Ingersoll Rand Inc. Q2 FY2025 Earnings Call

Hello, and welcome to the Ingersoll-Rand Second Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, please press star 1 on your telephone keypad. I would now like to turn the conference over to Matthew Ford, Vice President, Investor Relations. You may begin.

Thank you, and welcome to the Ingersoll-Rand 2025 Second Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations, and joining me this morning are Vicente Renal, Chairman and CEO, and Vic Kinney, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon, and we will reference these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today. Before we start, I want to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward-looking statements on slide two for more details. In addition, in today's remarks, we will refer to certain non-GAAP financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with GAAP in our slide presentation and in our earnings release, both of which are available on the Investor Relations section of our website. On today's call, we will review our company and segment financial highlights and provide an update to our full year 2025 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow for time for other participants. At this time, I will turn the call over to Vicente.

Thanks, Matthew, and good morning to all. Beginning on slide three, with our strong start in the first half of the year, we're raising our full-year guidance on revenue, adjusted EBITDA, and adjusted EPS. With first-half organic order growth of low single digits, a booked bill of 1.06 times, and a total backlog increasing by 16% since the end of 2024, we remain confident in our full-year outlook. We continue to focus on controlling what we can control, staying agile, and leveraging IRX in what remains a very dynamic environment. On slide four, we continue to lead in sustainability and achieve strong financial performance while supporting the planet, our community, and employees. Our 2024 sustainability report outlines our commitment to innovation that benefits customers, improves efficiency, drives new opportunities, and delivers consistent shareholder value. For the third consecutive year, we were ranked number one in North America and globally in our industry on the Dow Jones Best-in-Class Indices, and we placed in the top 1% of the Corporate Sustainability Assessment. Additionally, Inge Soran earned a spot on CDP's A-List for the second year in a row, recognizing our global environmental leadership and transparency. We strongly believe that a combination of our ownership mindset and creating a great place to work is a true catalyst for long-term performance. And that long-term performance to date has driven approximately $600 million of value creation for our team through our employee apathy grants since the Garner Denver IPO. Moving to the next page, our value creation flywheel remains a central driver of our success, and our company's culture of an ownership mindset underpinned by IRX delivers long-term value creation and strong cash flow. We continue to leverage this durable free cash flow through our capital allocation strategy, prioritizing M&A, and focusing on high-return investment. Since our last earnings call, we have announced two additional transactions, adding approximately $90 million in annualized inorganic revenue. We have now closed on 11 transactions this year, totaling over $200 million in annualized revenue at a 9.5 times pre-synergy EBITDA multiple. These results are a great start towards achieving our annual target of adding 400 to 500 basis points in inorganic revenue acquired. And on top of that, we have another eight deals under current LOI. Over the past five years, we have completed 70 transactions, with approximately 90% of those deals being sole source, largely coming from family-owned companies. Through each transaction, we continue to improve upon the process we have built for this incredible M&A flywheel. but we also stay humble and learn more with every transaction. I'd also like to point out that since the closing of ILC Gover just over a year ago, we have continued to compound value for our shareholders by deploying approximately $650 million to acquisitions. This capital was deployed across 20 acquisitions, adding over $300 million in annualized revenue at a 9.5 times pre-Synergy adjusted EBITDA purchase multiple. These acquisitions have been spread out across all of our growth platforms, adding attractive technologies in attractive end markets, continuing to turn our value creation flywheel, all while leveraging our balance sheet by 0.3 times, creating room for future M&A. Moving into our recent acquisitions, Lead Fluid is our first step towards building our new life science platform. We're excited about this acquisition as it brings two things. First, advanced peristaltic pump technology, which addresses a previous gap in our comprehensive pump portfolio. And second, it helps broaden our geographical reach, as our live science platform is currently underpenetrated in Asia. It is important to note that we have another bolt-on deal under LOI, which will continue to broaden our live science platform, and we expect that transaction to close within the next few days. Another acquisition to highlight is Thermomechanica Industrial Compressors,

which is a core bolt-on for our compressor business.

