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

Thank you, everybody. Very excited to kick off day 2 of the Laguna Conference with Ingersoll Rand. Up here with CEO and Chairman, Vicente Reynal; and CFO, Vik Kini. So thank you, guys, for joining us.

Thank you for having us.

I think what really separates Ingersoll from broader industrials is the M&A engine. Can you talk about the process within the company, how you are able to, not only just identify 4 to 5 points of M&A growth every year, but also integrate them in a way that you can grow margins while you're bringing all these businesses...

Yes. No, absolutely. And let me add on to that because, I mean, definitely, the M&A flywheel is great, but we like to say that our culture, the ownership mindset culture that we have, where employees at Ingersoll Rand are owners of the company. And we teach them how to be owners, how to think about cash, conversion cycles and things of that nature, to all 25,000 employees. It's pretty unique. And that ownership minded, when you combine that with operating execution cadence that we call IRX, or Ingersoll Rand Execution Excellence, it proves to be very, very unique when we start doing the M&A. And it's unique in the sense because, again, we generate a lot of cash, almost, can we say, high teens to 20% free cash flow margin. And we take that cash and put it back into driving bolt-on M&A mostly. And over the past 5 years now, we have done 75 acquisitions. And it is all about -- 90% of them, they follow the same path of being family-owned, founder based. We do a lot of cultivation. And that really helps a lot to be able to then obtain just a phenomenal price and return. So typically then we get -- we're in the low double-digit, 10 to 12x. This year, we have done 10 acquisitions, all bolt-on in nature. And I think the average pre-synergy EBITDA multiple is like 9.5x. And that is even including 2 in the life science side. And that bolt-on acquisition then leads into being able to achieve mid-teen ROIC by year 3, on the bolt-on in nature. And so the integration happens, as you very well said, very quickly. We don't -- we're very decentralized. In corporate, if you go to our headquarters, I mean, we're basically leasing the second floor -- no, sorry, a floor, on a building in Davidson, North Carolina. And we're -- so we like to keep it pretty low key from that perspective. And the way we operate is that we have 9 P&L leaders that report them into me, and the integration really happens in the 9 P&Ls. Those 9 P&Ls then, underneath them, there's another 60 more P&Ls. So we're very P&L-centric. And that's where the integration happens, by leveraging the IRX, the Ingersoll Rand Execution Excellence process, and leveraging this ownership mindset that people really fell very attractive to, hey, this is our company and now that we bring this technology, how do we make it better? And a lot of the synergies, as you said, very quickly, is because of things that we can control. So when we do the mid-teen ROIC, it's based on whether price that we can generate, we're sophisticated on our pricing actions. Many of these family-owned companies, they're not. Supply chain, 70% of our cost of goods sold is direct materials. I mean we put a lot of attention on our supply chain and suppliers. And again, family-owned companies, they don't have that leverage and that power. We can provide that. And in some cases, then we leverage the SG&A and we are able to obtain a lot of that good integration savings pretty quickly.

It feels like a lot of it -- you guys have this infrastructure, so they come on to the platform and you're able to help them improve the businesses. But when you're out there identifying businesses, is there something you're looking at, okay, they have this technology or a high gross margin that we can very much kind of leverage that?

Sure. So yes, absolutely. So first, we look for -- we exactly look at the gross margin. And we say, gross margins will need to be kind of mid-30s or above. Because we're looking for companies that can definitely have that pricing power, unique technology, that can be much more uniquely priced position. Give you a good example, I mean we acquired 3 years ago a company called Seepex. They had 50% gross margins, but their EBITDA was in the mid-teens. Three years later, they are basically 55% gross margin, or above 50%, and 30% EBITDA margin. So that shows the power of what we can do with this. So definitely, gross margin is one. From a technology perspective, we're very concentrated on the core of what we make, which is compressors, blowers, vacuums, pumps and things of that nature. Very industrial products that could be applicable to any end market. And then we look at adjacencies. And a great example of that is compressors. Clearly, we make a lot of compressors that we continue to acquire companies in the compressor side. But then we moved 3 years, 2.5 years ago into air treatment. And that's because 70% of compressors, you sell an air treatment to treat the air. And believe it or not, we were a company that we were buying and reselling air treatment. So now we're one of the largest global producers of air treatment, and not only to treat the air but to treat gases. And we can treat and generate nitrogen, hydrogen, oxygen with the use of a compressor.

