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

We're going to get started again. We are very excited to have Ingersoll Rand with us. We've got Vik Kini, who is the CFO of Ingersoll Rand.

And Vik, as I walk over to you, it's been about 5 years since you closed the RMT. Lot's gone on. I think you had a vision then to be the premier industrial compounder. So maybe what's gone right and if there's anything that you wish you could do better?

Yes, for sure. So first of all, Andy, thanks for having us as always here. It's great to be here. Yes, first and foremost, it is kind of crazy. I think it's been 6 years now since 2020 until now, so we're coming up on the 6 years here very shortly. I think, first and foremost, incredibly proud of kind of the Ingersoll Rand that we've kind of built and developed here over the last 6 years since the RMT. If we think about what the business has executed and operated through to first have completed the merger in the midst of COVID, integrating 2 companies, I'd say, delivering on and exceeding synergy targets. But then really setting up what I would say is a real industrial kind of premier compounder that you've seen solid organic growth momentum over the course of that 5, 6 years complemented by, what I would say, solid margin profile, kind of, obviously, margin profile that's improved over the years, strong free cash flow and then really been able to recompound that into M&A. And so if you think about the last 6 years, we've done -- since the merger, we've actually done 76 acquisitions to date. And they've really been, I would say, global in nature across the entire portfolio. So I think we're really encouraged by what we have built to date. I think it's all underpinned by our kind of ownership mentality. As I think everyone is aware here, all of our employees are owners in the company. And I think that really drives a culture and a mentality of how we can continue to drive the company together, 20,000-plus employees strong kind of moving forward. Now that being said, I feel like it's still early days, right? We're approaching roughly $8 billion in revenue in a $65 billion-plus addressable market. So as far as what are those areas that we can continue to push on, I would say, as much as we're encouraged by what we've seen, I feel like all those areas have continued room for opportunity. So whether it be on the organic growth side of the equation, continuing to push on innovation, demand generation and recurring revenue, which I know we'll talk about. While we've done a great job on the margin front, I think there still are very much areas for opportunity on margin expansion, particularly in areas like PST and the free cash flow side of the equation. We're continuing to look for ways to optimize as much as we're encouraged by the $1.2 billion to $1.3 billion of cash that we've been generating on an annual basis here in the last few years. Are there areas for optimization, whether it be working capital? I'd be remiss if I didn't look at myself and things around tax rate and things like that, of course. So I think we still have plenty of levers and plenty of opportunity moving forward. And clearly, the inorganic side, right? The M&A engine is not slowing down, bolt-on driven. We did, like I said, 16 deals last year. We've already gotten one bolt-on completed this year. And I see no reason why you won't continue to see that momentum continue.

Got it. So Vik, I like having you up here because you're like the owner of the guidance. So like I can ask you about it. And just this is the third year in a row, right, where we're all kind of like seeing some hints of short cycle recovery. But if I look at your guidance, it doesn't look like you're baking much of any recovery and your numbers, maybe you can talk about that. Did you take a different approach this year than past years in how you set your guidance?

Sure. Yes. So I think a couple of things to say here. So first and foremost, I think whether it be Q4 or the second half of 2025, I think we're encouraged by the momentum that we're seeing kind of across the enterprise. Obviously, you've seen organic growth from an orders perspective kind of be on the positive side. I think Vicente mentioned it on our earnings call, for example, in ITS, we saw organic orders momentum across all of our regions from a total year perspective. If you look at the second half of the year, roughly speaking, low single-digit organic orders momentum. And so as we look to 2026, yes, encouraged by that momentum we're seeing. I'd say PMIs being above 50%, albeit for 1 month. We wanted to take what I would call a prudent view from a guidance perspective. And so yes, we said organic growth expectation 0% to 2%, so at that midpoint 1%. So very consistent with that kind of low single-digit kind of momentum we've been seeing for a few quarters. And as far as our guidance, it doesn't bake in what I would call any kind of, I'd say, broader industrial recovery or things of that nature at this point in time. We want to see that kind of materialize a bit more, see a few more months of, what I would say, momentum. Obviously, we want to continue to watch the leading indicators. And hopefully, organic volumes are something that we can kind of revisit as the year goes on, and that's something that's hopefully a little bit of upside opportunity. But yes, I think as we think about the guide this year, I think there was a conscious effort to be a bit prudent in the kind of expectation setting upfront, and that's hopefully something we can revisit here as the year unfolds.

