Ingersoll Rand Inc. (IR) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Joe O'Dea. I'm on the multi-industry team at Wells Fargo, and we are excited to kick off the industrials conference with Ingersoll Rand and Vik Kini, CFO; and Matthew Fort, who runs IR and FP&A at Ingersoll. Thank you so much for being with us this morning.

Yes. Thanks for having us.

So let's kick it off common kind of theme. We'll just talk sort of demand trends when we think about kind of how things were going. So Q1 really on the organic side, orders are up 3% to 3.5%. I think based on sort of commentary around earnings and what we've heard so far, April kind of seemed to be trending pretty similarly, but obviously choppy times. So just in terms of kind of how you see things progress over the course of this quarter, any puts and takes and color on that?

Yes. Let me just start by -- well, first of all, thanks for having us, nice to kick things off here. As far as the demand environment and kind of what you said, I think we're really encouraged by what we saw in Q1. We saw organic orders momentum in both segments, about 3%, 3.5% across both ITS and PST, which I think is the first time that we can say positive organic to that degree in both segments for quite a period of time, at least a number of quarters, at least. And then if you kind of dig 1 layer deeper on the ITS side, we actually saw positive organic orders momentum across all 3 regions, which was great. So it was relatively balanced, including Asia Pacific, which as we know, China has kind of had some headwinds for a number of quarters. I'd say China is at least stabilizing now, but you're seeing a little bit more of the impact of the rest of Asia Pacific, particularly Southeast Asia, which we've been talking about quite extensively as 1 of those underpenetrated markets. And even on the PST side, Americas and EMEA, positive. Asia is still a little bit negative, just a little bit more concentration of China there, comparatively speaking. So as we moved into April, as we said in earnings about a month ago, saw a relatively comparable performance. So relatively stable. I'd say demand environment hasn't changed dramatically. And we'll spare commentary on May and any detail, but I think it's fair to say that at least the operating environment hasn't changed dramatically. I think you've seen comparable trending, at least on a regional perspective, and things like MQLs and things of that nature, which are our lead indicators, which I know we'll talk about a little bit more, I'd say, continue to trend as you've seen kind of through the first quarter and into April. So I wouldn't say anything has dramatically changed in terms of the demand environment. To your point, still uncertainty out there with the tariffs and those dynamics, but I think that, that's kind of just a dynamic that we continue to operate through.

I think surprising to us going through this elevated uncertainty that we didn't see more demand disruption. But when you think about the tariff impact, in particular end markets and regions as well, I imagine under the surface, there are some puts and takes, but anything where you're watching it most closely where you've either seen kind of distortions and demand patterns, just tied to the uncertainty that's out there.

Yes. I mean I wouldn't say that things have dramatically changed over the course of the last 5 months or things have skewed 1 way or the other. Obviously, it's created some degree of a pause and disruption, as I think everyone would expect. Clearly, with, I think, the fact that things change so frequently has that caused a little bit more kind of potentially wait-and-see environment.

Sure.

I don't think that's anything different than what we talked about during Q1. I think the piece for us though, that continues to be encouraging is we obviously report orders, but we kind of track the leading indicators that sit behind those. And so if you think about the business, you can break it into 2 components, the kind of short to medium cycle part of the business, which kind of is a little bit more akin to MQLs, so marketing qualified leads. And I think even through last year, you heard us say that MQLs continue to trend positively, upwards of double digits up, but you'd see this kind of elongation in terms of, what I'll say, decision-making from a customer perspective. And I would, by no means say, that, that has completely alleviated by any stretch of the imagination, but I think it speaks to the fact that in Q1, you can't get to kind of 3% to 3.5% organic orders growth without contribution for both the short cycle -- short-medium cycle as well as a long cycle. And so we did see some of those short to medium cycle type orders translate on a REIT on a global basis. And then the other piece was the long-cycle funnel. So this, for us, long cycle kind of comprises maybe 20% to 25% of our original equipment. These are the longer cycle projects. So think of a big ETO, compressor package or a blower vacuum system they run anywhere from 0.5 million to multiple millions of dollars in size, and they typically are 6 to 18 months in terms of lead times. The funnel itself has continued to trend well over the course of the last year, 18 months. I do think, though, you have seen comparably a little bit more of an elongation in terms of people deciding to kind of finally put the PO on. But the good news was even through last year and in the first quarter, you have not seen these projects getting canceled. And so we did see some of those projects finally kind of get to the finish line in Q1, which was very encouraging. And our expectation is you would continue to see some of that kind of finally get to the finish line in terms of the order here even in Q2 into the balance of the year. So I think we, despite what is still a little bit of an uncertain environment and as we've said before, when you have 70%, 75% of your original equipment is short to medium cycle, we don't have full visibility into the back half of the year. We're going to have to continue to execute through this quarter and into the back half, but we're at least encouraged by some of those leading indicators that we track.

