Hello, welcome to the Ingersoll Rand first quarter 2026 Earnings Call. I would now like to turn the conference over to Matthew Fort, Vice President, Investor Relations. You may begin.
Thank you, and welcome to the Ingersoll Rand 2026 Q1 Earnings Call. I'm Matthew Fort, Vice President, Investor Relations. Joining me this morning are Vicente Reynal, Chairman and CEO, and Vikram 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 wanna 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 two 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 three, the first quarter represented a solid start to 2026, especially given the continued complexity of the global operating landscape in the markets where we play. Adjusted EPS grew high single digits, with revenue and Adjusted EBITDA finishing in line with expectations. This performance reflects the durability of our portfolio and the consistency of our execution. Conditions remain mixed, but we're seeing continued improvement across several end markets and in short cycle activity. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline remains robust, focused on differentiated technologies and services that strengthen our portfolio and enhances our organic growth profile.
Finally, IRX remains a key differentiator, allowing us to remain agile and stay focused on what we can control, including operational execution, disciplined pricing, and capital allocation. On slide four, 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 the 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 hydro-pneumatic accumulators and pulsation dampeners, Fox enhances our pump technology by utilizing dampeners to absorb pressure pulses. This protects downstream pipes and equipment, helping customers reduce downtime and maintenance costs, and thereby increasing the return on investment offered by our solutions.
Today, we have over 200 companies in our funnel, with 10 transactions currently at the LOI stage. More than 90% of these opportunities remain internally sourced, which reflect the strength of our operating model and deep industry relationships. We continue to expect 400-500 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. I will hand it over to Vic, who will share an update on our financial performance for the first quarter.
Thanks, Vicente. Starting on slide five, orders finished up 5% year-over-year, resulting in a book to bill of 1.07, 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, we expect these orders to be recovered in the balance of 2026. As a matter of fact, we have already recovered approximately a third of these orders in the month of April. Excluding that delay, organic orders would have finished approximately flat year-over-year. Total revenue grew 8% year-over-year, finishing in line with expectations.
For the first quarter, Adjusted EBITDA also finished in line with expectations at $469 million, with an Adjusted EBITDA margin of 25.4%. The year-over-year margin pressure was primarily driven by the flow-through on organic volume declines, the dilutive impact from tariffs, and continued strategic investments for commercial growth. Corporate costs were $38 million. Our Q1 adjusted tax rate was 19.8%, and adjusted earnings per share was $0.77 for the quarter, up 7% year-over-year. On the next slide, free cash flow for the first quarter was $163 million, finishing largely in line with expectations and normal working capital seasonality. With nearly $4 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high return opportunities.
Our leverage remains well below 2 x, 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 seven, ITS orders finished up 5% for the first quarter. Book-to-bill for the quarter was 1.08 x. Organic orders for the quarter were down 3%. Excluding the impact of delayed orders, which Vik mentioned, organic orders finished approximately flat. Important to note that on a two-year stack, organic orders are up 1%. On a total segment basis, revenue grew 7% year-over-year. Adjusted EBITDA margin finished at 26.7%, which was down year-over-year, largely driven by the flow-through on organic volume declines, the dilutive impact of tariffs, and continued commercial investments for growth. On a reported basis, every ITS product line grew orders except the power tools and lifting. On an organic basis, let me provide some additional color on orders by product line.
Compressors were down year-over-year, driven by the previously noted timing on the large projects. The blower and vacuum business continues to perform well and was up year-over-year. Power tools and lifting was down year-over-year, driven by the lifting business. 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. This innovation is still in its early stages, we're encouraged by the positive outcome demonstrated through the integration of our connected technologies. Turning to slide eight, Q1 orders in PST were up 6% year-over-year with a book-to-bill of 1.04 x. 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're highlighting a great win for our Life Science business, which integrates core ITS product technologies into ILC Dover's end-to-end bulk powder system solution. ILC Dover developed a comprehensive, fully integrated bulk powder system, which includes hardware, containment, and mixing in collaboration with our own vacuum technology for a leading pharmaceutical manufacturer.