That's helpful, Vik. And I want to delve a little bit more into the like leading indicators you talked about. For the earnings call, you kind of said, look, MQL to order, that's marketing qualified leads for everyone to order is still kind of like a little bit slow. It hasn't really changed much. And in terms of large project timing, it's still kind of like a little bit slow is kind of what I heard. But at the same time, your shipments in Q4 did pick up a bit versus, I think, your own expectations. So is that a sign that customer delays are starting to unlock?

Sure. I mean, I think customer conversations are definitely constructive. I think we'd say maybe the peak of uncertainty is kind of in the rearview. And that every month that transpires thereafter, I think, hopefully, we can say the customer dialogue is getting more and more constructive. As far as the comment around MQLs or long-cycle funnel, from an MQL perspective, I think as we indicated in the call, still healthy from a growth perspective year-over-year. Yes, we would acknowledge that, that kind of elongation in the context of MQL to order is still existent. And from a long-cycle funnel perspective, similar. Funnel itself healthy. Yes, maybe there's still a little bit of elongation in terms of getting the finish line on POs. But in the same breadth here, you did see good project momentum even in 2025. And you saw book-to-bill from a full year perspective being slightly above 1. So we did build a little backlog here coming into 2026. So I think the simple answer here is continue to have constructive discussions. We do continue to see things getting better as that uncertainty kind of continues to be behind us. And I think this is an area where Q4, for example, was just solid execution. Typically, Q4 is a quarter where you see a healthy amount of long-cycle project shipments. Just from a seasonality perspective, Q4 of 2025 was no different. So I think generally, things continuing to play themselves out as we would expect, Q4 was no different.

So Vik, I wanted to ask you because I get this question a fair amount, so I kind of need to ask you. As you know, you're compared to a large European competitor -- compressor-focused competitor quite often. And certainly, other large U.S. short-cycle focused industrial peers, when we look at those peers, at least lately, they tend to have orders in the mid-single-digit plus range, and you guys are kind of low single digits. So maybe give more color why you think your growth is trailing some of these peers? And what do you think could be a catalyst against your growth to be equal or higher than these peers?

Sure. I'll take the first part of the question, at least compared to kind of that larger other peer. I think the simple answer here is there are some product technologies that are not similar between the 2 portfolios, which I think is driving that kind of that wedge. We cap out a certain horsepower range from a compressor perspective, that peer plays in a much higher range, which I think is where a lot of that said growth and at least that differential is coming from. When you look at what I would consider to be the more classical, call it, more small, medium type compressors, whether it be on the legacy oil lubricated or even on the oil-free side, I think you'll see performance to be much more in line even areas where North America and areas where you can kind of measure share and there's some third party, I think those third parties would reiterate and kind of reinforce that as well. So I think from a market performance, whether we look at North America or any of the international markets, whether we look at the product technologies, we actually feel pretty comfortable with where we're operating and where we're executing to. As far as the broader industrial peer set, obviously tough to comment. There's a lot of different end market exposures. We don't have what I'll call classical, for example, data center, aerospace exposure and things like that. But that all being said, I think the second half momentum that we saw, which you did see a little bit broad-based, right? We can talk about fourth quarter here that you saw momentum, not just in the kind of classical short-cycle industrial compression side, you saw good momentum in our Precision Technologies business, which is the niche legacy kind of positive displacement pump business as well as the Life Sciences business, which was actually up roughly mid-teens from an orders perspective in Q4. So I think we're really encouraged by, I'd say, the pockets of growth that we're seeing. And that, like I said, things continue in this respect. Hopefully, there's a little bit more organic volume type of upside that we can continue to see hopefully here as the year plays itself out.

Yes. So Vik, you just mentioned it. Life Sciences is actually your biggest business. It's almost 20% of the company, right? And it was up mid-teens. So I don't have to be very good at math to know that if it continues in mid-teens, you're -- and everything else is flat, you do the high end of your organic range for the year, right? So how do you feel about Life Sciences? Is that kind of momentum sustainable? And where is it coming from?

Yes. So maybe just to level set on the math here for a few seconds. First and foremost, so the comment about mid-teens up on Life Sciences, that's really pertaining to the classical what I'll say, Life Science business within Precision and Science Technologies, which is a component of Life Science. We also then have what I would call the compressors and air compression technology...

I'm not really good at math. That's what...