Yes. I mean maybe just following up on that, kind of looking for maybe market adjacencies or kind of natural movements. Maybe a high-class problem here, but you guys have grown about 50% versus 2019. Is it -- do you have to go further out on the risk curve to get that mid-single-digit M&A contribution every year?

No, no. Not necessarily. Because right now, think about it, we're $7.5 billion revenue approximately and we operate in a $75 billion addressable market. And so we have -- there's plenty, and very highly fragmented market. And so we're always looking at how do we continue to be close to that workflow steps within the technology that we have.

Yes. And then just kind of last one on M&A. How does the pipeline look today and how do you think about allocation or preference for more of the traditional industrial side versus the growing life science platform?

Yes. So the pipeline is still very, very strong, very, very robust. I mean, I think the cultivation that we have done here over the past decade with a lot of these acquisitions, when you operate in this global environment that there is uncertainty and a lot of changes and dynamics, I mean some of these companies -- family-owned companies are finally saying, "Hey, this might be the right time." And so that continues to move actually quite well. In terms of the allocation, we're not saying let's double down here or there. We're always looking for high-quality companies that can actually improve the quality of the portfolio. Net-net that's what we're looking for. And definitely, even on the life sciences as we move there, it is also closely adjacent to a lot of the technologies that we have. So it's -- we're not saying -- it is all based on the return on that investment that we can achieve.

I appreciate that. I think one of the big themes that's going on in industrials is energy efficiency and the returns that come from that. If I look at commercial HVAC, we're kind of seeing that bifurcate from construction. It feels like in your market, just because we're in a cyclical downturn, it's not really being appreciated right now, but compressors can consume 30% or so of energy in a factory. Can you talk about customer paybacks or ROI? Is that better today versus 5 years ago with how electricity price is?

Yes, I think the beauty -- and you're absolutely right that 30% to 40% on average of the energy at a typical manufacturing facility is consumed by the compressor. And when you think about a compressor, also during the 10-year life that it will have, 80% of the cost of the ownership is electricity. So it is very important not only that you sell at the right -- at the time to be able to save energy. And the payback today continues to be less than 2 years. Anywhere, on average, 15, 18 months. So it's definitely less than 2 years. We believe that clearly with a lot of the expansion that we all hear about data centers and how that's going to consume more power, power that it is not in existence, is going to continue to create a bit of a pressure on electricity. And that obviously provides a return of that investment asset to even be potentially less than clearly what we're getting today. So I think it's a bit of what maybe, to your point, commercial HVAC started, I don't know, maybe 10 years ago or call it -- and now more and more customers are realizing, as they look into other energy sources for them to achieve savings, that they realize that, "Oh, yes, I mean, that compressor is consuming a lot of my energy and my facility and I need to do something about it."

Yes. No, I appreciate that. Obviously, cycles come and go. But one, a more secular emerging opportunity for you guys is service. And you're in this process of moving just from more traditional parts business to the care model, where it seems like you guys are effectively like -- it's performance guarantees. Can you just kind of maybe talk about that model? I believe you guys said $300 million in '24 with plans for $1 billion in '27. Any update on how all that's progressing?