Just to drill down into that 1 step. What is driving customers, it's encouraged right you talk to 3% to 3.5%. It needs to be a contribution from short, medium and long cycle. You might intuitively say, you give an elevated uncertainty that's going to cause pause. And instead, people are moving forward and maybe more than they have in the discussions you're having with customers, what is it that is driving them forward on those commitments decisions?

Sure. I mean, I think it's a facet of one, there still is activity in the environment, right? And so when you think about our products, whether it be a compressor, a blower, a vacuum, a pump, short-medium cycle or long cycle, they're the heart of any process-driven application. So we'll -- I'm sure we'll talk about replacement demand versus greenfield. The reality is you need our technology to be able to serve those respective end markets and applications. And then you couple it with some of the activities we have around recurring revenue and things like that, which are really just much more of a sign of activity and utilization of equipment, I think there is just inherent demand. And let's be clear, when you're talking about a compressor, that's up to 30% of the energy being consumed in a facility, a blower that can be up to 60% of the energy in a wastewater treatment facility, these are -- while they're very low price kind of price tags compared to the overall application they're going in, they consume a lot of the energy. And as such, when you go and upgrade some of these machines or things of that nature, you can actually deliver good payback, energy efficiency, total cost of ownership, which ultimately speaking, rises to the top of kind of a customer's decision-making criteria. So I think it's just a balance of those kind of moving pieces and the fact that we had seen those MQLs and those funnels continue to be relatively healthy that hadn't really changed. It's just a matter of time before some of that starts to get a bit unclogged as I say, and you start to see some of that demand kind of translate.

Yes. And then if we talk about complexion of the year and how things have shifted, price getting better, some volume kind of cushion that might be in the expectations. But when we think about the back half where to start the year, I think there was something low single digit, maybe 3% kind of volume growth. And the revised view is maybe that's low single digit, maybe 2 points volume decline. It amounts to about $200 million. I guess the question is, can we allocate that on -- this is what builds up the $200 million? Or is it a little bit more of uncertain times? Let's just try to bake in something.

Yes. So I think it's the latter, right? We took a precautionary approach. And as we talked about on the earnings call, which is tariff pricing at the time, remember, China was 145%. And all of the other associated costs, that was, call it, squiggle 2% from a pricing standpoint. M&A and FX was another squiggle 2%, that got 4% in additional revenue. And I think at that time, to say, "Hey, we're going to take the guidance up at the midpoint, somewhere between 2% to 4%" just did not make sense at the time. We want to take a precautionary approach hold the total revenue guide. And then again, on the tariff pricing, that up $150 million, kind of squiggle that $200 million that you're referencing, you've got to take it out of somewhere, and we took that out of volume at the normal flow-through. And so that's kind of the how we held the revenue guide and then how that translated down through EPS.

Yes. And then when you talk about the pricing side of it, how much of that pricing is now in place and things have been moving since then. What's happened to pricing and -- based on the current tariffs?