So no, no, it's just to clarify here that the mid-teens is much more from the Precision and Science Technologies, Life Sciences, but the point is still valid. Very encouraged by what we're seeing there. Our Life Sciences exposure, you've got kind of 3 different components of life Sciences and Precision technologies. You've got the legacy, what we used to call Gardner Denver Ingersoll Rand Medical business, which is kind of more OEM components to medical lab, life sciences, diagnostic tools manufacturers. You've got our biopharma business and then you've got a kind of medical device manufacturing business. And the good news is you're seeing momentum across all 3. They're all playing in slightly different aspects of the Life Sciences business. But they're -- one, I'd say, showed healthy growth in Q4. And I think the expectation of whether you call it short to medium term, I think those trends are still encouraging going forward. So we're very, I think, pleased with the growth that we're seeing on the Life Sciences side. I would also correlate that to some of the margin expansion you continue to see now on the Precision and Science Technology side. As you've seen those Life Sciences businesses grow, you've obviously seen some of the commensurate flow-through come with that, which is why you've seen now margins sustained over 30% for a number of quarters, which we'd expect to continue going forward.

Got it. So I wanted to ask you about your demand by region because you're known as more exposed to regions such as Asia and China, right? I think you said 3 quarters now in a row of positive organic order growth, and you're growing low single digit there. You've got product innovation, you're bringing acquired technology to China. So is it fair to say that at least the underlying China market has stabilized for you guys and then your ability to outperform the market seems like it's improving. So maybe talk about that.

Yes. So maybe we'll just kind of level set on China in general. So first and foremost, China for us is about a 10%, 11% exposure from a total company perspective on a revenue base, actually comparable levels of exposure across both ITS and PST. Now it's worth mentioning that roughly 2, 3 years ago, that number was probably closer to 15%. So yes, you have seen, obviously, China reset a little bit, which is not unexpected given the market in China and things of that nature. Now that being said, I think that team has done a really good job from an execution perspective in what has been a pretty tough macro backdrop. To your point, if you think about kind of what we've seen in 2025, multiple quarters of what I'll call low single-digit organic orders momentum. And this is a market that -- it's a competitive market out there. Obviously, the business there historically has been largely compressor-centric. That's because the roots of our China business is much more on the Ingersoll Rand compressor side of the business. Where you've seen, I think, a lot of that outperformance outgrowth is what I'll say, is solid performance on the compressor side, but then also leveraging what I would say those differentiated technologies that our China business historically didn't have as much access to. So whether that be the blower or vacuum portfolio from the Gardner Denver side, whether that be even relaunching the Gardner Denver compressor series itself, air treatment technology as we bought SPX FLOW and things of that nature and seeing some of those technologies. And then like I said, 76 bolt-ons over the last 6 years, some of those acquired technology being localized. And I think that's where the team is showing nice differentiated performance in what is still a pretty tough market. So yes, I mean, we're encouraged by what that team is doing. The China business is still 10%. It's still a very healthy business, very healthy margin profile. And that business continues to execute well in what is obviously a different backdrop than it was 3, 4 years ago.

Do you think the potential now is different? Like can you grow mid-single digits plus in that business? Or like...

Yes. I mean that's not necessarily our expectation at this point in time. And again, I think it's probably a bit of just one, waiting to see the China market in general, get to some degree of what I would call rebounds like I said. Yes, I don't think we expect it to be back to where it used to be once upon a time, but some degree of sustainable growth. And also just making sure that level setting expectations from a prudency perspective. But that being said, I'd say that team has done a really nice job. And it's also worth noting and probably a question we'll touch upon here that, that team has also done a great job doubling down on the non-China components.

Yes, so let me ask you about that, Vik. So you're up 20% in Q4 in organic orders in the rest of Asia. It's a big number, right? I know it's a small part of Ingersoll, but that kind of growth is difficult to ignore. So maybe talk about that. Should we be paying attention to that? And how big is that versus China?

Yes, for sure. So obviously, it's a smaller piece of the equation. So the non-China pieces of APAC, we're really referring to would be Korea, Australia and Southeast Asia. Would I say, we should be paying attention? Yes, in the context of, yes, it's smaller. Obviously, China is a bigger component of the equation comparatively speaking. But we have mentioned a number of times that there are certain areas of the world that we kind of consider to be underpenetrated from an Ingersoll Rand perspective. And what we mean by that is there are kind of 4 key regions that we've talked about explicitly that we have a presence in, we have had a presence in, but our share in those respective markets, we know is not at the same levels as what you see in more developed markets like the U.S., Western Europe and China. And so those areas would be Latin America, particularly Brazil, or Latin America in general with Brazil being kind of our biggest component, Middle East, India and Southeast Asia. And yes, Southeast Asia, obviously, there's, I'd say, some dovetails to places like Australia and areas like that. So in Q4, I think what you're seeing there is a combination of that focus and some, I'd say, good momentum in certain areas as well as some nice project wins. Obviously, you're not going to see 20%-type growth every single quarter. That's not the expectation. But I do think this is an area much like Brazil, much like India, much like Middle East, where you should continue to see, I'd say, comparative outperformance just because we know our share has room to grow there. And we're making the targeted investments. I think that's also the key part here. So in Southeast Asia, we've been making some very concerted, I would say, commercial investments to make sure that we have the right feet on the street. India and Latin America, commercial investments, where we actually opened 2 new facilities last year for in-region manufacturing in India, our second compressor manufacturing facility; in Brazil, our first-ever compressor manufacturing facility to really just be able to have more in-region, for-region presence, which is very consistent with our in-region, for-region model around the rest of the globe. So I think we're really encouraged. Obviously, Q4, we specifically talked about Southeast Asia or the non-China piece of APAC. But I think we're very encouraged by, I think, the momentum here that we'll continue to see for the medium to long term.

