All right, so we're going to get started again. We are very excited to have Ingersoll Rand with us. We've got Vik Kini, who is the CFO, Senior Vice President and CFO. Vik, I'm going to walk over to you. And while I'm doing that, let me just ask you sort of a big picture question. It's been five years, almost exactly, since your RMT. So maybe summarize the progress that Ingersoll has made during that time toward, I think, what is your vision to be the premier industrial compounder? What's gone right? What, if anything, could you do better?
Sure. No, first of all, thanks for having us, Andy. Always a pleasure, and it's interesting that we're almost coming up on almost exactly five years, like almost the five-year anniversary of the RMT. So I think, first and foremost, just to kind of reflect on the last five years, I think we're incredibly pleased with the progress that we've made, you know, kind of transforming as this kind of the new Ingersoll Rand. When you think about it, the concept of, you know, our economic growth engine, you know, I'd say focusing on core technologies, you know, we have done now in the last five years to kind of put some numbers around it.
You know, the two divestitures we did pretty quickly out of the gates, you know, making sure that we were, you know, good businesses, but ultimately speaking, Club Car and the HPS businesses, businesses that had, you know, cyclicality and just probably weren't ultimately core to the enterprise, and then transforming the organization over the course of the last five years with higher growth, sustainable M&A. We've done 60-plus acquisitions now in five years. Even as we sit here right now, the M&A funnel is as healthy as it's been. We've done a couple of bolt-ons already. In 2025, the funnel is 200plus companies.
I think if you think about the economic growth engine that we've kind of set out, where, you know, this nice balance of organic, inorganic growth, margin expansion, kind of this focus on some of these key megatrends like sustainability and digitization, and then ultimately being able to compound earnings at a double-digit pace, deliver strong cash flow, and kind of rinse and repeat. And so as we sit here today, we're incredibly pleased. You know, you've seen the margin profile, you've seen the margin progress, you've seen the growth. As far as, you know, things we can do better, listen, we're a culture that there's always opportunity, right?
When you make all of your employee shareholders, which is kind of the model that we have, I think the numbers are something along the lines of we've done $300 million worth of equity granted to our employee base that's worth approximately somewhere close to $1 billion over that time frame. You've really had an opportunity to really make your employees vested in what you're doing and really part of that progress, and so I think there's always an opportunity, whether it be on the top line side of the equation, continued margin expansion, continued cash generation, and continuing to kind of execute on this model, and for us, we're just getting started. We're only five years in. We've made fantastic progress, but I think there is plenty of room to run.
Thanks for that, Vik. So I want to get a Q2 question out of the way. You just got in, you know, a few days ago, basically. So I think some of the feedback that I've gotten was, you know, your organic growth guide doesn't look that conservative given implied step up from, you know, flattish in the first half to maybe 4% in the second half. So maybe you could sort of respond to that first.
Yeah, sure. So let me take a step backwards here. And you're specifically talking about kind of the organic growth guide. If we take a step back on a full-year basis, we've guided organically 1%-3%, so midpoint of 2%, and that's consistent between the two segments. And what we said is approximately 75% of that is price, 25% would be volume. And so, you know, comparatively speaking, we'd say the price side of that is, you know, comparably more controllable for lack of a better way to say that. And I think as you look at kind of the first half, second half, you're correct. I think we expect, you know, maybe more flattish in the first half, you know, a little bit more, you know, 4% in the back half.
In the back half, we'd actually expect, just given some of the mid-year pricing actions and things like that, we actually expect to see price be about 50% or 2% of that second half growth, which leads about 2% volume. A couple of things to note, you know, in terms of that volume piece, which I think is really your question. One, I think the phasing of our revenue is very consistent and earnings to what you've seen historically. We kind of provide that in our earnings where we're a little bit, you know, north of 50% of revenue in the back half of the year, very consistent with what you've seen historically.
Two, I think, you know, in terms of some of the leading indicators, you know, for us, marketing qualified leads, MQLs, the funnel activity, you know, we continue to see double-digit MQL growth in fourth quarter. I think the funnel on long cycle continues to remain healthy. Yes, there is this kind of elongation that we've spoken about, but I think it does speak to at least still healthy demand trends. And even in fourth quarter, where we were, I'd say, flattish to maybe slightly down negative 0.2%, negative 0.3% on the organic orders front, if you were to take the China piece of the equation out, that actually would be low single-digit growth. And you are seeing much better than that in some of our more under-penetrated markets like Latin America, India, Middle East, and Southeast Asia.