Sure. So I think the simple answer is all the pricing actions that have needed to be taken have been taken. We took in, as we mentioned, we took a bit of a balanced approach of both list price actions as well as surcharges. Probably fair to say surcharges are not necessarily the norm for us as Ingersoll Rand. Given the environment and just kind of, frankly, the instability of what was going on with tariffs, we thought it was the requisite approach to be able to give ourselves a little bit more flexibility to be able to calibrate for like a better way to say that as the environment changes. And as you can see, that's exactly what's happened. . So we did -- we took actions both on April 1 and May 1. As you can expect, we continue to recalibrate those just as tariff dynamics have kind of ebbed and flowed. But at this point, everything has been taken, everything has been deployed. And I think like everyone else, we're kind of just waiting to see when we get to kind of any semblance of stability, if you will, in terms of where tariffs will ultimately settle down.

And so at this point, it's not like back half of the year, there would need to be more price action based on what you know today and steel and aluminum and things like that.

Yes, I'd say that we've really been kind of taking that. It's almost been like a week-by-week approach, to be very honest with you, in terms of recalibrating and looking at things. I wouldn't say we're changing prices every week, but we've at least been through the lens of kind of the tariff war rooms and kind of the process we have, we've been able to kind of analyze this and understand kind of what these moving components are and make sure that we're calibrating the price appropriately to make sure that, again, as Matthew said, our intent with tariffs was really just to offset one for one, meaning price combination of list and surcharges, just offsetting the tariff impact meaning it's dollar neutral. Obviously, we'll be slightly margin dilutive, but this was not an expectation to be actually making margin on the tariffs, and that will be the same answer, no matter where this settles down in terms of the absolute dollar value of surcharge tariffs.

So now let's shift a little bit more kind of big picture and I wanted to talk about kind of the cycle perspective at a segment level. And so if we look at kind of organic volume trends and you take, go back sort of 2020 to 2024 and obviously, a lot of price that's been in the market as well. But ITS organic volume is up kind of low 20%, maybe mid-20% versus 2020. PST is roughly flat. If we start on the ITS side, can you just talk about sources of strength that you've seen there, whether region, whether end market, kind of what's there?

Yes. So let me start that. We just crossed the 5-year mark of the kind of anniversary of the merger to creating Ingersoll Rand, which was March of 2020 of all times right on top of COVID. And so one of the things that we said and was kind of almost one of the key kind of thesis for the deal itself was quite frankly, the hand-in-glove fit that you had between the legacy Ingersoll Rand and legacy Gardner Denver portfolios, particularly in the air compression technology spectrum. So you've kind of taken the 2 platforms together. And I think what was really intriguing is that quite frankly, where one historical portfolio was a little bit weaker, the other one was stronger. So from a regional perspective as well as probably even from a product technology perspective. And so when you put them together, you really have created this, what I would say, holistic kind of technology footprint as well as a global coverage that really lent itself to be able to, I'd say, accelerate the organic growth trajectory, which is what you've seen. So you're now flash forward and with the appropriate product technology, you've been able to kind of drive, let's say, accelerated growth, not just from a compressor perspective, but also being able to push some of those kind of technologies that were a little bit more niche in nature. For example, blowers and vacuum that may be kind of those examples were more legacy Gardner Denver, but able to leverage now the legacy Ingersoll Rand footprint in places like Asia to be able to drive growth there. So you have, I'd say, just the kind of, I'd say, a combination of the 2 portfolios. Two, you have the kind of aftermarket profile, which we'll talk about, I'm sure, with recurring revenue. Around the time of the merger, that number of recurring revenue was probably closer to $100 million. As we said, as we exited 2024, the number has eclipsed $300 million. And it's probably fair to say that the lion's share and the majority sits in ITS today. That's an equation we look to change over time, but growing that aftermarket profile and particularly through the recurring revenue lens has been 1 that's been a real catalyst on the ITS side. And the other facet I would point to here is the M&A. If we look now over the course of the last 5-plus years, we've done 65 plus bolt-on acquisitions with a strong amount of those in ITS. And as you can imagine, when you've been able to do a nice amount of bolt-on acquisitions, which then you're able to then translate that technology over your global footprint, remember, most of these acquisitions are smaller, privately held, very regional companies. They've developed a good presence in one kind of region or country, but they really didn't have the means to spread kind of further than that. We'll plug it into kind of a global network like Ingersoll Rand, now we've been able to take those kind of global. And I'll point back to our last Investor Day, our Asia Pacific business leader, Arnold Li, he did like 3 or 4 kind of case studies. And every single 1 of them was essentially, I'll call it either a revenue synergy or kind of an M&A example of how he has localized technology in the China market. And as examples that you didn't have access to before, whether it be coming through the merger or coming through M&A. So you put those all together, and I think that's what lends itself to this kind of flywheel that you've seen over the course of the last 5 years.