Got it. And just as an aside, when you build all these things out, I think to myself that it could add extra costs. So you're being careful about keeping -- because you have very high margins, as you know, you can get the margins you need in a place like India, for example?

For sure. I think one thing that's important to note here is that, obviously, we talked about a lot of the headwinds and whatnot that existed in 2025, whether it be tariffs and things of that nature, which obviously created uncertainty from a growth perspective, so forth and so on. But I think it's worth noting that from an ITS perspective, for example, still maintained 29-ish percent EBITDA margins, right? So to your point, what we consider to be a very healthy margin profile, that was in the face of, I'd say, some known macro headwinds like tariffs, an environment that didn't, frankly, have a lot of organic volume momentum and we were still investing for growth, right? And you can see that in the SG&A dollars and things like that. And that's a concerted effort, whether it be in areas like that, whether it be for recurring revenue or things of that nature. We're going to continue to make those investments. In fact, we have a requisite amount of investments still baked into, for example, 2026. But I think it also speaks to the ability of the teams to be able to whether it be drive pricing excellence, drive productivity. You saw in our financials here in the second half of the year, we took some very targeted restructuring actions enterprise-wide. And that really continues to be to, I'd say, bolster the quality of earnings, continue to rightsize, particularly back office and things of that nature, while still being able to invest for growth in areas like you mentioned.

For sure. So I want to do the other 2 big regions for 1 second, just in Europe. I think orders were down in Q4, but Vicente mentioned strong growth in Central Europe in '25. And you seem positive for Europe to have some growth in '26. So where does it come from? I know Europe is more of a sustainability market, like is that growing? Like what do you think about that?

Yes. I mean, I think it's a continuation there. So I think from our Europe perspective, encouraged by what was probably over the course of the last 18 months, probably a most stable region comparatively speaking to China and what we saw in North America, seeing good momentum in areas like, for example, France, Italy, Spain, countries of that nature. Yes, sustainability kind of being a driver there. But I'd say also good execution across both short cycle as well as some of the long-cycle project-type opportunities. India is an area that we obviously also kind of manage together with Europe. And India, obviously, it's arguably probably for the last 5 years has been our single best growth region itself, where you've even seen double-digit type momentum in India. Like I said, we've invested in a second compressor manufacturing facility there, and we actually have very good presence in both our ITS and PST businesses. You've even seen inorganic opportunities there. We've done multiple bolt-on acquisitions in India, just given the attractiveness of that market. So I think we continue to be encouraged by what we're seeing there. Would we expect to see dramatically different performance? No, I think it's continuing to be relatively stable in those markets that we played and a continued, I'd say, balanced execution. It's also worth noting, and I know we'll talk about it here probably shortly, the recurring revenue piece of the equation, continuing to see very good traction outside of just the U.S. where that recurring revenue model kind of grew up. So that's what you're also seeing, I think, help bolster not just the top line side of the equation, but also the margins because our recurring revenue model is quite margin accretive. When it's done, it kind of its highest standard. And you're starting to see that pick up momentum in areas like Western Europe and even Asia.

Yes. No, I'll definitely get to that in a second. I'm going to open it up to the audience in a minute. Just rounding on into the Americas, I think you've talked about it being sort of for now a low single-digit grower. But it seems like things are setting up for you guys over there. You talked about pharma bio, maybe reshoring could help you. Obviously, electricity prices are going up, that should lead to shorter paybacks for things like compressors. So why can't you have a little more torque in the Americas? Is there anything holding you back there?