So I think, you know, without question, there is work to be done. You know, I think back half of the year, maybe one other factor is that comps do alleviate a little bit. And so comps, you know, are part of that equation. I think you put that all together. And, you know, obviously, our ability to, you know, kind of see a normal sequential kind of cadence as we typically do from a quarterly perspective, normal phasing from a first half, second half perspective, I would say some nominal growth in the back half of the year. And, you know, I'd say some of the leading indicators, at least right now, still kind of move in the positive direction. That's what kind of gives us that confidence in that view.
And I think that's supplemented with, I'd say, a lot of the, I'm going to call it continued self-help and control we can control on the margin front, the synergy front, and things of that nature. So again, I think that's the best way to kind of frame up the guide. But the other piece I'd also say is I think we continue to have a meaningfully outsized opportunity on the M&A front, continue to supplement those numbers. Obviously, unclosed M&A is not part of our guidance. And as you've seen, we still have an expectation to be able to do 400-500 basis points of annualizing organic growth. So plenty of room to run there.
So I definitely want to get to margin, M&A in a second, but let me just respond to something you said. So like, you know, MQLs and sort of the longer cycle pipeline of projects, they all look good, right, from, you know, leading indicator, but they haven't been that predictive of your growth lately. So how do you sort of think about that? And then I think, Vicente, you talked about a higher rate of customer conversations lately. So when did they start beginning to turn to orders or how do you think about that?
Yeah, it's a great question. So I think ultimately speaking for us, the true leading indicator is things like MQLs and the funnel discussions. An MQL is a marketing qualified lead that is true customer demand, true customer interest in a product or technology. And to your point, we have seen continued double-digit growth in MQLs on a full-year basis in fourth quarter. And so I think the funnel is no different in terms of longer cycle. I think the point here is the funnels are quite full, and that has led to this elongation that we've been talking about. I think you saw that again in Q4, some of those projects continue to kind of move to the right. But the good news here is those projects aren't going away. In fact, the customer dialogue continues to be quite healthy.
These projects will come to fruition, and we are very much part of those conversations with these customers. So I think it's just a matter of time. Like we've been saying here, your point is completely valid, you know, in terms of MQLs translating into orders. That has definitely gotten a bit more elongated than what we have historically seen. But the fact that those MQLs are still there, they're still accelerating at the pace that they have been shows that there is true customer demand. I think customer conversations continue to remain, I'd say, encouraging. Yes, obviously when you're in the fourth quarter, maybe elections was maybe a distraction. The good news is that's kind of behind us. Of course, there are now things like tariffs and things like that that are now kind of part of the narrative.
But I think as we talk to our teams, they continue to point to customer conversations remain encouraging and positive. And it's just now maybe a little bit more of when is that final PO going to be placed, which is frankly an individual customer-by-customer conversation. So I think nothing has changed in terms of our view in terms of where things are headed. It's just a matter of kind of getting these funnels to be a little bit, you know, unclogged for lack of a better way to say that, and translating to orders.
So you've gone, I think you've done really well on ITS margins. We're going to talk about that in a second, but you got a lot of questions on your call about PST.
Sure.
You know, everybody focuses on, let's say, glass half empty before they focus on glass half full. But let me just ask it to you like this. So one of the things as an industrial analyst that we see, right, is companies that are acquisitive, like when you hit something like 30% margin it becomes harder. I think that was the nature of a lot of questions you got on the earnings call. And again you know, there are temporary factors that impact the Q4. But how do you think about that? Because you still seem very confident in the mid-30s target. But I think, you know, that's a big question that I got last week is, you know, you hit 30 and now you've pulled back and, you know, you want to stay acquisitive. Can you really do it in PST?
Yeah, let me take a step back and kind of maybe talk about the last few years because I think that's an important question. I think it's, you know, if we take a step back, you know, the PST, you know, generally speaking, has been playing close to that 30% kind of threshold for a number of years, right? Even if you go back to the 2020, 2021 timeframe, but I think it's worth noting here, if you think about what's kind of happened and you think about the business, a couple of things to note. One, back in that 2020, 2021 timeframe, for example; you had the legacy Ingersoll Rand Medical business that was probably the biggest beneficiary of COVID, and obviously, we've talked pretty explicitly for the last maybe six to eight quarters on that legacy IR medical business.
