. Okay, great, Vik. And then just Vicente, maybe bigger picture question and touch to play in hypotheticals here, just given the environment that we're in. But if the tariffs were to kind of resolve themselves, let's call it sometime in the next couple of months, given just the demand picture that you're seeing in your business today and that contingency that you have built in, would your expectation then be that like, okay, you're going to get a little bit better growth than as the year progresses and we can get back to potentially what the original guidance was for the year?

Yes, potentially, Joe. I mean, I think there's a lot of things that can happen. So yes, I mean, absolutely. Again, I think we're incredibly encouraged that even though in this environment, we're seeing what we're seeing in terms of kind of the organic order growth momentum through -- on a year-to-date basis.

And as we said, we just decided to take a prudent view because if you start stacking up all the positives, it kind of became more of a situation that we said, hey, we want to be more prudent. So, if tariff comes off, could there be accelerated growth? Yes. I mean, but TBD when that moment happens, and at that time, we will definitely evaluate what the situation is.

Makes lot of sense. Thanks guys. Appreciate it.

The next question comes from Stephen Volkmann with Jefferies. Your line is open.

Great. Good morning, guys. Just a couple of quick follow-ups here. I think you talked, Vik, about like $150 million or something of pricing. Is that pretty much even in the 2 segments?

Well, yes, obviously, it's, I'd say, proportional between the two given the size. But what I would say is the level of tariffs and/or the level of pricing actions have been very commensurate across the 2, it's probably the best way to think about it.

Okay. And then I'm just trying to get my head around. You're obviously doing some other things on the cost side, sourcing, et cetera. It would seem to me like those would take a little while to sort of sort of filter in, but it also doesn't seem like you're really sort saying the second quarter will be weaker and we'll sort of grow into it.

So I just thought that was interesting. Any way to square that that circle?

Yes, Steve, I'll take one. So I think, a couple of ways to think about it. I think the way you've thought about the -- I'm going to call it the cost actions, as Vicente mentioned earlier, 100%. We're taking a prudent view here, teams, we've launched tariff war rooms and things of that nature, which is very collaborative across the enterprise.

We're just expecting that to take some time to kind of get to completion and taking a prudent view on the in-year impact. So we're offsetting the tariffs essentially one for one with the pricing actions. I think the reason you're seeing that essentially being net neutral from a dollar perspective quarter-to-quarter is, we have taken those actions in kind of kind of two tranches. We took immediate action here coming into April 1, which I think has helped mitigate a lot of the noise that you would see here in Q2, as well as a second round of actions here effectively as we speak here on May 1. So I think the 2-tiered approach kind of on the pricing front compared with the tariffs themselves are kind of folding in, I think, is keeping us largely intact.

Got it. Okay. Thank you, guys.

The next question comes from Joe O'Dea with Wells Fargo. Your line is open.

Hi, good morning. Can you unpack the 4% volume impact, I guess, embedded as contingency? And it would seem that that's an annualized number, so it's an even bigger hit that you're taking primarily to the back half of the year. But where do you think about that vulnerability really sitting between segments and then within segments by end markets or product groups?

Just to understand what you're watching most closely for the volume vulnerability.

Yes, Joe, this is Vik. I'll take that one. So, I think a couple of things here. One, we've taken what we think to be a prudent view for the balance of the year.

Obviously, with only 3 quarters in the year, yes, there obviously is an impact in the second half. As far as how to think about it between the two segments, we view it actually very comparable, right? Like Vicente has mentioned here, we look at this in kind of two fronts. One, I'd say, prudently de-risking the guide, but then also keeping total revenue intact.

And you'd see that we actually kept that across, it's commensurate across both segments. So as far as product lines or anything of that nature, no, I don't think we view it necessarily any different. What I'd say, product line by product line or anything of that nature. We're taking a prudent view on the volume expectations to keep the revenue guide kind of intact from a total perspective.

And yes, obviously, the second half impact, as I kind of outlined before, we are expecting organic volumes to be down low single digits in the back of the year.

Got it. I guess, just related to that, like are you seeing different demand trends? You've got products that price at a pretty wide range of points. Are you seeing anything in different demand trends between those, whether something that would be more at the reciprocating scroll compressor price points or up to centrifugal, like any hesitation out there on higher price points?

I'd say, I mean, Joe, nothing of significance that we can think about. I mean as you kind of well point out, when you think about centrifugal and some of the kind of medium to large, those tend to be more CapEx oriented versus maybe the smaller compressors will be more related kind of I'd say, OpEx. And -- but we play more on that kind of medium-ish to large compressor side, I mean, we don't do -- we clearly are not in the game of do-it-yourself sort compressor style based on compressors, which I assume that's maybe more related to consumer spend or your sales, which that, we don't play in that market.