This end-to-end design, assembly, and installation utilized both ILC Dover powder solution as well as our Ingersoll Rand Elmo Rietschle vacuum pumps for powder conveyance. As we move to slide nine, we are reaffirming our full year guidance for 2026. Total company revenue is expected to grow between 2.5% and 4.5%, driven by organic growth of 1% at the midpoint, growth from M&A of approximately 2%, which includes the carryover impact from all transactions completed, as well as the recently announced signed transaction of Fox. 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 -$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-$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 pacing of revenue, Adjusted EBITDA and Adjusted EPS is expected to be consistent with what we have seen in prior years as outlined on the table. We continue to monitor the changes in tariffs carefully, including the recent changes in Section 232 tariffs. We remain nimble and continue to pivot, adjusting our mitigation actions to best minimize the effect of tariffs as well as inflation. As a result, we do not currently expect any net tariff and inflation impact to our full year guidance. Additionally, as I mentioned earlier in the call, most deferred orders from the Middle East are tied to long-cycle projects. We anticipate order recovery throughout the year and with strong execution from the team, expect no impact on full year revenue or Adjusted EBITDA at this time.
Finally, on slide 10, as we conclude this segment of the call, I believe our performance in 2025, our solid start in 2026 with a book-to-bill above one and improvement in the short-cycle business setups bode well for continued success throughout the remainder of 2026. We remain agile to effectively navigate the complex global environment. Through disciplined execution, ample liquidity, and a strong balance sheet, we continue to differentiate Ingersoll Rand as an investment. Our approach to capital allocation remains unchanged, leveraging our strong free cash flow to drive durable earnings growth and create long-term shareholder value. IRX remains the backbone of the organization, enabling operational execution. Finally, and most important, I would like to thank our employees for the ongoing dedication and commitment to embracing our ownership mindset. Thank you for your help in delivering another strong quarter.
With that, I will hand the call back to the operator and open it for Q&A.
Thank you. Your first question comes from Michael Halloran with Baird. Your line is open.
Hi, good morning, everyone.
Good morning.
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? Then on the long cycle side, maybe just talk about what you're seeing outside of the Middle East, where you talked about the project delays, and if you're seeing delays more systemically, or what the customers are saying, or if there's any signs that that side of the business might be improving.
Yeah, sure, Michael. 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, you know, compressor activity in the U.S. stabilized during the quarter as well, and we're seeing encouraging order trend across several compressor categories. In addition, the short-cycle businesses continue to improve. We mentioned on the prepared remarks, you know, core tool business is growing organically at mid-single digit rates. That's a good indicator for us to see on that short cycle.
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 continue improvement as we went through the quarter and here into April. In terms of the longer long cycle, you know, we categorize the longer cycle funnel activity as remaining stable as well. 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, as we indicated before, what we're seeing right now is kind of customers and EPCs taking a little bit time more to decision-making and finalizing POs, which is consistent to what we had said before in terms of the elongation of the funnel and the overall decision-making. However, you know, 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. 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.
As Vic mentioned on the prepared remarks, already a third of those projects have come in and booked here in the month of April.
Yeah, thanks for that. Then maybe the follow-up is just put that in the context of how you're thinking about the guidance for this year. You know, how much of that is embedded sequentially? Are you embedding some level of improvement as we work through the year? As we think about how the orders are gonna cadence out, I know you guys don't give specific guidance here, but how should that work out through the year when you consider comps, the timings of the projects, some sequential improvement as we're thinking about the short cycle side of things?
Yeah. Michael Halloran, as we think about delivering the full year organic revenue guide, our expectations for organic growth and the cadence through the year has not changed from the original guidance. As you have seen on the, you know, the midpoint of our guide, we're expecting about 1% full year organic growth. When we provided our original guidance, we indicated slightly negative organic growth in Q1, then low single digit growth for Q2-Q4. Q1 kind of came in as we expected. Even, actually, if you were to exclude the Middle East push-outs, it kind of came even better than what we expected.
You know, as we think about our second half guide, that implies low single-digit organic growth, which is supported by a very, you know, good solid backlog growth from 2025, where a full year book to bill was above one. Q1 here in 2026, again, book to bill above 1.07. As we mentioned here before, the ongoing momentum in the short cycle activity, which we have seen in both segments, you know, provides a good setup as we go into the second half. You know, ongoing commercial investments for growth, including a very focus on penetrating markets.