Yes. Maybe I'll start with that. So yes, I think you've kind of nailed the kind of the goalposts there. To take a step backwards here, yes, when we did our Investor Day back in November of 2023 or late '23, we kind of put out that $1 billion target specifically around recurring revenue. Just to level-set today, roughly speaking, approximately 40% of revenue is aftermarket to go on the IT&S side, and a subset of that is recurring revenue. So it's a component of aftermarket, really things that are multiyear contractually guaranteed whereby you're getting that kind of recurring annuity flow stream on the revenue side. And yes, as gold standard, we have the care model, as gold standard, the care model or what we call PackageCARE is a risk transfer agreement, whereby we are guaranteeing to the customer a certain amount of uptime. In return, they are essentially turning over all operation and maintenance of that compressor to us as the manufacturer. And in return, we're getting a -- it's usually a 5-year contract on average, is typically what that means. And we're getting a kind of set per month revenue, it's at very healthy and attractive gross margin profile. And when you think about, Vicente said, 10-year life of a compressor, there's multiple care contracts you can typically attach to 1 unit. So for us, this is all about how we can continue to kind of increase our share of wallet with regards to, typically speaking, a compressor, you sell it historically, like you said, the historical model of just parts and lubricants, you're getting approximately 1x of revenue on that over the life of that compressor. Care is really now adding another 1x to that. And what we're really looking to do is how do you continue to attach more offerings to that care model so that you can continue to increase that multiplier on, if you buy a compressor for $100,000, how do we get $300,000, $400,000, $500,000 over that life through increased attachments, whether it be care, whether it be air quality sampling and testing, whether it be the Ecoplant kind of software platform that we've purchased. All of that is now really kind of being bundled more and more into that care model. In terms of the numbers, you're absolutely right, we put out that target in 2023. In 2023, we said approximately $200 million in revenue. We eclipsed the $300 million mark in 2024. We have not given an update to date here as we sit in 2025. But I think the kind of moral of the story is we continue to be very pleased with the momentum we're making. It's also worth noting here that this is now -- what started as a North America compressor kind of based model, this model is now being leveraged across the entire portfolio. And what's really intriguing and exciting to see is that parts of our portfolio, blowers, vacuums, pumps, even like power tools, businesses that historically never would have thought about a care-like model, when you flip it around and say, "Do you have maintenance? Do you have service techs? Do you have recurring maintenance you have to do for your customers?" If the answer to that is anywhere yes, then there's probably some degree of a care model that can potentially exist. So I'd still say it's early days for many of our businesses, but continue to see very good runway. I will tell you this is the single biggest organic growth initiative total company.

Interesting. You guys have talked to, I believe, about 60% gross margin for that care business. On one hand, I would think that, as you guys get more sophisticated in the model and it develops, that would seem positive for the gross margin of the business. On the other hand, I would think that the ability to provide performance guarantees and get that level of gross margin would cause competitors to do a similar approach. And I wonder if that -- some of that margin will be competed away. You mentioned service as kind of a moat. Can you just maybe talk about, is that 60% gross margin sustainable there?

I think we definitely believe so. And let me put it in perspective. I mean even back in -- when we were going to Denver, our gross margins were in the low 30s to the kind of mid-40s, and we think that we can continue to improve that. So it just shows you how we continue to think about ways to improve our gross margin so we can improve the total profitability and keep investing. One of the examples that Vik mentioned, Ecoplant. I mean Ecoplant is now operating at much higher than the 60% gross margin. I mean that one is a purely software solution that we have a 2-way communication with a compressor or a device on a remote basis to be able to fine-tune it for specific needs of energy reduction. So it's just purely software. I mean we used to call it machine learning, we can call it now AI, right? But it's that ability to be able -- and that comes in at 80-plus percent gross margin, because all you're doing is just automatically fine-tuning, and we have definitely the software to be able to do that. So yes, so we're always looking for solutions on how can we continue to have recurring revenue and how we get that 40% that Vik mentioned to be 50%, 60%, and always thinking about becoming very innovative on those solutions.

No. Appreciate that. Maybe turning over to the market a bit. You guys said on the Q2 conference call that July was tracking stable from a trend perspective. Any update or market color on how things are progressing in Q3?