Great color. We shift to the PST side over that period we're talking about, right, a couple of years of growth, but then the past couple of years where volumes have seen some headwinds, just talk about kind of the demand trends there.

Yes. So I think when you look underneath the kind of the surface on the headlines obviously speaks to what you said, and I'll come back to kind of the biggest drivers. When you peel kind of the onion back, I think we've actually seen nice growth when you think about kind of the base business, Americas, EMEA show nice progression. Obviously, there is a comparable amount of China exposure. In PST, as there is in ITS. So obviously, that's been a bit of a headwind. I think the biggest piece, though, that probably speaks to why you've seen a little bit more flattish kind of performance over that time is within the PST portfolio is our, what we call our legacy Ingersoll Rand Medical business, which was probably the biggest kind of beneficiary from a COVID perspective. This is a business that makes miniaturized compression technology that's used in medical, Life Sciences type equipment with some of their products being in breeding applications. So as you can expect, this is a business that saw a nice tailwind during COVID. During that time frame, it kind of reached around $400 million. And as you can expect, post COVID, it kind of saw a little bit of a reversal there as kind of, for lack of a better way to say this kind of stabilized, troughed out closer to $300 million. So that's about a $100 million headwind in our smaller segment that's kind of sitting on top of the numbers you're saying that's kind of probably the biggest headwind. So it's offsetting, I think, what you've actually seen as good core growth in the other kind of core components of the portfolio. The good news for us here is this is a business that, at this point in time, it hit trough. It's been a number of quarters that we've kind of reported that. We've kind of started to see some early signs of, I'd say, momentum by no means an inflection point yet, but the good news with that is this is a business that plays at margin profiles in excess of the PST segment margin. So I know when we talk about PST margin profile, this will actually be a tailwind going forward. Any degree of kind of organic volume growth here will lend itself to kind of margin expansion just given the margin profile of that IR Medical business.

And when we think about now this is a starting point and if you've seen stabilization there as we move forward, how do you think about those growth profiles and whether -- is there a catch-up in PST. So that's actually the strong organic growth business. Just overall, as you've navigated through some of those swings.

Yes. I think, generally speaking, PST is always a portfolio that we've kind of positioned that over a longer-term cycle should be more of a mid-single-digit plus type organic grower, whereas ITS maybe plays a little bit more like mid-single digit. So I think, one, just given the end markets, given the niche kind of profile of the businesses, the fact that, yes, on a go-forward basis, I think there may be a little bit more outsized growth from some of these businesses like IR Medical that have been a little bit more depressed over the last few years that should lend itself over a multiyear time frame to be in a little bit better organic grower. But that's kind of always the way we've positioned it. There are always going to be cycles and things we've got to operate through, but I don't think anything's changed in terms of our expectations in terms of growth trajectory. And I think the ILC Dover acquisition, which has now eclipsed 1 year and will -- is now kind of part of the organic number, just given its exposure into things on the pharmaceutical and Life Sciences side, I think, can continue to help that trend on a go-forward basis.

And then you had touched on when you were talking about ITS, but let's talk about the recurring revenue and aftermarket side of things, and you've got kind of the $1 billion sort of target out there. So you said last year, you were over $300 million. Just how do you think about that kind of trajectory to the $1 billion and the visibility that you have into that? Like where does this year need to be? Can you give you that confidence if you will go...

I'll let Matthew start and I will add in.