Yes. No. I mean, I think the factors you mentioned, whether it be Life Sciences momentum, reshore or onshoring, obviously, energy pricing being higher. And just to put it in perspective, compressor typically is at the top of the list in terms of energy consumption in any degree of a manufacturing setting, you find yourself up, up to 30% in a certain case, can even be more than that. So I think I'll go back to kind of how we started, encouraged by the trends we're seeing. But we also want to see that continuation, right? And so I think from our perspective, it's just prudency as we kind of come into the year. Is there anything holding us back, per se? No. I think from a capacity perspective, execution perspective, supply chain, no concerns whatsoever from that perspective. We just want to continue to see that momentum build. And obviously, that's an area that we'll hopefully be able to revisit here as the year goes on.

For sure. Any questions from the audience over there?

So just a question on that big peer of yours. They had very strong growth in gas and process in the quarter where you have less exposure. But just curious on sort of market share movements on the larger and small and midsized compressors. You mentioned that you're outperforming a bit in China. And I'm just curious whether you think that you're taking some market share in China on the compressor side.

Yes, sure. So inherently difficult to kind of measure. There's no like empirical third-party or things like that, that measure the stuff. So I'll say, one, the competitive suite that we operate against is great competition, very, what I'd say, prudent rational, very established as well as ourselves. I think from a China perspective, I feel like we're holding our fair share without question. Like I said, I think where we're seeing those pockets of incremental opportunity are some of those differentiated technologies, not just compressor, but around the compressor spectrum where either historically we haven't operated in or historically, we just haven't had those offerings in region. And so yes, obviously, compressors without question is still the biggest piece of our China exposure. And so to even have low single-digit organic, there has to be a contribution from the compressor perspective, right? You can't have compressors going down and the other piece is going up. That equation still won't get to low single digits. So you are seeing contributions from the compressor perspective. I think it's also then leveraging the Ingersoll Rand name, the channel there to be able to leverage a lot of the other different technologies that I spoke to earlier.

A quick follow-up is on replacement demand relative to sort of capacity additions on the larger side in China. I mean what we're hearing is replacement is coming back. The fleet is quite old, but anything growth is basically off the table. Is that how you see China as well?

Yes. I mean, obviously, when you look at kind of China growth in general, it's not what it was. So I think your statement is very fair in the context of at least where demand has at least been trending over time. The good news, though, is like replacement when we have the presence that we have, then also be able to supplement that, not only with the differentiated technologies, but also with the recurring revenue model. We're very comfortable that, that is still an equation and an environment where we can do quite well in. And then obviously, yes, if true, true growth, greenfield or otherwise comes back in the future, listen, we're well poised to be able to execute there. But the concept of just being able to execute on replacement of older technology services through the aftermarket and hopefully convert the recurring revenue where possible, that's without question, I would say more in the control what you can control, almost self-help perspective of continuing to perpetuate where we see a lot of our opportunities, particularly on the recurring revenue side.

So let's talk recurring, Vik. So you're up to $450 million in 2025, $200 million a couple of years ago. Your target that you said at your Investor Day a couple of years ago was $1 billion for '27. So it's a big number versus where we are last year. So I mean, do I just think big step-up in '26 and '27 when we get there? How do I think about it?

Yes. So let me just kind of level set here that it was a little over 2 years ago at our Investor Day late 2023, where we kind of rolled out the recurring revenue initiative. And we said at that time, squiggle $200 million of recurring revenue, but it was really a model that existed I wouldn't say 100%, but it was -- the preponderance was in the kind of legacy Ingersoll Rand North America compressor side of the business, which is really where this model grew up. And we saw a meaningful opportunity, the numbers you kind of outlined there, $1 billion in 2027. And we kind of outlined it and kind of laid it out at that point in time. And if you kind of flash forward here, we've eclipsed $300 million in 2024 and now eclipsed $450 million in 2026 (sic) [ 2025 ]. So I think the momentum from having gone from roughly $200 million in 2023, and by the way, it was like $100 million, not but a few years before that. To go from $100 million to $450 million plus in a handful of years, I think it speaks to the power of kind of this model. I think what we're really encouraged by is twofold. One, the fact that you're now seeing this have global adoption, right? So yes, of that $450 million plus, is North America compressor still the biggest piece of that? Of course. But is it at the same percentage as what it was? No. Obviously, you've seen the rest of the portfolio start to adopt the model quite nicely. You're also seeing it outside of just compressor-specific technology. So blowers, pumps, even parts of our Life Sciences portfolio that have parts or service needs, there's a care or care-like model that can be adapted. So I think we're incredibly encouraged by what we're seeing. As far as the '26 and '27, obviously, we haven't guided on specifics there. But do we expect to see, I'd say, a continued ramp as we move through the next few years? Yes. I think one thing that we mentioned on the call that I think is a nice milestone that we've hit is we have what we said at the end of 2025, $1.1 billion in the backlog or $1.1 billion in what we'll call the bank. And what that really means is $1.1 billion in future contracts that we already have kind of inked. So that by no means is the endpoint that's a nice solid building block as we know execute now for the next couple of years. Obviously, we expect to see continued momentum and ramp on in-year orders and as we go into 2027 and as expected, a nice ramp as we move from the $450 million. But if you look at even the sequential momentum we've seen, you've seen solid double-digit growth here, which we would expect to continue here moving forward.