Both lead fluid and Thermomechanica were completed at a low double-digit pre-synergy adjusted EBITDA purchase multiple. And we expect these transactions to meet a mid-teens ROIC by the end of the third year. I will now turn the presentation over to Vic to provide an update on our Q2 financial performance.

Thanks, Vicente. Starting on slide six, orders continued their strong start, up 8% year-over-year with the book-to-bill of 1.03 times. Sequentially, from Q1 to Q2, we saw 3% order growth, as well as a mid-single-digit increase in backlogs. As Vicente mentioned, compared to the end of 2024, our backlog is up mid-teens. We are pleased with the first half organic order performance, which is up low single digits. Aftermarket revenue finished at 37% of total revenue, which is up 100 basis points year over year. And the second quarter finished largely in line with expectations for revenue, adjusted EBITDA, and adjusted EPS, despite the dynamic macro environment, which demonstrates our ability to continue to execute well. The company delivered second quarter adjusted EBITDA of $509 million with an adjusted EBITDA margin of 27%. The year-over-year decline in adjusted EBITDA margin was driven primarily by the flow-through on organic volume declines, as expected, the dilutive impact from recently acquired businesses, the dilutive impact of tariff pricing matching tariff costs one-for-one, and continued targeted investments to drive organic growth. Corporate costs came in at $35 million for the quarter. Our Q2 adjusted tax rate was 23.6%, and adjusted earnings per share was $0.80 for the quarter, which on a two-year stack is up 18%. In the second quarter, we recorded both a non-cash goodwill and asset impairment. These adjustments have no effect on our adjusted earnings or the underlying operational performance of the business. We provided detailed information in the 10Q, which was filed yesterday, but I'll take a moment to provide some commentary. The impairments were driven by two major components, the high-pressure solutions business and ILC Starting with the high-pressure solutions business, we wrote down the minority stake we retained when we sold off the business. This write-down was due to changes in the revised long-term outlook driven by the upstream oil and gas market. And specific to ILC Dover, first, we had a change in the long-term outlook for our aerospace and defense business due to reduced expectations for business with a certain customer that resulted in an impairment. Second, while our long-term forecast for the biopharma business remains robust, we did record an impairment. This impairment was driven primarily by market-based inputs, such as an increase in the discount rate and contraction of peer market multiples. And finally, to a lesser extent, we recorded an impairment related to the IOC Dover trade name due largely to the above stated factors. Given the IOC Dover impairments, I would like to comment on our disciplined approach to M&A. We have a holistic approach that includes comprehensive diligence appropriate for the transaction, as well as negotiated representations and warranties. In the IOC Dover transaction, these reps and warranties were backed up by insurance, and we have filed a claim under that policy. I just want to reiterate our conviction in the long-term prospects of our life sciences business, which remains unchanged, and we believe that ILC Dover will play a key role in long-term value creation. Finally, we remain disciplined in our approach to M&A, and as a reminder, year-to-date, we have acquired 11 companies at a pre-synergy multiple of 9.5 times. On the next slide, free cash flow for the second quarter was $210 million dollars, which was down year-over-year due primarily to the timing of bond interest payments. Year-to-date, free cash flow remains robust, up 13 percent year-over-year. Total company liquidity is currently $3.9 billion, underscoring the strength of our balance sheet and providing continued flexibility to pursue value creation opportunities in what remains a dynamic market environment. Leverage for the quarter was 1.7 turns, which was a 0.3 turn improvement as compared to the prior year. And specifically within the quarter, cash outflows included $500 million deployed to share repurchases, as well as $47 million to M&A and $8 million for our dividend payment. The $500 million in share repurchases made during the second quarter represented approximately 6.1 million shares at an average purchase price of $81.35. And as a reminder, we are still targeting up to an additional $250 million of share repurchases for the balance of the year.

I will now turn the call back to Vicente to discuss our segment results.