It's been one that's probably seen the biggest headwinds comparatively speaking in PST. Despite that, though and this is a business that plays above fleet average margins, and so obviously decrementals are real, and despite that, we've been able to keep PST margins right around that 30% threshold, right? And so a couple of things, you know, one, obviously Q4 we've talked about and we'll talk about it probably a little bit here in terms of ILC Dover. But, you know, I think when you think about the factors driving forward, we're still playing at, you know, close to that 30% margin profile right now. You know, price cost, we expect to continue to remain positive. I think the productivity funnel looks very encouraging on the PST side. We obviously are moving into I would say, our kind of first full year of digestion of ILC Dover.
We can talk about that a little bit more. But I think some of the, you know, some of the synergy actions and whatnot will come to bear there. And, you know, as far as the opportunity to kind of start driving above that 30% EBITDA margin profile over the next few years, we see, and just general, I'd say M&A integration, we absolutely see an opportunity to continue to drive that further north from where it is. I think, you know, one thing that, you know, we've seen the ability to do is we've been able to show meaningful progress on acquired assets. A great example is SEEPEX, right? So that was probably the last one you saw back in the 2021 timeframe where great business, differential technology, healthy gross margins, but it was playing at mid-teens EBITDA margin.
And we said, we will bring this to fleet average margins within three years. Well, flash forward, we're at that point and SEEPEX is playing at fleet average margins. So I think we've shown the ability to improve the underlying quality of earnings and health of businesses. You're absolutely right. There have been some headwinds that have put a little bit of noise in that. But I think we view those as opportunities that we can kind of correct going forward. And the opportunity to kind of continue to drive PST now eventually above 30% sustainably, we don't see any reason that that can't be sustainable over time here.
Very helpful Vik. And so maybe related questions around price versus cost. It's obviously very topical that, you know, given tariffs and what have you out there. I think in sort of 2018, 2019, 2021, 2022, you did a really good job, better than most in staying ahead on both a dollar and margin basis, or should I say margin and dollar basis. So you feel like you can do that again here? Like how well positioned are you? Are your contracts very flexible so you can adjust price if you need to quickly? Like how do you feel about that in the current environment?
Yeah, so let me just start with the guidance we provided last week where any impact of tariffs or the mitigation actions were not part of that guide. I think in terms of what I would just call the base kind of moving into this year, we would expect to be price cost positive. Obviously, we've talked about the pricing dynamic. I would say the cost side of the equation is, you know, tariffs aside is largely moving sideways, normal nominal labor inflation, things of that nature. As far as the tariff side, you know, across the enterprise, whether it be PST or ITS, I think a very similar kind of approach as you saw four years ago. As you remember, about four years ago, we were relatively close out of the merger. And I think you saw us take pretty quick decisive actions exactly like you implied here.
We did stay margin- and dollar-accretive. As we look at things right now, the teams are working through what I would call tiered mitigation strategies. What that means is, you know, one, the fact that we're in region-for-region by and large across our enterprise helps to mitigate this risk to a degree. That being said, are we immune to tariffs? No, we are not. So the teams are working through the different moving components. That's everything from, are there some opportunities to kind of move supply chain or supply base? Yes, is the balance probably going to be mitigated through price t hat's probably a fair statement.
The teams, in terms of what you said, in terms of fixed contracts and things like that, every business is a little bit different, but quite frankly, the composition of the portfolio isn't dramatically different than the last time we went through this where you saw us manage it. So I think, you know, through pricing actions and they look a little bit different business to business, many of those are already in motion or yet, you know, ready to be deployed, kind of getting ahead of what is to be anticipated. We expect that we will continue to be able to manage this in a very, I'd say, comparable way to what you saw four years ago.
Yeah that's great. Thanks Vik, so just maybe digging into PST a little bit more. It's interesting. PST prior to Q4 had seen I think, a few quarters of positive organic order growth. You did have easy comps, but then you obviously pulled back in Q4 pretty significantly. I think a lot of that was China, obviously. But you did, and you did mention PST organic orders were up low single digits ex China. But it just was seen kind of abrupt in that pullback. So was there anything else? Was it all China? Was there anything else that kind of slowed down for you?
Yeah, so I think in Q4 maybe I can touch upon the kind of organic, and then we can also kind of correlate this to margins because I think the two are fairly closely tied. I think one, I'd say China was probably the biggest driver of that equation is probably the best way to say it on the top line side of the equation. Now obviously, you saw orders being a little healthier. So again, encouraged by similar to ITS, if you exclude China, you'd be slightly positive, low single digits on the orders front there. As far as Q4 specifically, you know, when you saw the mid-single digit kind of organic revenue decline, obviously that has an impact on the margin profile as well. And we did mention, and I know this is a topical kind of point, so I'll kind of hit it head on.