So our products are more in the highly engineered and they do provide that return on investment. So everything we sell is based on the payback. And as long we have proven that as long as we show the customer that the payback is 15 months or less, they will put that project up on the list because obviously, it's a great payback. And the technologies that we're launching and how we save energy, how we conserve water and everything else, it's a great way for customers to view that sort of cost of ownership that offers a payback.

And then just on tariffs, $150 million, can you size how much of that is China? And within that, how much is import? How much is export? Really so that we have a sense of moving forward, and if we see headlines on changes to these, we have a sense of how much of that applies to the $150 million?

Yeah. Sure, Joe. I'll take that one. So I'd say, the majority of cost are China-oriented, and I would say, relating to imports from China, I would say, much more on what I'd say, just third-party spend.

As we mentioned, we're largely in-region for-region. So while there's a small impact there, that's by no means the major driver. It's also kind of worth noting here that in that number, we do include what we'll call -- I refer to it almost as the Tier 2 impact, but that really refers to increases that in the US we're expecting from domestic suppliers, because they are getting components internationally. So we have included that in our $150 million estimate, and we do attribute that largely to that kind of China component.

So that is very much the majority of the driver of the $150 million.

Thanks a lot.

The next question comes from Chris Snyder with Morgan Stanley. Your line is open.

Thank you. I wanted to ask just on the contrast between the Q1 1.10 book-to-bill, which -- I know there's positive seasonality, but I think that was the best since 2022 and then just the four-point volume guide down. Is there a view that these orders could have included some pull forward ahead of the tariffs? Or are you -- are customer conversations changing at all in Q2 that's making you guys a little bit more cautious on the back half?

And then just on that, like anything specifically on China, where it does feel like the demand for manufactured products may have changed a lot versus what was going on in Q1? Thank you.

Yes, Chris, thank you. I'll say on a pull-forward, nothing that we could see because keep in mind, I mean, I think a lot of our -- the majority of our products, a very large percentage of them, they are -- you got to select the options and it's kind of almost, I'll say, a little bit customized to the need. So it is not possible for our customers to really create a lot of inventory of our particular compressors and things of that nature. And as we said before, historically, we do track point of sale on those distributors that mostly on a precision technology side, we track what our selling and then the sellout.

So we basically track amount of inventory and we do not want our distributors to carry excessive amounts of inventory. So based on the data that we have seen, we don't see any of that pull forward. I think in terms of your question around China, again, positive, I'd say, positively enthusiastic about what we saw throughout the quarter and also kind of as we of come into April. The team remains very encouraged of all the activity that we're seeing.

And -- but we're not expecting like a fast recovery clearly in China. And we've put in a lot of emphasis on growth outside of China, particularly Asia Pacific, where we see good solid momentum today.

Thank you. I appreciate that. And then I'm just following up, have tariffs change the competitive positioning for you in the US market, whether it's some of your bigger competitors? Or to the extent, are there -- do you guys compete at all against maybe lower-cost foreign imports, whether it's China or elsewhere that could be impacted by the tariffs? Thank you.

Yes, Chris, we do have a competitive advantage because of our in-region for-region model. I mean, that is clearly -- because when you look at all of our competitors, whether they bring product from the outside, I mean the majority, most of them. So that offers definitely a competitive advantage and one that we're putting now, not only just in the US, but on a global basis, a lot of our customers, they are asking for local products, and that is what we are able to offer to a lot of them.

Thank you.

Sorry. The next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.

Yes. Thanks. Good morning, guys.

Good morning, Nicole.

Good morning, Nicole.

Just one quick follow-up on the 1Q margins. Were margins impacted at all by price cost headwinds just because the inflation kind of came in really quickly? And I think you guys started to attack this with pricing in April rather than during 1Q?

Yes, Nicole, I think the simple answer is not dramatically. I would say that the tariff impact has become more of a Q2 dynamic forward. And we did have some of the kind of carryover pricing that kind of comes normally from prior year end to this year. So I wouldn't say there was anything of a dramatic nature there.

Okay. Thanks. And then we've gotten through a lot of my questions here. But I guess one thing we didn't talk about is what you're seeing in Europe. I suspect that it's probably stability, not really much change relative to what we've seen in the past few quarters. But could you talk a little bit about order activity in that region?

Yes, we were actually -- Nicole, great question. Thank you for that. We're actually very pleased with what we saw in Europe. We saw kind of mid-single-digit organic in the ITS segment through, I mean, in Europe. So I guess that encouraged with what we actually saw.

Thank you. I’ll pass it on.

The next question comes from Nathan Jones of Stifel. Your line is open.