Got it. That's helpful, Vik. And then I think one of the ways that you're getting there is by focusing on the digitization of your products. So maybe given AI is a dominant theme right now in industrials, how are you using AI to improve your deliverables such as improving the connectability and efficiency of products?

Yes. I mean, exactly. I think when you think about some of the kind of megatrends here, AI obviously has strong applicability in our space, and that's kind of going for more historical kind of mechanical industrial assets to more smart connected industrial assets. And so yes, using AI to the connectivity, the preventive maintenance, kind of those predictive models, how can we use AI embedded in our machines to actually drive that type of efficiency and whatnot. Also just from an efficiency of our commercial force, right? How do we actually make doing business with Ingersoll Rand, how do we equip our commercial teams to be able to execute, deliver quotes in a much more faster real-time manner, you're seeing applicability on both sides. So I would say, one, from a true product technology perspective and one from just what I'll call it a sales and commercial efficiency perspective. Of course, things in the back office or like that, of course, we'll continue to focus on that. But I think we're hyperfocused on how do we improve the connected aspect of our machines and then sales force efficiency, which are still, I would say, early days, but areas that we are hyper focused on from an AI perspective.

Got it. And then, Vik, with the understanding that you do have high margins, like when I look at your price versus cost, right, to look at tariffs, in particular, it's been kind of holding you back a little bit on the margin side, as you know, price cost neutral in the first half of '26, positive in the second half that leads to margin expansion in the second half. But maybe talk about why there does seem like there's a lag for you guys versus maybe some other short-cycle industrial peers? And how do we feel about the risk that commodity prices are still all over the place? Can you price that?

Yes, for sure. So I think as far as the price cost or the tariff equation, I think we've been pretty transparent about the fact that a couple of things. One, we weren't looking -- we're not looking to make margin per se on tariffs, right? We've been very clear that where we have to take price, it's really meant to offset tariffs from a one-for-one perspective. Other than a little bit of timing aside where, yes, there are situations where tariffs hit you a little bit more kind of real time. And then when you have to go take price increases, you have to get the channel a certain time of notice and thing like that. So there's maybe a little bit of a lag there. We indicated that even as we move into Q4 of last year. And I'd say the team has actually executed quite nicely. You actually saw us kind of deliver at the higher end of both our revenue and our earnings expectations in Q4 specifically. So I'd say, yes, maybe a little bit of lag, but I'd say even that the team has done a nice job executing. As we move into 2026, I think the simplest way to think about it here is those pricing actions have largely been taken, as we've indicated really in the back half of this year. So the fact that price is offsetting tariffs in the first half, that's a fair statement. I would call it price cost dollar neutral. Obviously, that is a bit of a headwind to margins. And then as we lap that tariff equation moving to the second half of the year as well as, I'd say, a combination of maybe some targeted normal course in-year pricing actions that will materialize more in the back half of the year, some of the normal productivity that you would expect, which typically follows your cost of goods sold and seasonality, which tends to be a little bit more back-half weighted as well as some of that restructuring we talked about materializing through, probably partially offset by some of the commercial investments for growth can make. That's that equation what brought, I'd say, second half margin expansion. But I think the team has done a really nice job executing. It's been a very, for lack of a better way to say this, dynamic environment in the sense of tariffs. And I think the team has executed quite nicely in terms of taking the requisite actions, moving with pace. And yes, generally speaking, a little bit of timing aside, you've seen those match up pretty nicely.

So Vik, we already talked about, again, ITS, 29% margins, nothing to snuff at, but it's been kind of flattish for a while, right? And I think it's just easily because organic growth has also been flattish. So if you start to see better organic growth, let's say, starting in the second half, can you get sort of normalized incrementals of 35% to 40%? Or should maybe you see even more torque than that? You've been doing a lot during the time you mentioned some restructuring. You're always doing I2V. So can you get inflection in margins that maybe is better?