On the margin front you know, two major drivers of kind of the margin that you saw in Q4. One is the organic decline and the flow through associated with it, which was largely China driven. And then second is you know, specifically within the aerospace and defense side of the business of ILC Dover, you saw kind of the lack of volumes. We've talked about it pretty explicitly, the next-gen spacesuit contract that was canceled mid-year. And so obviously the lack of volume that was rolling through that business obviously led to a meaningful amount of deleveraging. As we think about things going forward, and this is kind of now that kind of sequential view, and as we move into 2025, you know, a couple of things to note, and I'll say specifically on ILC Dover starting.
One, when you think about the life sciences side of that business, which is kind of the balance of that business, you saw, you know, double-digit growth in Q4, which, you know, for us is encouraging, obviously, in terms of that growth, and quite frankly, we feel that that probably outpaces, you know, many of the comps in that general space, right? Now, as far as the aerospace and defense side, you know, we've talked pretty explicitly about the volume side. We did mention that we signed the agreement on the, what I call $150 million plus legacy spacesuit business, so you know, we're pleased that that kind of has now kind of been inked and is kind of now in the books for lack of a better way to say it. The way to think about that, that was always included in guidance.
That was always kind of, it's always been kind of part of the historical kind of profile of the business. So it was always kind of expected that would be there, but it's kind of nice to finally have it kind of official. Now, as far as the margin profile going forward, you know, just a couple of things to note here. One, as you'd expect with any acquired asset, SEEPEX is probably the greatest example because it's the other large one we did in PST. You know, we continue to make investments in that business. I think Vicente mentioned it here. You know, we have put kind of clean P&L structures in place in ILC Dover, have new leadership. We're investing in things like demand generation and some of the requisite IRX tools that you would expect.
And so I'd say between those investments and the volume dynamic that I mentioned specifically on the aerospace and defense side, our margins probably playing a little bit lower than historical averages. Yeah, that's probably a fair statement. Now that being said, we think these are the requisite investments to set ourselves up for good ongoing growth, particularly in the life sciences side of the business. And you know, like any other acquired asset here, you saw it with SEEPEX over time. We think there's an opportunity now with synergies to be able to kind of now improve that margin profile going forward. So you know for us, we're going to continue to control what we can control. Like we said on the aerospace and defense side, it's a business we always viewed as a bit of optionality, for lack of a better way to say that.
And it's not one that we're looking to do M&A or anything like that. I think Vicente addressed that in the earnings call. And so, you know, we continue to be highly focused on how to improve the underlying kind of, I'd say, margin profile of the business. And like I said with SEEPEX, we've been down this path before. We know how to improve the underlying health of the business. It takes a little bit of time to digest and deliver synergies. And that's exactly what we're doing right now.
So, Vik, I want to ask you a little bit more about ILC Dover, but let me just ask you about the legacy business for a second. Like how do you know China orders don't take another leg down? Like how do you get visibility around that?
Sure. You know, I think for us one, you know, I think it's not very different than the ITS side just to be very clear.
Yeah, maybe it's just.
[crosstalk] Maybe total, maybe total China i t's maybe the way to think about this. You know, I think as we said on the call here China, we kind of it's not materially improving. It's kind of moving sideways. So it hasn't gotten better, but it hasn't gotten worse. Interesting enough I think even in the back half of 2024, book-to-bill was actually slightly above one, right? So it actually does show that there still is, you know, underlying demand there. It's just not at the levels you historically saw. And we haven't necessarily seen that pickup. S you know, that gives us, you know, some you know, a little bit of degree of you know, visibility. Obviously, some of that demand is getting elongated, like you've seen. So it gives you a little bit more visibility on that end.
I think you, as you would expect, we've taken the requisite restructuring and targeted cost actions in those regions, just given what's going on. But, you know, even in our guide, you know, we've said, and this is obviously more of an ITS comment than anywhere, that we expect, you know, China to be flattish is probably the best way to say it, and unlike last year, you know, when we were coming from 2023 into 2024, we knew we had some headwinds on the horizon. We had $100 million plus of large projects and things like EV battery and solar projects. The good news is that's not necessarily the case moving into 2025. So I think this is one where we're going to continue to execute. You know, I think China is continuing to move sideways. I wouldn't tell you anything's dramatically different as we sit here right now.