So I think, as Vik mentioned, at the time of the merger, you were looking at something, $100 million. And then at our 2023 Investor Day, we said that, that revenue was about $200 million in recurring revenue and then now north of $300 million. So we've seen some really nice growth. Now, $100 million worth of growth, there's still a long way to go to get there. But I think that how we got there was not just try harder on the legacy Ingersoll Rand compressor business, this was being able to roll this out not just in Compressors North America and an Ingersoll Rand, but be able to execute this in APAC, execute this in EMEA, executed across the blower and vacuum portfolio and in Precision Technologies where it makes sense, right? Some of the smaller pumps, maybe not so much, but on something like Seepex, we think that there's certainly opportunities there. So what we saw in the $200 million to $300 million was really nice growth, pretty broad-based. We've created a nice foundation to be able to jump off here as we look to move forward. The $1 billion, again, was never in our long-term Investor Day targets, just as a reminder, I would say that they're stretched targets that we're looking to achieve. But I think that with what we've done so far, we still believe that we're on the path to be able to achieve that $1 billion.

And that foundation comment is you're doing this in other parts of the business outside of compressors already. So you're starting to see...

I almost kind of take 2024 as kind of that adoption year, where, to Matthew's point, this business model has its roots on the legacy Ingersoll Rand North America business, compressor-centric. And so translating it to the other regions, the other product technologies where it kind of is applicable to the Gardner Denver portfolio where it makes sense, 2024 was almost that adoption year. Now, no doubt, even in that $300 million today, it's still very heavily North America compressor-centric. And clearly, that will always be the biggest component. But I think as we move forward here, we do expect to see contributions from all parts of the business. And it's also worth noting now that not only just the care model, which is kind of the heart of the recurring revenue model, but also now bundling in things like the Ecoplant technology platform, bundling in the kind of air treatment side of the equation, finding more offerings to be able to bundle into care in that recurring revenue suite is kind of where we're looking to move the needle here on a go-forward basis.

And then when we talk about the IIoT-ready products. I think this has been part of sort of the digitalization opportunity in front of you. And I think since 2020, you've more than double the percent of revenue from our IIoT revenue -- IIoT-ready products, just what is that doing for you on aftermarket capture on percent of recurring?

Yes. So it's hard to quantify in full transparency. The way we look at IIoT is we don't look at it necessarily as a new revenue stream. We look at it as an enabler for more aftermarket revenue, particularly the recurring revenue model. When you think about recurring revenue and the care packages and this kind of risk transfer agreement, at its core, being able to remotely monitor your equipment is kind of 1 of the catalysts to be able to execute a model like this. So for us, it's really a means to an end. . And one that, as you can expect, every machine that goes out of our facility from a compressor perspective, as an example, over a certain horsepower range, goes IIoT-enabled, just a matter of having that turned on with the customer. And now we can monitor that equipment machine, and it's ripe for being able to serve the aftermarket, particularly recurring revenue. So for us, I'd say it's a means to an end, just to put it in perspective, with still a very low penetration rate on the installed base on care, right? It's still a single-digit percent is probably the best way to think about it. So there's still meaningful room to run in the context of getting to that $1 billion target.

Matthew, you talked about this a little bit, where they're going to be parts of PST that would be better suited to then when you want to go out and net out and sort of get that kind of recurring revenue stream going. But when you think about sort of the total portfolio and the IIoT piece of it, what percentage of the total portfolio just broad strokes is something we like we can connect this. We can get care packages on something I guess when you say like the percent is pretty low today, just think where it goes.

I'd say the percent is low in the context of the installed base that's penetrated. As far as our portfolio that can have IIoT, I would argue there's a meaningful percentage. We haven't quantified it, but it's a meaningful percentage that can have IIoT for whatever benefits IIoT can lend itself for those customers. To Matthew's point, 1 of the things that was kind of the big aha moments, probably over the last 2 years is that a care model kind of akin to what we're doing in ITS. It can have roots in kind of applicability across many parts of the portfolio, right? So what was once bought up is really a compressor kind of centric model. At the end of the day, if it's something that's large machinery has rotating equipment, has aftermarket needs, has wrench-turning service capabilities associated with it, which generally speaking, covers not all, but a meaningful portion of our revenue base, why shouldn't that have something that can be care -- a care model expanded to it. So once we kind of got through that, and I think the other good thing about last year was, remember, this model has existed for like upwards of 15 years in the -- largely in the Ingersoll Rand compressor business in North America. And over that last 10 to 15 years, they've learned really how to operate the model. Who to sell it to, when to sell it, how to sell it, how to incent the sales teams. And that wasn't a straight line. That was trial and error, that was, I call it, a lot of stubbed toes and sprained ankles and things of that nature. But the good news is now, I think the Americas has gotten a pretty refined model. Well, the rest of the globe didn't have to go through that same learning curve, right? They were able to kind of adopt the model, leverage the learnings of the North America business to be able to translate that a little bit more efficiently. So you're not going to see that same kind of multiyear, 10-year-plus kind of learning curve and acceleration, you should be able to see it a little bit more quickly, which is what we're expecting to see here over the course of the next few years.