Yes. I think probably not too surprisingly, I don't think things have dramatically changed, is probably the right way to think about it. I think things have continued to be kind of moving sideways. If we think about the major regions, I'll kind of start east to west here for -- just to start somewhere. China or the APAC region, of which China is the biggest piece, China is low double-digit percentage of revenue now as we sit here today. I think the story with China as we've kind of entered in Q2 is things haven't necessarily gotten better, but they also haven't gotten worse, right? So it's been a couple of years of tough sledding there. I think if there's a positive silver lining with China is that when we walked into 2024, we were pretty explicit about some of these large project headwinds in EV and solar and things like that. I guess the good news is that's kind of comped out at this point in time. So kind of moving sideways at this point, but not any real material change.

And we delivered positive organic growth in China as well, so.

Europe has actually probably been the brightest spot in the context of this year. We have seen some pockets in the Western European realm, including India, which we kind of put into our EMEA business, that have been positive growth drivers. And I actually have seen some good momentum across not just kind of the base business, but also in some of these longer-cycle projects that were -- we talked about in the first half, finally seeing -- starting to see some of those come to fruition. Obviously, North America and U.S., this is the area that's probably been, I'd say, for lack of better words, kind of the most kind of wait-and-see and hampered by just what's been going on in the environment with the tariffs. I think, and I'm sure we'll talk about it here, from a tariff perspective, I think the biggest thing for us is we continue to manage, as you would expect, and we'll talk about that from a tariff perspective, but clearly it's just getting to that level of kind of certainty from a customer perspective, right? And there still is continued swirl and things of that nature in terms of where will things settle down and things of that nature, which I think continues to just create a little bit of pause from a customer perspective. So that's the piece that I think everyone will benefit from when there's just a little bit more certainty and then customers can finally get to the point where they can make whatever said investment decision may be. So not dramatically different, quite frankly, than when we exited Q2.

Yes. No, I appreciate that. Maybe starting on -- and just following up on the international markets first where things, it seems like, have been tracking better for you guys versus the U.S. I guess my concern on the international market is that Trump policy and effectively the U.S. pulling back as the biggest buyer of all those goods would make it difficult for those markets to justify new capacity adds because perhaps now they're overcapacitized that their biggest customer is pulling back. I guess when you talk to customers in those markets, it seems like things have been stable, like how has that communication been? And do you think that there is risk some of those could see negative rate of change?

Yes, sure. No, great question. So let me put it maybe in a couple of buckets. One, and we've spoken about these underpenetrated markets that we have, whether think about Latin America or Southeast Asia, I mean Vik talked a lot about China, as you hear. I mean in the past, we never even focused on the Southeast Asia. That is the place that we're putting a lot of focus, whether you think even go to Australia, and obviously, the mining industry is doing actually fairly well and other industries are doing very well. We are in Australia and we're one of the largest shares also in Australia. But when you go to Latin America, obviously, a lot of fairly good growth that we're seeing in Brazil, driven in some cases by some of the expansions that they're doing due to the natural resources. Chile, the same. Peru. So what we -- the way we do it is we operate at this level of kind of the micro level by country where there's actually unique growth vector trends that are happening, and then that's where we put a lot of focus and attention to. And when you think about our market share and being underpenetrated, it offers a lot of opportunities. The second opportunity, big bucket there, or big opportunity for us, is that we are in region for region. So we're very localized and we're working with a lot of local customers. Let's say, let's go to India. I mean India, we work really closely with a lot of the large companies in India to be able to provide the services and solutions that we provide here in the U.S., but we're not dependent on U.S. companies having to apply a lot of CapEx to bring product here, right? So I think that localization of being in region for region, on the fact that we're underpenetrated from a market share perspective, is giving us a lot of focus with the investments that we're making organically, with more salespeople, more service techs, in some cases, even factory expansions that we have done. It's allowing us to be able to continue to see the growth in those regions. So not -- I would say, we're not concerned on that, because there's also a lot of resharing and localization of supply chains in a lot of these countries that I just mentioned.

Appreciate that. Maybe transitioning over to the U.S. market. You guys, for the last -- maybe almost the last year, have been kind of highlighting positive demand indicators. And even all day yesterday at the conference, we're kind of very consistently hearing their sentiment is positive in the U.S., there's optimism in the market, but things really aren't converting. Does that still remain the case kind of for you guys? And what could just kind of cause that to start converging?