As, as we all know, you know, the prior year comps will continue to moderate, particularly in ITS as we kind of move into the second half.
Thank you. Appreciate it.
Thank you.
Your next question comes from Julian Mitchell with Barclays. Your line is open.
Hi. Good morning. 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, just wondered if you could perhaps home in a little bit on what you're anticipating for the second quarter. You know, just backing the numbers out, it looks like kind of organic sales company-wide may be flattish year-on-year in Q2. Then the EBITDA margin is down, I don't know, 50 - 100 basis points year-on-year in the quarter. I just wondered if those are roughly accurate and any kind of segment color for what you're seeing in the current quarter.
Yeah. Julian, I'll take that one here. I think first point, your read is pretty directionally correct. You know, 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, you know, in terms of the phasing for 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. You know, first half of the year being in that kind of 45.5%-46% range, the balance in the second half. As far as Q2, you know, one, we do expect sequential improvement on margins from Q1 - Q2.
In Q2, margins, we do still expect to be slightly down year-over-year, you know, kind of in that, you know, 50 - 100 basis points 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. Just to fill in the color there on the organic revenue side of the equation, you know, 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, you know, flattish to slightly up.
Then, you know, the low single digit growth in, on the organic side is what we're expecting the second half based on the kind of the drivers that Vicente just walked through.
That's very helpful. Thank you. Then just my follow-up would be around the ITS business. As you said, sort of margins I think are down there for five quarters in a row year-over-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, you know, 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. You know, obviously, you know, fair comment from your side. I'll note that obviously, you know, the last five quarters, the majority of those have been impacted by the, you know, 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, you know, 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 gonna be the most challenging quarter, you know, particularly given we hadn't really started comping, you know, or lapping the Liberation Day tariffs from prior year, which really started in second quarter. As far as the second half, and to your question, we do expect that's where margin expansion kinda comes back, you know, supported by, I would say, you know, the slightly better organic volume outlook that we have kind of expected in the back half of the year. Continued improvement in price cost, you know, driven by, I'd say, full implementation of, you know, all the tariff-related pricing actions that have been taken, as well as kinda some of the targeted in-year actions that we always kind of have executed on.
Many of the productivity initiatives, including, you know, 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. You know, I think that's what kind of gets us to that kind of flattish margin expansion on a year-over-year basis. Yes, it is a, you know, a little bit more back end weighted as a result of those drivers.
The only thing I will add is that the exit rate on margin expansion will be consistent with our long-term targets.
Great. Thank you.
Your next question comes from Jeffrey Sprague with Vertical Research Partners. Your line is open.
Hey, thank you. Good morning. 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, you know, the IEEPA change versus the 232 change. I guess you're saying you think you land kind of net neutral, but again, just looking for a little more clarity there.
Yeah. Jeff, happy to provide a little bit more. Obviously, you know, you know, number of moving pieces you indic-. You know, to keep it simple here. No, we have obviously, you know, worked through all those individual moving components. I think the simple takeaway is kind of what you indicated here that, you know, at this time, those moving factors, whether it be the tariff-related changes, some of the underlying kind of just inflationary movements in the market, as well as a lot of the proactive measures that our internal teams have been working on from a mitigation perspective, those are kind of netting out, you know, relatively neutral on a full year basis. You know, our read at this point in time, based on what has been announced, is relatively neutral.
You know, obviously like everyone else, we're anxious to kind of see how things continue to play themselves out for the balance of the year.
Maybe unrelated, just a little more color on life sciences, if you could. Just, you know, how the year is unfolding, what you see in the pipeline? You know, it looks like some of the life sciences reshoring announcements of, you know, a year or two 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?
Yeah. Yes, definitely improving. Clearly, we're pleased with what we saw here in the first quarter, double-digit organic order growth momentum on the life science side. A lot of these reshoring and investments that we're seeing, particularly in biopharma, and very specific around API production in the U.S., it's really a great trend for us in terms of the products that we have. Good, good visibility.