And then I wanted to circle back and talk about kind of the equipment side. And so when we think about the revenue mix, I think roughly 65% equipment and then 35% would be more aftermarket related. If we think about that 65% equipment, how do you think about the greenfield brownfield part of it versus the replacement part of it?

Yes. So it admittedly becomes kind of tough to track just when you ultimately are selling through direct and distribution. I think the easy way to say it is, there's an equitable mix of both. Obviously, replacement demand, when you think about just a compressor, for example, roughly speaking, a 10-year life span, there's always going to be a component of the installed base that's ready for what I will say, upgrade and/or replacement on an annual basis, coupled with the fact that, as you would expect, innovation in our business, generally speaking, is always kind of energy efficiency centric. And so we're not necessarily saying that customers are going to throw away a 3- or 4-year-old compressor. But when it gets a little bit longer in the 7, 8, 9 years and now you can look at the next step change in technology, which can lend itself to sub-24-month paybacks. It's just like us. Every year, I go through a budgeting cycle with our team and generally speaking, CapEx projects that kind of hit the highest return profile generally are the ones that we tend to invest in, our customers are no different. And when you have a compressor that is probably the single biggest energy consumer on that facility, and you can lend itself to sub-2-year type paybacks. Generally speaking, that's something that's going to get that team potential. So I think we continue to see a good equitable mix. And as such, there's always going to be that kind of replacement demand that's going on.

And that's kind of where I was going with it, and it's probably tough to quantify, but just curious in terms of kind of your ability to sell that replacement because of short payback. And so just what you see out of customer behavior in any sense of, look, the vast majority is still going to be wait until end of life and replace versus seeing a growing shift towards people are replacing before end of life because of the economics.

Well, I think for us, it's actually a bit of a win-win. So one, yes, if there is someone who, because of payback dynamics, maybe is going to be able to replace their machine a little bit sooner than they have Great, that's a replacement demand for us. Obviously, that's something we want to do be able to lock in that customer. The flip side of it, though, is even if you have a compressor that's 10 years old as an example, and the customer is still usually using it, our means here is how do we get that locked into a care contract from a recurring revenue perspective. And how do we make sure that we're servicing that machine, do the risk transfer agreement, be able to service it through a care model and then a couple of things? One, care customers are our most satisfied customers by a vast -- a very big spread, And two, once under a care contract, it's a very high likelihood of percentages that you've got them locked in. And as such, when the day comes -- that replacement is going to come, it's going to come through an Ingersoll Rand machine. So in our view here, we can win through both angles.

Yes. And then something that you touched on in the 2023 Investor Day was the multiplier effect that you have through everything that you can do on the aftermarket. And it's not -- it's sort of typical aftermarket, it's care. There are a lot of different kind of layers to what you can do. And there's something like a 3.5x multiplier over the original sale. How much of your revenue has that kind of multiplier that could be assigned to it?

Yes. So not every technology is necessarily going to be. I think on the compressor side from just a medium- to larger-scale machine, I think that, that math can work. Now it obviously is through the lens of what I'll call recurring revenue, care contracts, getting to the Ecoplant, getting to some of the air treatment as well as, as you've seen, many of the bolt-on acquisitions we've done have been things through the lens of, I'd say, supplementary type equipment that can kind of be bundled in with the compressor. So I think that, that model will continue to be kind of one we carry forward. Even if it's not 3.5x, but I think even on a blower, certain pumps on the PST side, there's a multiplier effect there as well. It's now a matter of being able to kind of, I'd say, extend those offerings. And as you can expect, whether it be care Ecoplant, even air, these are models that, again, have the roots on the compressor side, but we're, of course, looking at how we can expand those of the other technologies because they have applicability on most of the other technologies we serve as well.