Yes. So like you said, I mean, I think it's probably worth noting here that 29% margins despite all the headwinds we've mentioned here, it speaks to the fact that the team has been, I'd say, very deliberate and focused on maintaining margins despite some known headwinds that have been moving against us the last few years. So very encouraged by what the team has done there. As far as to your point, yes, with -- I would say, organic volume, if you see any degree of kind of torque on that side or return to kind of organic volume growth, as you indicated, the concept of, what we'll call it, 30% to 40% incrementals and it will play across that spectrum, depending on month and quarter and things like that, yes, there's no reason that those types of numbers aren't possible. Can you see potentially higher than that in certain periods? Perhaps, I'd say that, that's -- you've seen that before. So there's no reason to say you couldn't see that again. But I do think you're going to continue to see prudent reinvestment. For us, it's about maintaining that organic growth momentum for not just a quarter or 2, but sustainably over the medium to long term. So we are continuing to be very focused on the requisite investments, whether it be a lot of the areas we talked about, innovation, R&D, feet on the street in those underpenetrated markets, commercial resources, even our developed markets and the recurring revenue model, we're going to continue to reinvest in that. So you saw that even in '25 in an environment where you obviously do not see as much growth, but we're committed to that kind of reinvestment in the business. So I think the answer here is yes, normalized incrementals absolutely should be part of the equation. But we also want to be very conscious of making the reinvestments from a growth perspective that we need to make.

Sure. And so PST, you finished just over 30% EBITDA margin. You're guiding towards triple-digit margin expansion in '26. You seem pretty optimistic actually about margin expansion for '26. So -- but I know you're aware, you still have a mid-30s P&ST adjusted EBITDA margin target for '27. It does seem like kind of a big jump. So well, can you get there?

Yes. I mean, so a couple of things here. I think we're really encouraged by what we've now seen. It's no secret that PST margins, if you look kind of from the merger up until even kind of '24, '25, it had gone from roughly 30% to 30%. And if you look under the covers over that time frame, there were a lot of moving factors, COVID, you saw some upticks there, but then you saw a downturn in the legacy IR Medical business, which came with some healthy flow-through. You've seen the Seepex business, which we knew was coming in 15% EBITDA margin. That business now plays around fleet average. So despite the fact that you went from 30% to 30%, there were some known headwinds in there, and the team has done a nice job offsetting that to still stay at 30%. Now to your point, how do we kind of sustainably kind of get this now moving forward into that kind of mid-30s range? A couple of things here. One, as you saw, I think, good momentum here as we move through 2025, right? We indicated that a couple of aspects here. As you get, I'd say, IRX and kind of some of the I2V and kind of just some of that blocking and tackling mentality really embedded within not just the Precision Technology side of the equation, but also the Life Sciences side, particularly the ILC Dover acquisition, that was going to be a catalyst for opportunity, one. Two, Life Sciences growth just in general. Obviously, we talked about the orders momentum we saw in Q4. This is a part of the business we expect to see, I'd say, better than the rest of portfolio growth moving forward, and it comes with, I would say, a healthy margin profile as well. And then three, we talked about restructuring and some of the productivity measures and things like that. That's not just an ITS comment, right? So in the second half of the year, when we took, for example, targeted restructuring, that was enterprise-wide, ITS, PST as well as even the corporate enterprise. And so I think those will all be catalysts here. But I think the simple answer here is, again, we're being prudent on the growth expectations. I think incremental organic volume will obviously be an even a kicker on top of that, for lack of a better way to say that, and even things like recurring revenue. Again, very small, comparatively speaking, in PST versus ITS, but even starting to see some, I'd say, early wins there and some momentum in parts of the portfolio that historically never thought about recurring revenue. I think that will also be a help as well.

It's helpful, Vik. And so you ended up having a good year, I think, in M&A in '25, 16 acquisitions, $275 million of acquired revenue. So we know you're guiding to, again, 400 to 500 basis points of annualized inorganic revenue for '26. But maybe characterize the environment in terms of the pipeline you have from -- we always -- we sit here together in February, like how does it compare to last year? Is it the same, better, worse? How do you think about it?