It is still the case. I mean as we said on the earnings call, our leading indicators that we use, and I know you hear other companies that use dealer quotations and things like that, I mean we use our own marketing qualified leads that we're generating by talking directly to customers. And that still is actually fairly -- I mean positive and growing. Our earnings call, we said double digit. Now that's not the representation of the entire universe of our products; it's a good portion of the representation. But it's a good indicator that we track by country, by end market, to see the, exactly what you said, the momentum that we're seeing. A marketing qualified lead is not just a customer asking for something. It has been already qualified and it's a hot lead, that then we turn and give it to a sales guy and the sales person will convert that into a sales-qualified lead and then goes into our funnel. And we have a very sophisticated funnel management process that then we track the velocity through the stages. And that's when we talked about seeing the elongation, is because we know very well how long it takes to go from that MQL all the way to the order. We have the historical numbers by stage gate. And now clearly, we see that elongation. I think we continue to nurture those customers that are there. And the good news is that there's just no cancellation. There's just kind of a little bit of a wait-and-see and a bit of an understanding of prices changing or what's going to change here based on the, primarily, the tariff situation here, which is that is the main driver that we hear. We don't hear much about interest rates or -- although that psychologically kind of helps the customer think more better. We don't hear much about the tax depreciation/acceleration. We just hear a lot about this level of certainty that they want to have with the tariff.

Do you -- when you talk to customers, do you sense or feel any change in their regional allocation of capital in that -- because I would think if I look across my companies that I cover, historically, they've been building a lot in China, and maybe they're not building in the U.S. yet, but they're also not building in China either. So I guess, have you -- when you -- have you sensed any sort of shifts from one market to the other?

We're definitely seeing a lot of shifts of made in country -- made in the country. We have a pretty good presence in India, and that is very prevalent. Even also in Latin America, very, very prevalent that the governments are pushing for the local content to be much higher. If you want to do business with a very large oil and gas producer in Brazil, you need to have local content. And the local content gets required by that customer and is now -- even now doubled down by the government. So yes, I mean there's -- that's the benefit of being in region for region, is that we can provide that local content. And the investments are happening, that we see.

That's interesting. Because in some ways, if the whole world goes local for local and made in their respective country, you could effectively have a world with more factories but worse efficiency and utilization.

Potentially.

Could be good for compressors.

Yes, that's right.

You guys have kind of talked about that disconnect between orders and revenue, both on the shorter cycle side with the MQLs, but also on that larger project funnel. I think you called out like robust growth last quarter. Is it -- should you expect that the short cycle piece to converge or turn first?

Yes, it's a good question. I mean, I think still yet to see. I mean that, typically, if things get more certainty, typically, that's the first place you would see it. So I think logically, that's probably a right correlation. But to your point, when you think about our business, let's say, 40% is aftermarket by definition, book/ship, when you look at the balance and the original equipment, we have a pretty good bifurcation there. It's about 70%, 75% that's short, medium cycle, 25-ish percent is longer cycle. So that kind of goes back to the point that we do have a purview into kind of both sides. I think, if there's an encouraging piece to say, I think kind of '24 versus the first half of '25, where we still have seen, particularly in IT&S, positive organic orders momentum, you wouldn't get there without at least some degree of contribution from both sides, right, just from the math itself kind of works itself out. That's not to say that things have necessarily corrected or anything like that, to kind of Vicente's point, and we still do see that elongation. But I think the encouraging part here is at least some of the projects that we talked pretty explicitly on the longer cycle side in 2024 that we just continue to see get no cancellation, they were still in the funnel, but delayed decision-making, for whatever the reason may be, we have seen some of those come to fruition with POs in the first half of the year. So I think that's encouraging. But I would, by no means, say that funnel has unclogged, for lack of a better way to say it.

Yes. I appreciate that. And I very much understand on the long-cycle side the uncertainty. These are big dollar projects. You may be buying things next year and you don't know what the price is. But why is there so much hesitancy on the short-cycle side? Because I would imagine a lot of that's just like replacement MRO-type work. What causes the disconnect there?