You know, 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, you know, we kind of collaborate as we look into specific technologies that we can actually put and help them to really accelerate some of the productivity and production that they have to do here in the U.S. Good looking good, and we feel positive about it.
Great. Thanks. I'll leave it there.
Thank you.
The next question comes from Joseph O'Dea with Wells Fargo. Please go ahead.
Hi, good morning.
Good morning.
... 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. You know, if we're talking about something like, call it 27.5%-28% in Q2, 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. Any more detail around, like, the pricing that you put in place for tariffs, 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.
Yeah. Sure. Joe, we're obviously not gonna necessarily provide, you know, the exact specifics on the individual components, but let me give a little bit more color on some of the moving parts. You know, one, I think, obviously, kind of your read on, you know, 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, you know, just to kind of delve into the components, a couple 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, you know, 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, you know, over the last few quarters, just given some of the volume dynamics. Second piece would be price. Specific to price, you know, all of the I would call it tariff-related pricing actions are in the numbers. They were all largely taken to the back, you know, through 2025. I would say you're seeing those in the numbers as we speak.
You know, what you haven't necessarily seen is some of the, I'd say, in-year 2026 actions, which is, I think, a catalyst of some of the margin expansion you would expect to see in the back half of the year. The other factors I would probably point to here would be on the productivity side of the equation. 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. The other piece would be, I would say, you know, the direct material side.
You know, as a reminder, you know, direct material is approximately 70% of our cost of goods sold, and there is a lot of activity going on, whether it be on the I2V front or the classical, I would just call it, direct material procurement side of the equation. You know, as you've seen in years past, those benefits tend to be much more visible, when you have kind of your seasonally strongest quarter, which is always in the back half of the year, and particularly fourth quarter. 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. Then just on the demand front, when you talk about some of the order delays, and some of that coming back in the quarter. Trying to understand a little bit of the ripple effect from the conflict. If you could just talk about what you're seeing in Europe, overall demand and then, you know, 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 Middle East region?
Okay, Joe, it is mainly contained right now to the Middle East. The Middle East, it was really, as we said, you know, a handful of these kind of long cycle large projects that as the conflict started and people had to just stay at home and not being able to leave. I mean, we have a lot of our team members, they're all safe and sound, but they could not leave the house to go and talk to customers. Same thing at the customer site. That is really what created some of the delay and the impact.
As you can see here already in the month of April, as we said, already a third of those orders kind of already booked into us and we don't see any cancellation whatsoever. I think it's just at this point in time, mainly due to very fairly contained on that. As we think about continual, perhaps impact in Europe, you know, the main impact that we see is clearly the increase in energy prices, which we view it as a potential long-term tailwind for us, given the nature of our products as we said before, and how we can create customer energy efficiency for our products and services.
There was actually teams were telling me about a wind that they had where they're saving, you know, upwards of, you know, $15,000 per month on a specific location at a customer, creating a payback of compressor to be, you know, anywhere into the one year. Not everyone's gonna 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 technologies that we have?
I appreciate it. Thanks.
Your next question comes from Amit Mehrotra with UBS. Your line is open.
Thanks. Good morning. I just, sorry to revisit this, I just want to sort of revisit the triangulation between organic growth in the quarter orders both kind of flat to down, this 1% full year organic growth, the comps actually get a little bit harder as we progress through the year on organic growth. I'm just trying to triangulate those three things 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. Thank you.
Yeah, sure, Amit. I'll start. You know, I think as Vicente indicated here, first and foremost, you know, 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, you know, I'd say improvement on as we think back to, you know, the last few quarters. That's obviously very encouraging. It's kind of the base of the business and obviously what will be a driver of, you know, the improvement that we see in the demand environment.
As far as, you know, 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 know, you typically book in the first half of the year. They go into backlog, and those might be six to 18 months in duration, right? Obviously we want to continue to see those get to the finish line. But you know, one, our expectation is a lot of it was just timing and transitory. We do expect those projects to kind of, you know, not just stay in the funnel, but ultimately get to the finish line. You know, those will continue to feed the backlog, not just in the back half of this year, but even into 2027.
Again, yes, we do wanna see that longer cycle, you know, those projects get to the finish line. You know, that for us is, you know, 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 and some of the book ship businesses, as well as, you know, some of the momentum we continue to see on the life sciences side as well.