But I think it also does speak to, and this is less of a China comment, but also does speak to, you know, Vicente, I think, was very explicit on our earnings call talking about how we continue to focus on some of the under-penetrated markets in the ITS and PST. Areas like Latin America, India, Middle East, quite frankly the balance of Asia-Pacific that's not China, where we feel like we are under-penetrated comparatively speaking, whether you look at competition or quite frankly just look at our market share in those regions compared to places like the U.S., Western Europe, and China, where it's a fraction of the same size. There's no reason in our mind over time those can't normalize. So for us, we're just continuing to drive outperformance in some of those areas that we know we have opportunity. We're not de-emphasizing China.
It's still a very healthy business. It's good margin profile and you know, I think the good news here is even in areas like blower, vacuum, air treatment, some of the smaller differentiated technologies that historically haven't had as much presence in China, you're actually seeing some pockets of growth there.
China, as you enter 2025, is down to low double digits of the company.
That's correct. Historically, it was probably in that more mid-teens-ish region. I'd say now it's kind of closer to low double digits. I think that's a function of kind of some of the, you know, the declines you saw in 2024, but also kind of, I'd say the growth in other areas as well as the M&A.
Got it. Helpful. And just one more on ILC Dover. You talked about targeted restructuring. Did you take any workforce out there? And then this $150 million spacesuit contract, does it help with the fixed cost, the operating leverage pretty quickly? So you should see Q1 better than Q4?
Yeah. So let me answer those in two pieces here. Absolutely have taken some targeted restructuring, as you would expect. Some of that also in the, quite frankly, the aerospace and defense side of the equation where you just need to right-size the cost equation. I think in terms of the spacesuit contract, I wouldn't point to that being a material driver because, as I said, that contract, that agreement has kind of always been in the run rate. It's always been expected. So generally speaking, that's not a huge, you know, variable from a change perspective. I'd say it's making sure that we kind of right-size the cost base for kind of the size of the business. And that's a lot of the actions you've seen us take with that targeted restructuring, specifically in ILC Dover.
Got it. And then just a related question on PST, and then I'll shift to ITS. I'll ask also the audience for questions. So I think you've talked about, you know, the path to 30% in 2025 is pretty visible in PST, but it starts off, you know, in the high 20s% and then moves up. Is that kind of the way to think about it? Is there anything that you need to see to get back to 30% in terms of improvement in the business?
I think the way you've described it is exactly right. I think there will continue to be sequential improvement that kind of follows, I would say, a combination of normal sequential kind of phasing of how the business performs, as well as some of these restructuring actions and targeted cost actions, and quite frankly, just integration efforts continuing to take root. Is there anything that we need to see dramatically different than the guide? I don't, I wouldn't point to anything of that nature. I think, you know, the ability to get back to those levels that you're mentioning here, we feel like we should be able to, you know, largely within our control drive that. Obviously, the second half, as we mentioned before, has some, I'd say, nominal volume improvement.
Frankly, there's some, you know, this is a healthy margin business, so there are some incrementals that come with that. Otherwise, I would say it's, you know, a lot of controlling what we can control.
Got it. Any questions from the audience? Any questions? Okay. So let me, I have a question here that you partly answered already, which is, you know, China, percentage of business, all that kind of stuff. But part of the question I have here is, and I think I know what your answer is going to be, is do you at any point need to de-emphasize China a little bit? Because you already talked about sort of other high-growth regions sort of picking up the slack. How much can other high-growth regions pick up the slack? And/or are you, I know you CARE, it's still a big part of your business, but do you move a little bit away from China over time?
Yeah, I wouldn't point to any meaningful de-emphasizing or anything of that nature of China. Like I said, it's a healthy margin business. It's one that, to your point, now has kind of, you know, it's a smaller percentage of the overall, just kind of given the dynamics. But, you know, we still, you know, continue to see pockets of growth there. I'd say, you know, we continue to remain optimistic about what the future may hold. We recognize right now it's still in a bit of a sideways environment, but we don't feel like this is somewhere where we need to, you know, do something different from an operating model perspective or anything like that. To your point, you know, I think the opportunity to continue to drive growth in some of those under-penetrated markets, these are two factors that can work in tandem, right?