I would say it's just understanding in some cases. I mean, I think this year has been a year where price increases and surcharges are very prevalent based on, clearly, the tariffs and the changing of the tariffs. I think customers are just trying to understand what is that price going to be that I'm going to be really paying for. That is definitely number one. And if they can continue to extend it and keep it there by doing a little bit of repair and service solutions, they'll continue to find ways on how they can extend the life of that product, while obviously wait until that moment in time that, okay, I got a clear view here as to how things are transpiring. I mean we think -- I mean, we'll see. I mean we think that a lot of this uncertainty kind of peaked earlier, obviously, in the year. It seems things to be kind of getting more stable in terms of customer thinking about, okay, I think I better understand this now how the situation could be, and globally, it could be -- this is the right number. So I don't know, we're hopeful and optimistic that this will hopefully clear here soon.

Appreciate that. When we look at the U.S. market, is the tariff policy having any sort of competitive impact on the market? I know there's international competitors here. When I look at import data, there's a lot of pumps and compressors from China that are coming. Maybe that's just like a lower tier part of the market anyway. But is there any positive or just material impacts from that?

With the new 232 that -- the derivatives of the tariffs that kind of got implemented in August 18, just a few weeks ago, so again it's still early to see the impact of that. But that really is now, we believe -- I mean we're not immune to that clearly, but our competitive advantage is that we produce a lot of technology here in the U.S. If you think about compressors, we have 2 facilities making compressors in the U.S. If you look at the rest of our competitors, that is not to be seen. Same thing on the blowers and the vacuum. So that in region for region, it is really a very strong competitive advantage that we have. And we're still now trying obviously maneuvering. I mean we clearly have done the math. We know what our bill of material cost increase is versus our competitor bill of material increase is based on these 232 tariffs. So we're playing and understanding that game as to, okay, we know we're competitive. We have always been competitive on technology. We believe that this is providing maybe some competitiveness now on a cost position. And we're just waiting to see a little bit more as to what the reaction is from our competitors and whether we can leverage that as a way to maneuver, obviously, price, we have always been on price, but then also have the ability to take some share.

Appreciate that. Just on the latest 232 going up in August, is there any color that you guys could share just like from a gross tariff impact, like how that could impact Ingersoll?

We haven't shared that yet, so we'll kind of park that for the time being. To Vicente's point, obviously, not immune. I think the way we should think about it is, this is not really -- if you think about it, necessarily intercompany dynamics, meaning we're producing in 1 region and bringing in the U.S. As Vicente said, we're largely in region for region. That piece, it's not 0, but that's relatively the smaller piece. Clearly, we have a global supply chain. So as you would expect, we do have impacts from that, whether it be 232, but then also the India, Brazil, the other kind of components, that kind of time to fruition here. I think in terms of the way that we're managing it, it's not too dissimilar from what you've seen kind of the entire year. So yes, there are, I'd say, some operational items that we are absolutely working through. Now the one thing I'll say is, compared to maybe like 6 months ago where it was largely just a China dynamic and you looked at, okay, get to a certain level, you move source of supply for XYZ widget to another country, well, now every country has that. So that sliding scale, as I say, has become a lot more challenging. And in certain cases, to be very transparent, there are certain things that China just still makes more sense, right, more sense. I think for us though, it's still continuing to mitigate, partially for the operational items, those will just take some time to kind of come to really be baked in. And then the balance will be kind of through the pricing side of the equation, like you've seen. Price for us, we've been very explicit that we are not looking to make margin on the tariffs, so it's really a pass-through. So it's neutral on the EBITDA dollars or bottom line dollars side. But that is slightly dilutive from a margin perspective, so that's no different in that respect. But I think the teams, you can -- taken said actions, including as of late to make sure that we're keeping that equation kind of balanced. So I would say, haven't talked about the dollar amount, but I think the approach is exactly the same as what we've talked about Q1 and Q2.