Okay. Thank you. I just wanted to follow up on that point, and maybe Vicente, you know, 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. I'd like to get maybe your perspective on this because obviously you know the business better than anybody else. My understanding, my feeling is that, you know, 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-à-vis pricing and market share.
Like, is there something else going on where some of this short cycle momentum that we're seeing across the broader industrial is not really piercing through your organic growth in the moment?
Yeah. I'll say, underneath obviously all the data that we have, we're clearly seeing it. If I think about the PST side, when you think about the two-year stack organic orders on PST, they're basically up mid-single digit organic. When you unpack what we saw in the first quarter, precision technology, which is the more short cycle in nature, we saw the short cycle in nature piece actually continue to do fairly well, offset by some long cycle year-over-year comps. Some of the long cycle, I think we tend to like to look at it better more on a first half and second half kind of comparison versus on a quarter-to-quarter basis.
Within the ITS, when you think about the blower and the vacuum side of the business, those tend to be more short cycle. We have always indicated in the past historically that we have our vacuum business that is based in Europe as a good leading indicator for upswings in manufacturing demand based on short cycle. We're seeing that. I mean, we see that clearly. Kind of when we unpack at a high level and you kind of start excluding some of these long cycles, we definitely see that short cycle continues to improve. You know, keep in mind, I mean, the demand elasticity based on price, I mean, we have a lot of statistics and a lot of analysis.
We see that as long as we continue to innovate and we sell based on cost of ownership and payback, that remains strong. That's how our sales teams they sell today. They sell based on that total cost of ownership on the ITS side, but also on the PST side too as well.
Got it. Okay. Very helpful. Thank you very much.
Thank you.
Your next question comes from Nathan Jones with Stifel. Your line is open.
Good morning, everyone.
Morning.
Vicente, I'd like to just ask about the, you've made a couple comments on the call today about the potential for high oil prices, high energy prices in Europe to be a catalyst. We had a similar circumstance in 2022, and I believe there was a surge in demand for your products then. I'm hoping you can kind of compare where we are today in Europe to where we were maybe in 2022. I know there were some government programs that helped there, maybe just any color you can give us on the similarities that you see and differences that you see between now and then and how rising energy prices or high energy prices impacted the business back then.
Yeah, Nathan. Well said. I think as you can imagine, I mean, we're looking at a lot of those indicators to see how comparable it is. You know, gas prices are not to the same level as what it was back then, but definitely have spiked and increased and even also, you know, gasoline and oil prices. I mean, I was just in Europe with the team not too long ago, and diesel prices are actually higher than petrol prices, which in the European market, they have not seen in quite some time. It's gonna take a little bit of time. I mean, I think as you can imagine, I mean.
We're still early into what I would say the conflict in the Middle East, and we're still early into that acceleration of the oil and gas prices. Clearly that is definitely gonna help us, and we're leveraging our demand generation tools. We're leveraging going back into the funnels and reassessing that return on investment and communicating with customers as to that energy efficiency that we can achieve based on our new technology. Again, staying, you know, optimistic in terms of being able to provide better solutions to our customers that will allow them to lower that energy cost.
I guess my follow-up question, you guys have frequently talked about the time from RFQ to booking, you know, as a sign of customer confidence. Can you talk about any changes you've seen there? Has it got, you know, any shorter, or are we still waiting for that to come? Thanks.
Yeah. It has improved. It is definitely not to the early days when we said that a marketing qualified lead will take four to. I mean, we said historically before all this elongation, it could take anywhere between six to eight weeks and clearly it got elongated. It has improved a little bit, but it is nowhere near back to the levels that it was before.
Thanks for taking the questions.
Thank you.
Your next question comes from Nicole DeBlase with Deutsche Bank. Your line is open.
Yeah, thanks. It's Nicole DeBlase. I don't know where that came from. Good morning, guys. Thanks for the questions. 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. 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? Thank you.
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. I think we said too as well that we're pleased with what we're seeing here as we kind of move into the month of April too as well. I think we're encouraged. Encouraged also, I made the statistic that, you know, when you think about PST organic two-year stack, I mean, they're in the mid-single digit, which is kind of where we always said that that segment should be operating at that mid-single digit plus.
