Q1 2026 Earnings Call Transcript

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 technology 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 position dampners, 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 large 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 Vic 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 banking business continues to perform well and was up year-over-year.

Power Tools and Lifting was down year-over-year, driven by the lift in 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 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 continue 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 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 solutions.

ILC Dover developed a comprehensive fully integrated bold 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 Elmorishli 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%. And 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 funds.

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 able and continue to be 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, mostly for orders from the Middle East are tightly 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 are solid start in 2026 with a book-to-bill above 1x and the improvement in the short-cycle business setups 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 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 side of the business might be improving?

Yes, sure, Michael. So Mike, 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. As we mentioned on the prepared remarks, our 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 on the -- 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 has remaining stable as well. And as we think about continued rising energy prices in Europe, we see these 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 in ITCs taking a little bit of time more to decision-making and finalized, 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, the 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 in 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 is just to 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, you having 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. If you -- as you have seen on 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 we 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 focus on the penetrated 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 wonder 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 I think first 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 the 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 AIFA 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 to keep it simple here. No, we have obviously worked through all those individual new 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 disinflationary 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 rate 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 ground break on some bigger projects. Just wondering what the funnel looks like there? And is the visibility actually improving?

Yes, yes, 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 return 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 product 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 can 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 improvements 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, a 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, tariff-related pricing actions have large -- 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 you 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 materials is approximately 70% of our cost of goods sold. And there is a lot of activity going on, whether it be on the ITV 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 the 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 loan 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 had to -- they could not leave their house to go and talk to customers, same thing at the customer side. So that is really what created some of the delay and the impact.

And but 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. So yes, so I think it's just at this point in time, mainly due to fairly contained on 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 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 and 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 so that with the technology that we have.

Your next question comes from Amit Mehrotra with UBS.

I just -- 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 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 to 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, my feeling is, 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 market share. Like is there something else going on where some of the 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 loan cycle kind of year-over-year comp.

I mean some of the loan cycle, I think we tend to like to look at it better, more on the 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 can start excluding some of these loan cycles, we definitely see that short cycle continues to improve.

And keep in mind, I mean, the demand elasticity by comprise. I mean we had 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, 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 -- you've made a couple of comments on the call today about the potential for high oil prices, higher 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 there?

Yes, Nathan, we'll say, 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 has spiked and increase and even although gasoline and oil prices. I mean I was just in Europe with the team at [indiscernible] 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, I mean, this -- we're still early into what I would say, the conflicts 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 and 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 have they 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 -- I mean, we said historically before all this allocation, it could take anywhere between 6 to 8 weeks and clearly [indiscernible]. 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. So 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, 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 PST. 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 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 what we always said that, that segment should be operating above 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 what -- roughly what percentage of your total sales are short cycle today?

Yes. Nicole, we definitely saw -- we saw progression 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 other cadence continues to go fairly well in terms of -- in line with expectations. And so I think we're pleased with that.

Yes. 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 a 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 mentioned on more.

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'd 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 a 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, not being necessarily more on the tariff at this point in time, just given things have kind of stabilized 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, 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 shipment 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 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 and 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 to 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 a 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, Steve, on the NOI, it's kind of more on the bolt-on in nature. Having said that, I mean, there's definitely a couple of transactions and 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. 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? I mean, what do you see in terms of mix for '26 and sort of moving forward?

Yes, Andy, I think 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 said 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 customer.

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've got 1/3 of the delayed 40 minute or 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 and 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 last that you get these delays back?

Yes. So these were really kind of plant expansion and production capacity extensions related kind of long cycle project orders. We don't need -- 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 rebuilt 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 as question, but what percentage of the current portfolio, Vicente, do you think is levered to energy be a process markets, oil and gas, chem, et cetera?

Yes. Good question. It's -- 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 our, for example, our Nash liquid embracing that is widely used in the pulp and paper. It's also and can be very well utilized in the destination towers of petrochemical facilities to be able to recompose products even further. So I think we're putting attention to obviously help our customer where health 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 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? Or do you think that life sciences can be sustained?

And how does the Life Sciences margin compared to the average within PT?

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 the overall segment. Clearly, it's the area where you've had more of the integration with the ILC Dover assets with legacy Life Sciences assets bigger sell and things of that nature. So -- 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 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, double-digit growth came over the entirety of LFT 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.

So lot's 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 seems like tariffs probably had the outsized impact this quarter, not that 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, Jess, I think with that question, I think the 2 drivers you mentioned there about the tariff-related dynamics as well as just to 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 1 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 continue 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 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 IPS and PST. And -- 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 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 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 then 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 in the lower 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 either subsector.

Generally correct. Yes.

When -- in the tariff impact and 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, 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 actually 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.

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

Yes. Andrew, China for all, again, we have been able to outperform the market that we have -- 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, say, 3 quarters of being positive on an organic quarter basis. And so again, it's -- 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 low 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. If 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 and one of our medical device facilities -- and in China, for China for the medical device operation is 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, Sara. 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 reward in 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.