Appreciate that. You guys, and the industry, has a really good track record on price. Obviously, been good consolidation at the top. And now with potential competitive tailwinds, obviously, that also supports pricing power. So I guess, how have price conversations gone? And is there any just pricing fatigue in the market? Not because of the absolute level of price, but it's just like every 3 months it's coming back and back and back because this keeps inching higher. Just what's the perspective...

That fatigue is a little bit of -- a great way to talk about this uncertainty. But I would say that we sell based on total cost of ownership. And we sell based on the ability to be able to create a good return on investment to that customer on a solution that they're buying. All of our sales reps, they have this calculator, and that's how they sell. So as long as we continue, we are always looking for technology innovation that is going to allow us to maintain that return on investment to be about less than 2-year payback. And that if we can increase the price while maintaining that, we'll definitely do. Clearly, we don't want to be increasing prices without offering a return on investment to that customer in a different way. So yes, I mean there might be definitely some pricing fatigue, I mean that's kind of the shocks that this year has created. But that has also created our ability to be very nimble and pretty agile on navigating that system. And the pricing, the way we do pricing internally, I mean, we have our own -- we developed our own pricing software solutions. And we're now leveraging a lot of these agentic AI and things of that nature, to be able to really become more and more sophisticated on how we can do it and how fast we can do it, how can we navigate and do scrubbing data, to understand competitive market data and compare against our internal data. So I think that a year like this has proven to be a great way for us to continue to improve on how we can actually navigate this pricing dynamic. But again, it has always to be done thinking with the customer. Then can we still generate that return on investment on a total cost of ownership for that customer? That has to be done.

Appreciate that. And then I know, Vik, you're saying the dollar impact is 0. But is there any -- would there be any lag? Or would you guys push through surcharges and kind of be able to sync up whatever that gross tariff impact is in somewhat real-time?

Yes. I mean that's the intent. Obviously, there's always a bit of a lag, quite frankly, whether it be in terms of when tariffs go into effect, as well as even when you do pricing actions. In a lot of cases, you have to give a certain amount of lead time in terms of notification to the channel in a lot of cases. And then even then, there's a lead time between booking and shipment, right? So there's always that kind of, I'd say, timing. The teams do their best job and effort to make sure that they're trying to kind of sync those up, so we're staying real time. We got the question a lot, does that mean you're waiting to see what the competitors do? No, we're taking the actions we think are requisite to make sure that we're trying to keep that equation as balanced as possible.

And then maybe just following up on margins there. From a year-on-year perspective, if I remember correctly, you guys are calling for expansion in the back half of the year after some pressure in Q2. Is that just a function of volumes coming back and being able to leverage that? Is there anything else? And I guess as tariffs go higher, that's obviously just an incremental headwind to the percentage...

Yes. I mean the latter part is very true, so obviously, what's come to bear here. But I think in terms of the back half of the year, listen, we always tend to end the year a bit stronger in that margin profile for a couple of reasons. One, yes, the volume piece of the equation, Q4, just from a seasonality perspective, typically tends to be the heaviest quarter from a volume perspective. With that also comes typically some of your direct material productivity, I2V type things, they follow cost of goods sold. I think some of the other pieces here that -- to point to, call it, a system-wide basis, in the midst of this year, it's hard to see it from the outside in, but as you can imagine, we've taken -- we've had tariff pricing. But there's been also what I would call some of the normal course of pricing that you would typically tend to see. So there's a little bit of that, and that's not uniformly taken throughout in 1 -- January 1. It's taken throughout the course of the year depending on the businesses. I think we have continued to lean in on the cost side of the equation, particularly given this year and taken some prudent cost actions in that respect. And then a couple of things here. One, we continue to integrate on the M&A side. So for example, on the life sciences side of the equation, the ILC Dover acquisition, continuing to see good traction on the integration. Should continue to see some good, I'd say, margin compression as we go through the course of the year. And it's worth noting that Q4, we probably have the easiest comp from a P&ST perspective that you should expect to see. So that doesn't hurt that equation, I guess, is probably the right way to say it.

Well, we're up on time. Thank you guys so much for coming. We appreciate it.

Thank you.