Okay. Got it. Understood. Just thinking a little bit more about the progression of short cycle. I know, 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? Vicente Reynal, if you could just remind us, like, what, roughly what percentage of your total sales are short cycle today. Thank you.
Yeah. Nicole, we definitely 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 more months of April. You know, order cadence continues to go fairly well in terms of in line with expectations. I think we're pleased with that.
Yeah. 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, you know, roughly 40% of our revenue is aftermarket, which obviously has more of a, you know, activity based kind of book- and- ship kind of dynamic to it. When you kind of peel that apart on the whole goods side or the balance or the original equipment side, it's, you know, approximately 75%-80%. 75% is probably a good proxy, is more shorter cycled in nature, then that leaves about 25%, which is more of the I would call a longer cycle project type business. You do see a relatively equitable split between both segments.
Both segments have that longer cycle dynamic, as we've mentioned before.
Thank you, Vic and Vicente. I'll turn it over.
Thank you, Nicole.
Your next question comes from Christopher Snyder with Morgan Stanley. Your line is open.
Thank you. you know, 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. 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 2026 versus, you know, the expectations in January? Thank you.
Chris, let me unpack that and clarify a few things here. I think the price cost being more neutral, particularly here in the first quarter, you know, 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, you know, a bit more positive. What I would point to that is, are we taking what I would call incremental tariff related action to this point? No. I don't think that's the case anymore.
You know, as we indicated, even as we came into the year, we expect pricing to kind of revert back to that kind of more normalized 1%-2% that you've seen in historic times. That does include just some of the, I would say, normal course pricing actions you would expect. Again, not kind of peanut butter and vanilla across the entire enterprise, but, you know, targeted pricing where it makes sense. That's the piece that's still, you know, I'd say in play here, which does drive some of the more second half, particularly, Q4, you know, price cost being positive. Again, not being necessarily more on the tariff at this point in time, just given things have kind of stabilized. It's much more what I would call normal course pricing.
All right. Thank you for that. I appreciate it. Then, you know, maybe if I could just follow up on the Middle East. You know, I understand there was an impact on orders in Q1, for the full year, you guys are saying no impact on sales or orders, it seems like, for the full year. I guess, did the Middle East have an impact on Q1 sales? Is there any impact that you expect to come through in Q2 on the Middle East? Again, just on the revenue side. Thank you.
Christopher, to keep it fairly simple, I think the teams did an exceptional job here in Q1. On the shipments or revenue side, no meaningful impact one way or the other in Q1. At this point in time, obviously not expecting any material movement here in Q2, you know, obviously clearly an area that we're watching just like everyone else in terms of how the conflict continues to play itself out.
Thank you. I appreciate that.
Your next question comes from Stephen Volkmann with Jefferies. Your line is open.
Hi. Good morning, guys. Thanks for taking the question. Most of it's been answered, but I guess I'm curious. We're approaching the two-year anniversary of ILC Dover now. Is there anything qualitative you can say around how that asset specifically is performing relative to the segment, maybe in terms of, I don't know, growth or margin? Just kind of bring us up to speed on how that's doing.
Yeah. Steve, we don't tend to go into kind of unpeeling each of the businesses and in particularly across any of the two segments. I mean, after a two-year anniversary, we're pleased with all the investments that we have done. I mean, we have a full lineup of new team really leveraging the tools that we have around IRX. Really, as you can see, obviously and investments that we have done in commercial investments to really accelerate and penetrate more. You're seeing it now here in the numbers. I mean obviously, ILC Dover is a good part of the PST segment today.
As we said, you know, like, particularly the life sciences and life science technology, you know, or 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. As you remember, that was kind of what we were looking for with the ILC Dover too as well. Now we have embedded, you know, quite a few of these now bolt-on acquisitions into the life science business of ILC Dover. Continue to be pleased. I think the team is executing very well and we see a bright future ahead.
Okay. Thank you. Just follow on to that, is there anything in the M&A funnel, maybe of the 10 LOIs or something that would be even close to that size of ILC Dover, or is this all more like what we've seen year to date?