Yes, I'd say it's very comparable. And the reason I say that is our M&A engine and model isn't necessarily predicated on waiting for third parties to come to us and bankers and whatnot. Our deal model and the way we kind of run it, 90% of our deals are sole-sourced, right? So we are typically going out and cultivating deals. A lot of these are multiyear kind of duration in terms of the cultivation of these assets. To put this in perspective, last year, we did 16 bolt-on acquisitions kind of at the low end of the 400 to 500 basis points, but still very comfortably kind of executing to what we expected. As we sit here today and when we did earnings last week, we announced, one, we've already done one bolt-on in January, actually in our Life Sciences business, a nice complementary bolt-on to our kind of parts of our legacy kind of Ingersoll Rand Medical business. Two, we have 9 additional deals under LOI. And I would say those 9 are very much down the middle of the fairway, smaller bolt-on type deals. Three, we have roughly over 200 types of assets in the funnel itself, which indicates the health of said funnel. And I would point to the fact that it's a very good equitable mix across the entire portfolio. Otherwise, to say, we're not diverting capital to just one business or another. You're actually seeing a good healthy mix across the business. Just to put this in perspective, the 16 deals we did last year plus the one we just did in January, so the 17, 4 in the Life Sciences space. So you're starting to see some good momentum there, but that also means 13 between the kind of core ITS and Precision Technologies businesses. So a good equitable mix. And I think as we think about 2026, our expectation right now is you should probably expect to see something very comparable, which is on 2025. So smaller bolt-ons. Yes, I know on the earnings call, we did indicate that there's a couple of maybe slightly larger bolt-ons, maybe $1 billion-ish type purchase price. But don't think of those as outside the norm. Those are still very much within, I'd say, the wheelhouse of compressor blower, vacuum pump, life sciences kind of core technologies. They might just be a slightly larger size, but very comparable to what you've been seeing. And the other thing to note here, and I'll reflect back on the last year. Not only have we seen the good momentum, but I think you continue to see us do it from a very prudent perspective. The blended average of those 16 deals, roughly speaking, 9x pre-synergy adjusted EBITDA purchase multiple, return profiles in the double digits, mid-teens, like you've seen us do before, the ability to reduce that purchase multiple, multiple turns. Nothing is different. Obviously, I think this year, we would expect to see comparable dynamics.

Vik, I think to your point, '25 was kind of about getting back to your roots in terms of M&A because the year before, you did ILC Dover, right, which was larger. And I think I sometimes in covering industrials for a long time, worry about like the law of large numbers for companies. You get up to a size, you start competing with private equity and then you do a big deal, and it's harder to sort of see what's going on in a big deal. So I probably asked you this before, but sort of now that you're further away from ILC Dover, any sort of thoughts or lessons learned? And was it really just a one-off around space suits and there's still...

Sure. Yes. I mean, I think, first and foremost, maybe to level set high level. One, we said that an ILC Dover size type acquisition or something a little bit larger every few years, no concerns whatsoever about being able to execute on something like that. In between, you're going to see us kind of be right down the middle of the fairway in terms of the smaller bolt-ons. And that's exactly what you saw in 2025. As far as lessons learned and things like that, yes, the space, as we talked about it kind of at length here, that dynamic is behind us, right? And so I think what we're more focused on here is if you look at that business, particularly from a Life Sciences perspective, a couple of things, one, the business has been restructured. It's now being run exactly like the rest of the enterprise with new GMs kind of running top to bottom, no matrix P&Ls, things of that nature. You've now gotten good foothold on, I'd say, some of the kind of key aspects of IRX demand generation, things of that nature, the productivity equation. The business themselves, we talked about the order rates in Q4. So we're encouraged by the momentum we're seeing in the Life Sciences side. And then the other piece here is -- and I think one of the parts of the original thesis of the deal that very much is still playing itself out is that now we have a very established, what I'll call, true life sciences beachhead, that's $600 million, $700 million in revenue that now you can look to start doing that bolt-on routine that you've seen on the ITS and pump side of the equation historically. And like I mentioned, we've done 4 now bolt-ons. By the way, private -- largely from private ownership, sole-sourced the economics, whether it be purchase multiples or return profile look very similar to what you've seen on the ITS or Precision Technology side. So yes, I'll say a lot of that noise is kind of behind us that you referenced. And more importantly here, I think we're encouraged by what we're seeing going forward as well as not just the organic side, but also that ability to compound from an inorganic side as well.

So we're out of time, but let me ask you this for 15 seconds because I just should ask you, what are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years?

Yes, real quickly here. I think we talked about AI, so I won't belabor that one any further. The other one is just energy efficiency, right? When you think about a compressor in any degree of manufacturing setting or whatever it is, it's at the high end of the list in terms of energy consumption and things like that from a total cost perspective, typically up to 30% in terms of the energy being consumed. In certain cases, it can be even higher than that. So continuing to see energy efficiency, how do we continue to show good returns for our customers, that's going to continue to be, I'd say, a focal point. And so that is obviously probably the single biggest buying criteria. And then how do you service it, frankly, through the aftermarket and recurring revenue.

Awesome, Vik. Thank you very much.

Appreciate it. Thank you.