Thanks, Rick. On slide 8, second quarter orders for ITS finish up 7% year-over-year and up 5% sequentially from Q1 to Q2. Book-to-bill was 1.05 times. The segment delivered organic order growth in the low single digits, making the second consecutive quarter of positive organic order growth. Revenue finish up low single digits. Adjusted EBITDA margins declined year over year, driven by the flow through on organic volume, the expected diluted impact from recently acquired businesses, the diluted impact of tariff pricing matching tariff costs one for one, and continued commercial investments for growth in the business. Moving to the product line highlights, compressor orders were up low single digits. Industrial vacuum and blowers' orders were up high teens. The power tools and lifting orders saw a minimal decline of low single digits. On a regional view, we saw orders in America's up high teens. EMEA, up high single digits, and Asia Pacific, up low double digits. It is important to note that we saw organic order growth in China, which reflects the resilience of our team, the utilization of IRX, and the effectiveness of our demand generation initiatives. In our innovation in action, the new Compare Ultima oil-free compressor product is truly a breakthrough offering, delivering a 14% improvement in energy efficiency. This new compressor has an optimized design with a fully integrated air-end drive that eliminates the need for a gearbox, reducing friction and increasing reliability and serviceability. Launched initially under the Compare brand, this product exemplifies Ingersoll Rand's multi-channel, multi-brand strategy as this technology will be launched under other brands and across the globe. Turning to slide nine, Q2 orders in PSE were up 13% year-over-year with a book-to-bill of 0.96 times. Important to note that for the first half of the year, book-to-bill was above 1 at 1.02 times. Organic orders were down 5%, but came in large with expectation. In the prior year, we saw some larger loan cycle orders, which were not expected to repeat in the current year. Excluding these large projects, organic orders were up low single digits. Revenue finish up 17% year-over-year, driven largely by M&A. PST delivered adjusted EBITDA of $170 million, which was up 14% year-over-year, with a margin of 29.5%. Adjusted EBITDA margins finished in line with expectations, improving 40 basis points sequentially and are up 190 basis points over the past two quarters. For our PST in action, we're highlighting the EVO series electric diaphragm pump. This breakthrough technology sets a new benchmark, delivering a 15% improvement in energy efficiency over previous technologies. It is also designed with an ergonomic, single-sided diaphragm for easier maintenance. In addition, this product provides us with a perfect platform to launch the AeroProtect, which is a care-type solution similar to our offering on compressors, designed to maximize customer uptime and minimize costs while increasing recurrent revenues. As we move to slide 10, we are raising our guidance on total revenue, adjusted Vita, and adjusted EPS. As highlighted on the right-hand side of the page, we're increasing total revenue driven by M&A and FX, which is partially offset by a reduction in tariff-related pricing. It is important to note that the change in organic revenue is solely based on a reduced tariff pricing assumption, which has no impact to adjusted EBITDA or adjusted EPS. Given that the tariff landscape will remain fluid due to the introduction of new trade agreements, we have included an appendix slide detailing our underlying assumptions incorporated into our latest guidance. We have raised our adjusted EBITDA midpoint to $2.13 billion, dollars matching the top end of our previous guidance we have also increased our adjusted eps to three dollars and forty cents at the midpoint which is up six cents or two percent from the midpoint of our previous guidance for the rest of the component of our four-year guidance we anticipate our adjusted tax rate to be roughly 23 percent net insurance expense to be about 220 million dollars and capex to be around 2% of revenue. We have updated our share count assumption of approximately 403 million shares which reflects the impact of the 500 million dollars in share repurchases made during the second quarter. Our guidance excludes the effect of any additional share repurchases or M&A which may happen later in the year. At the bottom of the slide we have added commentary regarding our own internal indicators we track. which continue to show positive signs. MQL remained up double digits in the second quarter with continued momentum in July. Large long cycle funnel activity remains robust, with approved projects continuing to progress through the decision-making process. While the macro environment remains dynamic, business conditions remain stable, and were encouraged by the organic order growth and robust book-to-bill we saw in the first half of the year. We continue to focus on controlling what we can control, and our teams remain resilient and are executing very, very well. We remain committed to leveraging our robust balance sheet to strategically deploy capital and drive value for our shareholders. Finally, on slide 11, as we wrap up this portion of the call, I would like to highlight that we remain nimble. and are prepared to pivot in what continues to be a dynamic global market environment. We will continue to utilize our strong balance sheet to strategically allocate capital, ensuring sustained, durable value creation for our shareholders. Our capital allocation strategy remains unchanged, and we will continue to be disciplined in our approach to M&A. To our employees, I want to thank you again for your part in delivering another strong quarter. Remain focused on controlling what you can control, and stay agile through the use of IRX. With that, I will turn the call back to the operator and open it for Q&A.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question and one follow-up. Thank you. Your first question comes from Mike Halloran with Baird. Your line is open.