So, you know, I don't think it's a competition for resources, a competition for capital or anything of that nature. You know, if you, you know, Vicente, myself to a degree, those under-penetrated, those are areas that we're spending a meaningful amount of time in, you know, Brazil, India, Middle East, you know, Southeast Asia, Vietnam, Australia. These are areas that, you know, quite frankly now with the product technology suite that we have, it's a little bit different region by region. So, for example, in Latin America and India, we've actually put new infrastructure in terms of plants into those regions. Southeast Asia, it's more just commercial footprint or commercial resources and things like that. But I'd say a lot of that is in motion. And, you know, we feel pretty encouraged by what's going forward.
But I don't think there needs to be any meaningful step back or de-emphasis or anything of that nature with China specifically.
If I think about your 1%-3% growth overall, is it fair to say U.S. toward the higher, middle, higher end of that range and Europe to the middle, lower end of that range, something like that?
Yeah, you're spot on. So if, you know, you know, 1%-3% on the organic, think of the kind of U.S. or Americas toward the upper end of that. Europe or EMEA kind of towards the middle to the bottom end of that. And then China flattish is probably the best way to say it.
Got it. Okay. So shifting to ITS, maybe just help us disaggregate your compressor growth a little. I think you were low single digits this past quarter, China down, but basically everywhere else up. But maybe people ask me to divide the business maybe into large, longer cycle compressors versus smaller. Is it fair to say that small to mid-size are growing, but large compressors aren't? I'll ask you a couple of follow-ups, but let's start there.
Yeah, sure. So I think the way to probably think about, and I'll use rough numbers here, is when you think about the overall kind of ITS, you know, roughly speaking, about 40% is aftermarket. And I do want to park that on the side because the whole recurring revenue, I think, has been a really, really, really good start and a really good.
I got a question there, Vik. Don't worry. Yeah.
And then, if you take the balance of the business, I'd say use rough number 75% is kind of small to medium. And my medium-sized compressors, 25% is probably longer cycle. I think the way you've characterized it is probably in the right kind of order of magnitude. I think we've continued to see, you know, good stability on that kind of small and mediums. On the larger cycle, or longer cycle, larger projects, we've seen a healthy share there. They can be a little bit lumpy at times. And this is one where you've kind of heard us say, at least on the order front, that funnel has kind of been, you know, elongated.
And so, you know, we continue to be focused on that in terms of, you know, we expect to see a better conversion of those to true orders, which then can be, you know, turned into revenue thereafter. It is worth noting, and I think it's probably something that, you know, in terms of our product portfolio, we cap out on our large side of what we call centrifugal compressors. We don't play in the super large, like turbine type, you know, compression technology that plays in areas like LNG that, you know, has seen some pockets of opportunity for others. So we don't play in that space. So I think that's a key differentiator.
And then maybe I'll just touch on the recurring revenue piece here too, because I think for us, this has been one where, you know, just take a step back a year ago at our investor day, roughly speaking, we introduced this, you know, we're going to go from $200 million to $1 billion. And we always said 2024 was kind of going to be that year of adopting the model globally. It's a model that has existed for years in the U.S., largely like an Ingersoll Rand compressor technology. And I think now as we exit 2024, you've seen that model I'd say, really been well adapted to, I'd say, the Gardner Denver portfolio, blowers and vacuum where applicable, Europe, Asia, Latin America, even some small pockets of PST where this model can be adaptable.
And just to, you know, you know, from a total year perspective, we did eclipse $300 million in recurring revenue. So I think we're off to a good start here. Obviously, plenty more room to run to get to that billion-dollar target, but knowing 2024 was kind of that global adoption, kind of get the model out there to the globe, we're off to, I think a good start. And now we would expect to see some accelerated growth cadence into 2025, 2026, 2027 to get to those targets.
So you know, I'm going to ask you, I mean, you grew 50% then, you know, in 2024 and recurring from 200 to 300. Like, you know, is this, if I think about 2025 without some specific target, I assume strong double-digit growth is the way to think about it there?
Yeah. And, you know, obviously, when you think about recurring revenue, you know, you have some nuances of aftermarket, core aftermarket translating to now recurring revenues. You always have some puts and takes. But I think that was always part of the model and assumed. To answer your question, yeah, double-digit growth expectations for, well, care or recurring revenue, which incorporates everything from Ecoplant to the CARE model to even things around the air quality testing, absolutely. And I think the maturity of the model and the teams and the ability to sell it, I think that for me is kind of the most encouraging piece that I've seen, not just what was historically U.S., but now on a much more global basis.
Got it. And so one of the things that makes Ingersoll Rand is the diversity of your end markets, which I get, right? But if I'm just going back to that large compressor question that I had are there things like, is it energy transition or automotive? Like, what are the big projects these days that are being held up? Just out of curiosity, can you give any examples.