And then I wanted to shift the discussion to M&A, kind of 2 questions in one. But one, just as you think about verticals and prioritization of verticals within M&A opportunities? And then second is just overall appetite, I think that, there have been some large deals of interest in the past. The largest one was ILC Dover. Just what your appetite is for large deals, how we should think about the size of large deals?

Yes, maybe I'll answer those kind of in inverse order. So I think, one, we've always said that maybe every 3 to 5 years, you'll be -- you'll see something that's a little bit maybe larger in scale, not necessarily transformational but maybe something that's a little bit more of a platform per se, much like ILC Dover was and is on the Life Sciences side. I think as we sit here today, this year and quite frankly, probably a little bit to the lens of some of the uncertainty that's existing and the concept of a larger deal is probably a little less likely just given some of the uncertainty with tariffs and things. This is probably a year that's much more of the smaller bolt-ons in nature. As we did earnings a little over a month ago, we had done 6 transactions year-to-date, very prudent purchase multiples and 9x on a blended average of a pre-synergy adjusted EBITDA purchase multiple, one that we saw that kind of mid-teens ROIC return profile over a 3-year time frame. We have 9 more under LOI at that point in time. Now, interesting enough, last week, we actually closed, you saw us announce we closed one of those deals. It was actually a small in-region, for-region bolt-on in the Life Sciences side in China, actually. And so you actually are seeing a nice equitable spread to kind of your first point of those bolt-ons, which think of those 9 bolt-ons is very similar to what you've seen. Smaller bolt-ons, probably sub-$100 million to $200 million purchase price, the vast majority is sub-$100 million. Good regional spread, I would say you have assets in there that are North America, South America, Western Europe, as we know, Asia and a spread actually between ITS and PST. So as long as we continue to see, I'd say, good activity, which the funnel is as healthy as it's been end markets that are kind of a little bit more leaning towards sustainable, higher growth end markets in the grand scheme, very similar to what you've seen us do. That's the model we're going to continue to execute to. I don't think we have any concerns about the ability to deliver 400 to 500 basis points of annualized inorganic growth this year consistent with the model even through the lens of doing it through smaller bolt-ons.

If you have a question, raise your hand and I'll make sure to get to you. I want to use that as an opportunity to talk about Life Sciences a little bit because with ILC Dover, you started talking about PST as Life Sciences and Precision Technologies. And so talk about your position in Life Sciences, kind of where you see your areas of strength, where you see your kind of areas of opportunity for that?

Yes. So I think the ILT Dover transaction was a nice catalyst to be able to have, what I would call, a more established platform on Life Sciences. Today, we have a $600 million to $700 million roughly platform in Life Sciences combined of the ILC Dover assets as well as the Ingersoll Rand Medical business that we historically have, which we see some nice parallels and synergies in terms of some in-sourcing opportunities, being able to serve a larger customer base, but with a little bit more of a holistic product offering on the Life Sciences side. And so if you look at PST, as you said, 2 platforms, Precision Technologies, we'll use round numbers, about $1 billion of niche precision pump technologies, $600 million to $700 million, roughly speaking, on the Life Sciences side. So I think now you have 2 very good, well-established platforms that I think, one, over the longer term, have a slightly higher growth profile, just given the end markets that they're serving and also one that we continue to see good margin expansion opportunities. I know one of the kind of topics is the PST kind of margin trajectory. And this is one where we know that this segment is playing around 30% EBITDA margins today, but one that has multiple levers to continue to grow. One, kind of being just the Precision Technologies, which we've had kind of as part of the business for a while, probably fair to say being able to kind of leverage and accelerate some of the IRX kind of toolkit, things around pricing discipline, the productivity, the I2V, I think the I2V funnel is probably as healthy as it's been in that business. So I think there are some good tailwinds on that end. We talked earlier about the IR Medical business, one that I'll say, I'll give the team a lot of credit that yes, while we've kind of been at 30% EBITDA margins probably over the last 4 to 5 years, it's kind of ebbed and flowed, but stayed at 30%. That's with a headwind of $100 million at pretty healthy margins. So it speaks to the fact that base business has actually improved, offsetting that IR medical business. And now any degree of organic growth going forward should be a catalyst. And then, frankly, continued integration of the ILC Dover assets. So between all those, the concept of continuing to drive that margin profile upwards towards maybe that closer to mid-30s over that medium term, which is kind of our target. We don't see a reason why that's not an equitable target and one that we know we have levers to be able to pull to be able to drive for those numbers.