Good morning everyone. I wanted to ask a question thinking about these price increases from your customers' perspective. I mean, we're talking about 2% price for Ingersoll Rand. But if we start thinking about that being across three quarters and 40% to 45% of revenues in the U.S., so if you just spread that across kind of the U.S. portfolio, you're talking more about a 6% price increase on that kind of stuff.

And then probably some of the services don't need to see that price. So maybe you're pushing into the high single digits on products. Everybody else is raising price the same amount. Do these things start to impact customers' go, no-go decisions on projects, because the return metrics for their investments have changed because of these price increases as they go into effect?

Yes, great question. I'll say a couple of things. One, I mean, clearly, our products are mission-critical in nature. So they're needed.

It's a must have for the specific the specific projects and application. And it's just not all that are increasing prices. I mean, clearly, we track the competitive dynamic and everyone is along the lines kind of doing it. So I will say that customers continue to pursue what -- I mean, clearly, they will do the math in terms of the return on that investment, whether that will make sense, as I kind of mentioned before.

We do a lot of presentation to our customers on how we are able to create that payback and then return on that investment. So I think what -- so if it's happening in the market, could it create some customers to maybe put a pause? We haven't seen it at this point in time yet. That's why even more so being prudent as we kind of do what we did with our guide.

But again, nothing that we have seen on a year-to-date basis, kind of Q1 and through April from an order perspective. And the last point I'll say is that this is why we emphasize our in-region for-region because we do see many customers that are asking for products that are made locally. And that is the advantage that we have, not just on compressors, but you saw on the map, I mean, blowers, vacuums and other technologies that are very prevalent in the markets.

Thanks for that. I guess the second question for me is a bit of a longer-term one. We've seen things like fiscal stimulus announcements in Europe and Germany specifically, you probably get to more of that. Started to see stories about South America looking to invest in capacity to decouple from the U.S.

A lot of those things talked about and probably don't impact you this year, but maybe start impacting you next year. Maybe just talk about the opportunities that, that could provide for the business.

Yes, Nathan, it's a great question and one that -- I mean, so far this year, I probably have been out to all the -- across all the regions, even in Latin America, Europe, Asia, Middle East and clearly throughout the US. And I spent a lot of time talking to a lot of our customers, and it is coming kind of loud and clear, customers want localized products. And that is the offering that we are able to provide pretty uniquely to many of them. So yes, we see some good investments that are happening.

And I think this localization, whether you think about India, even Brazil, that just basically was inaugurating our new facility there, not too long ago, a couple -- a few weeks ago. And customers, they want some local content in those products. And I think that that provides us very well positioned in that environment.

Thanks very much for taking my questions.

Thank you, Nathan.

The next question comes from Andrew Buscaglia with BNP Paribas. Your line is open.

Hey. Good morning, everyone.

Good morning, Andrew.

Maybe just one for me. Everyone kind of took my last few questions I had. So I wanted to get an update so on ILC Dover, and how that how that is tracking during the tariffs. It's not a market I'm too familiar with, but I'm wondering what the exposures are there, and if you're seeing any change in demand trends in that specific area? Thanks.

Yes, Andrew. We continue to remain really encouraged by the momentum we're seeing in the Life Science front. Just kind of highlight that the Life Science component of ILC Dover, which is everything except the Aerospace business, had a book-to-bill of 1.11 and core single-use powder handling portfolio bookings are up low-double-digits year-over-year in Q1, and operationally very encouraged to what we saw kind of Q4 moving into Q1, as I mentioned on the call. And clearly, we continue to make a lot of investments in the ILC.

And over the long-term, we continue to see that clear path for that long-term margin targets that we outlined when we announced the deal and the transaction. Particularly to your question on tariffs, I'd say fairly minimal in nature. And where we have seen them, we can actually work with our customers to pass that, whether it is price or surcharges.

Okay. Got it. That’s it for me. Thank you.

Thank you.

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

Yes. Thank you, Sarah. I just kind of want to highlight that consensually last month we crossed our five-year anniversary of combining Gardner Denver and Ingersoll Rand. And as you have seen over the past five years, we have been through a lot, COVID, supply chain, freight, a couple of wars and things of that nature.

And we like to say that we're now much stronger than ever and completed divestitures, acquired 65 companies. We have a pretty unique portfolio. And needless to say, we know how to navigate this market. We have a management team that has done it before.

We have done it over the past five years. And regardless of what comes out, we're pretty agile and nimble in this environment. And we know that we'll definitely come out even stronger in -- out of the situation that we have done even historically in the past. So we remain very excited, remain very encouraged about what's the future ahead of us at Ingersoll Rand.

And one more time, I want to thank all 21,000 employees, who are owners of the company. And that is one of the reasons why we continue to remain very agile and nimble despite any of the market situation is, because all of them are pushing towards the same goals and same characteristics that we want to do, and we know that we will be successful. So with that, call it up for today, and thank you, everyone.

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