Yeah I mean, the reality is and not to answer your question with a, it's across the board. I mean, you see projects that are process gas-oriented, air instrumentation, things of that nature. You see it playing across not just different end markets, but also different regions, right? This isn't just a Middle East or the U.S. or I mean, you have pockets of these projects in China, Core Europe, Middle East, India, U.S.. So these projects are quite you know, ubiquitous in the context of where we play. And to your point, we have that product technology that kind of fits in all regions. And generally speaking, we have in-region manufacturing capabilities for most of these product technologies, if not all.
So I think for us, we're kind of playing across you know, a multitude of projects, multitude of end markets, multitude of regions, which is why you don't hear us say, you know, everything is tethered to just one end market. That's just, that's just not the reality for where we're playing.
So you know, compressors get a lot of the press, but, you know, you obviously have big blower and vacuum businesses. And it looks like those orders have been accelerating in the past few quarters, low single digits in 2Q, high single digits in 3Q, I think 13% in 4Q. So maybe what's going on there and how durable are those tailwinds?
Yeah. So I think, you know, this is, you know, I think it speaks to the beauty of the economic growth engine that we've kind of talked about. If you think about that, I'll talk to that mid-teens number you just spoke to in Q4. You know, full disclosure, that's a combination of organic and inorganic. And I think you've seen tailwinds on both ends. On the organic side, you've had great kind of inroads in areas like green steel, the Roots acquisition we made, which is now kind of in the organic number. They play in the green steel space h uge growing market. They play very well there. You've seen good momentum on things like dry vacuum in our vacuum portfolio, all of organic as well.
And then you've seen that supplemented nicely with, I'd say, targeted bolt-on technologies like the APSCO acquisition or the Fruitland acquisition, which kind of supplements from that inorganic side. So I think this is for us what is kind of the nice kind of aspect of the model where, you know, to your point, you know, organic versus inorganic, there's going to always be some give and take there. But, you know, together, we think we can actually drive competitive outperformance and comparative outperformance. And I always tell the teams, guys, you know, inorganic turns to organic after 12 months, right? And generally speaking, all these technologies you're seeing us buy are great differentiated technologies.
They've kind of probably, you know, have an opportunity to be expanded through our global channel and the ability to be taken internationally or, you know, outside of wherever they've historically played and drive a little bit of outperformance, and as you would expect, you know, within that first year, that's where we're doing a lot of that work to translate these opportunities globally and see some outperformance, you know, from an organic perspective thereafter, so that's the model we've been driving. You've seen that with 60-plus bolt-ons. I don't think it's any different for the ones you're going to see going forward.
If I could see the 13% divided between organic and inorganic, would there be a decent organic component or would it be mostly inorganic?
Inorganic would be the bigger piece, but there are organic opportunities. There is organic growth in there.
Good, and then ITS margin, obviously, PST got all the press this quarter, but ITS continues to be at or above 30%, which is actually your target. So maybe just talk about what you've done right there to really blow past your target three years early. You know, you want to set a new target today, that's fine, but if you don't, like, you know, you tell me.
Yeah, I don't think you're going to hear me set a new target just yet, but, you know, I think this just speaks to kind of the model and kind of how the organization is run. I think first and foremost, one, we continue to be on the right side of the price cost equation. That continues to be the theme there. Two, I think in the context of recurring revenue, you know, we always said recurring revenue plays above fleet average margins, and this can be a real tailwind to margins. We're just getting started, but I think you are seeing some of that in the number. Three, we were prudent on the cost side.
You have seen, just full disclosure, some targeted cost actions in areas like China, areas like that that you saw not just the beginning of 2024, but you also saw some towards the end of 2024, and then the other piece of the equation here is the M&A, you know, the synergies. You know, when you talk about, you know, we did 18 bolt-on acquisitions or 18 acquisitions, I should say, 17 bolt-ons in ILC Dover last year, and a healthy percentage of those in ITS, and these are acquisitions that, you know, generally speaking, we're priced prudently, we target a mid-teens ROIC, but they're coming in kind of in that low 20s EBITDA margin. Typically, there's, you know, always variety there, but we're able to drive kind of, I'd say, that self-help and margin expansion through synergies and integration.