Yeah, as I think on the LOI, it's kind of more on the bolt-on in nature. You know, 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, you know, a little bit more than a $1 billion purchase price transaction. That one is not on the LOI. It's in the funnel, and we're having great conversations, but it is not one of the 10 LOIs.
Super. Appreciate it. Thanks.
Thank you.
Your next question comes from Andrew Kaplowitz with Citigroup. Your line is open.
Good morning, everyone.
Morning, Andrew.
Vicente, you mentioned, I think, 40% of the business now aftermarket. I think, you know, 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. As that continues to grow, I mean, what do you see in terms of mix for 2026 and sort of moving forward?
Yeah, Andy, I think continues to be an area of emphasis and focus. Yes, particularly continues to do very well. We have launched new solutions and we're pleased with making the great progress towards achieving that billion-dollar recurring revenue target that we set by kind of run rate at the end of 2027. 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. It's gonna continue to be an area of investment for us.
That's helpful. Just one more on the Middle East. You mentioned you got a third of the delayed $40 million of longer cycle orders back in April, could you give us more color on what, you know, the nature of these orders are? Do you think you need the Middle East conflict to end to get all of the orders back, or are your people telling you that, you know, it's just a matter of time, even if the conflict lasts, that you get these delays back?
Yeah. These were really kind of plant expansion and production capacity expansions related to kind of long cycle project orders. We don't need, at least at this point in time, we don't expect that it needs the conflict to end. And it was just a matter of, you know, kind of putting the final, you know, final details of these purchase orders. 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. I think it's just at this point in time, we think it's timing.
You know, there's definitely gonna be a rebuild, in a lot of the petrochemical facilities that have been kind of damaged. I mean, we clearly have products that participate in that regard, so I think it's gonna be good for the long term, we also believe.
Appreciate the color.
Thank you.
Your next question comes from Nigel Coe with Wolfe Research. Your line is open.
Thanks. Good morning. It's been a long time since I've asked this question, but, you know, what percentage of the current portfolio, Vicente, do you think is levered to energy, you know, be it process markets, oil and gas, chems, et cetera?
Yeah. Nigel, good question. You know, it's, you know, a lot of our technologies are very applicable to multiple industries and they're, in some cases, kind of agnostic. 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 ring vacuum that is widely used in the pulp and paper, it's also and can be very well utilized in the distillation towers of petrochemical facilities to be able to decompose products even further. I think we're putting attention to obviously help our customer where help is needed. That percentage of total revenue kind of could fluctuate based on the approach that we give to certain customer levels.
Okay. Okay. What you're saying is that it doesn't matter what it is today, there's opportunities to grow that number. Okay.
That's right.
Then just, maybe a follow-on to Nicole DeBlase's question. The life sciences, do you think that the double-digit life sciences revenue growth can continue? I'm, I guess what I'm asking here is, was there anything unusual on the destocking or restocking activity there? Do you think that life sciences can be sustained? How does the life sciences margin compare to the average within PST?
Yeah. Nigel, this is Vikram. I'll take that. Maybe I'll answer it kind of backwards here. I'd say on an overall basis, the, you know, the life sciences margin profile is comparable to the overall segment. You know, clearly it's the area where you've had more of the integration with the ILC Dover assets, with the legacy life sciences assets of Ingersoll Rand and things of that nature. But it's also probably the area where we see continued opportunity, particularly as some of those life sciences businesses continue to show good growth momentum. It's, you know, solid margin profile, particularly areas like biopharma. Again, I would say, you know, relatively in line with the overall segment, but clearly an area for opportunity.
As far as the growth cadence, things like that, listen, I think clearly we're encouraged by what we saw. Obviously, a double-digit growth cadence over the entirety of LST is not necessarily something that we've called for over the entire year or anything of that nature. Clearly we're encouraged by what we're seeing here. We expect to continue to see good momentum. I think to Vicente's point earlier, the fact that you have a two-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.
I think we're really encouraged by what we're seeing here. You know, we definitely see continued margin expansion, particularly as we move sequentially through the course of the year.
Okay. Thanks, Vicente Reynal.