And just that foundation of Life Sciences, you talked about ILC Dover and then you think about additional capabilities outside of that, you envision that path as a bolt-on path around it? Or you see more foundations that you want to build around it?

I think without question, we see this as a path to be able to do nice attractive bolt-ons. In fact, last week, we closed one. I guess, at a smaller Life Sciences technology platform or business in China. So again, it fits the in-region, for-region actually core technology that's very comparable to what we have currently within the Life Sciences business. So I think, one, we continue to have a very healthy funnel, as you would expect, when we did the ILC Dover transaction, it came with its own funnel, which has now just kind of become part of our M&A funnel. . And the fact that we had, as of last earnings, 2 of our 9 LOI, specifically in that Life Sciences space, I think it speaks to the kind of momentum. Also worth noting, these are transactions that you're going to see being done at very comparable, I'd say, economics to what you've seen us do. I don't think 20x multiples and things like that. No, there are very prudent low double-digit type purchase multiples, nice little kind of I'd say, bolt-ons. And ones that we think we can drive good margin accretion and returns similar to what you've seen us do across the rest of the portfolio over the last 5 years.

And then if we just spend a little bit more time on the PST kind of margin opportunity. So I mean you've addressed a number of things within it. But if we think about a 30% EBITDA margin, get to 35%, we're talking roughly $75 million in EBITDA on today's revenue base. Just how you think about the different building blocks that and the self-help component of the way you can do on footprint and other cost actions versus a cycle and things just trying to go more in your favor?

Yes. I mean, like I said, I think, I almost bucuketize them into 3 components. One is the self-help component of, I think probably not surprising me here that when we did the merger, ITS was probably a little bit more the focal point just in terms of the integration, the deployment of IRX, delivery of synergies, things of that nature, just because it was 80% of the revenue profile and the lion's share of the synergies. To that point, I think IRX probably got a slower start comparatively speaking in PST. I think you've seen that kind of getting rebooted over the last 24 months, roughly speaking. And that's why, for example, I'd say the I2V funnel, for example, today, is probably healthier than it's ever been over the course of the last 5 years. So I think, one, there's just kind of that self-help component of it in the core Precision Technologies platform. Two, any degree of kind of ongoing organic growth momentum on the IR medical side, which, as we said, has a better margin file than the overall segment and the incrementals there should be accretive to the overall segment with any degree of growth. And then three, we're 1 year into the ILC Dover kind of transaction and integration. And I think the encouraging piece here is from Q4 to Q1, you did see, I'd say, some operational improvement as we move from Q4 to Q1. I think we're continuing to be encouraged by the growth trajectory, particularly in the Life Sciences side of that business, which should come with nice, I'd say, flow through as well. So you put those 3 pieces together, and the fact that the kind of maybe fourth end of the leg of the stool will be ongoing bolt-on M&A. We see an equitable amount of opportunity in total Precision and Science Technologies for bolt-on M&A, as you see on the ITS side, and 1 that we would expect to be able to drive to fleet margin, if not better, over that kind of 3-year trajectory. So you put those 4 legs together, from our perspective, those should be kind of the path to be able to get to that mid-30s in the next few years.

Great color. I think that brings us to the end.

Perfect.

So thank you very much Vik and Matthew, thanks so much for being with us today.

Yes. Thank you for having us.