That's no different than what you're seeing right now. I think we're really pleased with what you've seen thus far on the ITS margin front. I think it also speaks to the fact that we've also said we don't inherently see necessarily a cap on those margins, right? We are going to continue to prudently reinvest, you know, like I talked about some of those under-penetrated markets, demand generation, feet on the street. That organic growth doesn't come without reinvestment, but I think we're, you know, seeing a nice healthy balance there. I think as we move to 2025 and, you know, kind of put the whole margin expansion kind of thing in, you know, together, do we expect to see the same pace of margin expansion in ITS as you've seen historically? You've seen strong triple-digit margin expansion.
I think we've said our investor rate targets are more like 50 basis points. I think there's maybe an opportunity to maybe slightly outperform that, but maybe not triple digits, and then I think PST is kind of the inverse where we've said, you know, maybe 100 basis points per year. There's probably an opportunity to outperform that. So I do think PST has a little bit more of the, you know, I'd say, carrying the weight on the margin expansion opportunity going forward, but ITS will continue to see opportunities.
So this is a slippery slope, Vik, but like, if I look at the two different segments, right, like, is there anything on the execution side in terms of integrating acquisitions and stuff that you're doing better that maybe you can translate over to PST or something like that? You know, ILC Dover.
Yeah, nothing I'd point to because I think, you know, if you think about this, I think the model is exactly the same between the two. So as you think about integration of acquisitions, like we've said, integration happens in the business, right? The businesses, M&A leaders sit within the business. They are cultivating assets with the business leaders. So the same team that cultivates is ultimately the team that integrates. I think from some of the, I'm going to call it back office, you know, whether it be finance or payroll or IT, we obviously leverage the corporate enterprise. And so quite frankly, you know, folks on my team from a finance perspective, it's one tax team, it's one treasury team, things like that. They're doing integration the same way across the enterprise as you would expect.
I think in terms of the cadence and how we measure and operate and ensure that synergy delivery business cases are developed, it's very consistent, as you would expect with IRX, a very consistent game plan, IDMs to track and manage kind of how those integrations are happening. So I'm not sure I see a dramatic difference or, you know, things that are, you know, going to change dramatically between the two segments in terms of integration.
Got it. And then just on the M&A front, you said in the beginning you've got seven LOIs, 200 plus deals in your funnel, but would you say the deal environment is better or worse or the same as it was last year?
Yeah, I mean, for us, it's quite comparable. You know, like we said, we're off to a great start here. We've already done a handful of acquisitions already that we announced in our last earnings call, bolt-on in nature. We have 200 plus companies in the funnel, seven under LOI. Interesting enough, a healthy split in those seven between PST and ITS. And so I think the deal environment continues to remain as healthy as it has been. Probably worth noting that our expectation for 2025 is you would expect to see bolt-on in nature. Don't expect to see an ILC Dover type size deal. Think of much more down the middle of the fairway, I would say bolt-on acquisitions.
Valuations are such that they are reasonable in both segments?
Absolutely. I think you're going to continue to see the prudency on that. You know, the concept of, I think on average, we're buying low double digits, being able to take those down by three to four turns when you get through synergies, targeting a mid-teens ROIC. I'm not, I wouldn't say anything is dramatically different in terms of that opportunity set going forward.
Got it. Just last question I've asked this of every company interview before. What are the top two or three innovations and structural changes affecting your company over the next five years? Are there any emerging industry trends that are perhaps being overlooked in the current discourse?
You know, I think for us, you know, I kind of go back again to our economic growth engine where we focus on things like sustainability, energy efficiency, digitization. You know, when you think about our technology, at the end of the day, driving energy efficiency and sustainability, that's the name of the game for our customer base. And so when you think about a compressor that's consuming 30% of the energy in a facility, it's one of the top energy consumers at the top of their list. And so how do you continue to drive efficiency for the customer and increase your value offerings? And so for us, that's why recurring revenue, the CARE model, Ecoplant, air quality, that's why it's so important. Bundling that with IoT, which is part of Ecoplant and things of that nature, I think for us, it's a very consistent theme in that respect.
And so for me, I would say that's probably the single biggest thing we continue to be focused on. At the end of the day, what's top of mind for the customer? What are those areas they need to invest in to drive efficiency from their operations? Generally speaking, a compressor, a blower, a vacuum, or a pump will rise pretty quickly to the top of that list. So nothing dramatically different from our side, but I think we continue to be focused on how we can improve our ability to serve the customer and continue to improve those service offerings, which we've talked about on the recurring revenue side.
Very helpful Vik. I think we're out of time, so we appreciate you being here.
Yeah, thank you for having us.
Thank you.