Your next question comes from Joe Ritchie with Goldman Sachs. Your line is open.
Hey, guys. Good morning.
Morning, Joe.
Hey, Joe.
Yeah, so lots 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. I don't know, I'm estimating maybe something in that $10 million-$15 million zone. Can you maybe just give us some quantification on the tariff impact this quarter? 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.
Yeah, Joe, I think, you know, without question, I think the two drivers you mentioned there, both the tariff related dynamics as well as, you know, just the flow through on organic volume, which obviously this is a healthy gross margin business. Clearly those are the two biggest factors. We haven't necessarily quantified one versus another, those are the two bigger drivers. You know, 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.
I think on a year-over-year basis, this is where the comps on the margin side of the equation start to moderate, you know, a bit more, and that's why the margin expansion expectation is more back-end weighted here, particularly now as 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, you know, even over the course of the last year and even into Q1, we've continued to invest on the cost side of the equation and on the SG&A side, really feet on the street, R&D, you know, the same areas we've talked about quite a bit. For us, that's an area that we wanted to be hyper-focused on continuing to invest because that's gonna drive the ongoing organic growth moving forward.
I'd say those are the biggest drivers. 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. Help-helpful, Vicente Reynal. Then maybe Vicente Reynal, just on the M&A pipeline and the LOIs. I know, you know, back in the day, I think you guys had a goal, ultimately to get the PST business up to, you know, 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?
Yeah. Joe, I'll say that, you know, on the PST side, back to your commentary about making it larger and bigger, I mean, it's kind of double in size since we start talking about PST. And those kind of LOIs, I would say a good blend between both ITS and PST. But again, we continue to see a lot of great prospects in the PST side that we're very excited about.
Okay, great. Thank you.
Thank you.
Your next question comes from David Raso with Evercore ISI. Your line is open.
Hi. Thank you. 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 tool segments? Just remind us on the relative margin between those three.
Yeah. Sure, David. I'll kind of give you a quick overview. You know, 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 are actually quite comparable. You know, 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. I think the simple answer to your question here is, and then clearly with compressors being, you know, upwards of 65% of the revenue base, you know, clearly that's going to be, you know, the biggest driver just because it's the biggest piece.
I do think that we expect to see, you know, I'd say positive contributions from all the underlying technologies. You know, as Vicente said here, when you think about the short cycle kind of momentum, you know, we've seen it in the blower vacuum side, we've seen it in pieces of the compressor side. 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. sort of mix agnostic, just we just need the volume essentially, regardless either subsector.
When it comes to the tariff-
Generally correct. Yeah.
... and the tariff impact, and you say it gets, you know, 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've said. 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. 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 'cause you had the tariffs in prior year. 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.
All right. That's helpful. I appreciate it. Thank you.
You bet.
Your next question comes from Andrew Buscaglia with BNP Paribas. Your line is open.
Hey, good morning, everyone.
Andrew.
looks like I got one last question, even this far in the queue. I think, no one's brought up China yet, and I wanna say that your comment there was, as I recall, orders, still outperforming underlying markets. Is that a comment around like improving improvement off of the stabilization you've been commenting on the past couple quarters, or what are you seeing in that market?
Yeah. Andrew, I, you know, 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. The team have done now consistently a pretty good job over the past, I'd say three quarters of being positive on an organic order basis. Again, we're pleased with the execution. It's just another form of kind of highlighting the self-help commercial.
Yeah
continue to push on a global basis. Yeah.
What do you see for the China market this year? Like, what's your sense in terms of where that market's going for you guys?
I think, you know, we still don't see the market itself outgrowing. Now what we see is us outgrowing and taking share in the market itself. We don't see China market shrinking. It is obviously highly competitive. 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 the in China for China for that medical device operation is opportunity is very high. As an example.
Yeah. Okay. All right. Thanks, Vicente.
Thank you. Thanks, Andrew.
That is all the time we have for questions. I'll turn the call to Vicente for closing remarks.
Thank you, Sarah. Just finally, I just wanna 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. They have that reward and skin in the game to continue to deliver long-term value performance for all of us. Thanks again for the interest, and we'll talk soon.
This concludes today's conference call. Thank you for joining. You may now disconnect.