Hey, good morning, everyone. Good morning, Mike. Hey, so maybe we can just talk a little bit about how you see the demand cadence, order cadence play out in the back half of the year. I know you saw sequential improvement, 1Q to 2Q. How did that track through the quarter and into the start of the third quarter? And what are you assuming guidance from a seasonality or improvement perspective as we work through the back half of the year?

yeah mike so um i mean as you know we don't we don't typically guide uh orders externally however as we have uh historically said this is a business that tends to be around you know book to build one on a full year basis and you know we saw a pretty good start of the first half of the year with a book to build of 1.06 so that kind of sets uh well for for the second half in terms of the backlog that we have provided there uh you know in the second quarter in terms of continued momentum, we actually saw a fairly stable continuation throughout the quarter. Nothing to discern in terms of declines, but it was very consistent as we have seen historically in a typical quarter. And that also continued here in the month of July. So I would say that that kind of bodes well. The second quarter, what we also saw is continuous strength in kind of the large loan cycle orders, which was, you know, primarily the driver of the organic quarter growth, I'd say, you know, particularly here in the ITS side. And, you know, we expect these orders to have a good impact here as we go into 2026 revenue, so kind of building up on that backlog already. But maybe the last point to highlight here in terms of, Mike, in terms of the underlying demand, I mean, as we pointed out, you know, ITS, two quarters of positive, order growth, which is good. And PST, if it wasn't for the long cycle comp that it was really related to hydrogen orders last year, not this year, we will be kind of positive as well within

the quarter. Thanks for that. And then maybe a somewhat similar question on the margins. If I look at what's implied in the margins back half the year, a little bit of a step up, maybe just walk through the puts and takes, you know, why to step up in the back half of the year. Is it seasonal? Are there other factors associated with it?

Yeah, Mike, just a sec. I'll take that one. So, I think it would be fairly consistent with kind of how you've seen prior years. So, you know, just a couple things to point out. One, definitely seasonality. I think the cadence of revenue and earnings is very consistent in terms of our guide for 2025 is what you've seen historically. And so, you know, with the increased revenue profile in the back half of the year, you typically see some of the flow through come from that, not just on the organic volume and the pricing side, but then some of the productivity initiatives like I2V and things like that that follow volume. The other thing I would say is the continued integration on the M&A side, whether it be the bolt-ons as well as kind of, as we've talked about for multiple quarters now, the ongoing progress on the ILC Dover side. And it is worth noting that particularly in Q4 on a year-over-year basis, our PST business probably has their easiest comp, comparatively speaking, which obviously kind of helps factor into that. So, again, I would point to the normal kind of drivers and factors you would typically see that go along with seasonality.

Thanks, guys. Appreciate it. Yep. Thank you.

The next question comes from Julian Mitchell with Barclays. Your line is open.

Hi. Good morning. Good morning. Maybe just wanted to start with the sort of phasing within the second half of the sales and EBITDA step up that Vic just highlighted. I think historically, maybe just to start with, you know, your EBITDA is about 26% of the year in Q3. So based on your full year guide, it's a sort of $5.50-ish number for Q3. Is that roughly the right way to think about it in terms of that Q3, Q4 phasing?

Yeah, Julie, let me start with that. So obviously, we don't provide quarterly guidance, but what I'll say is this. First and foremost, I think the phasing of revenue and EBITDA is largely consistent with both our prior guidance and prior years. So we'll start there. And then as you think about, you know, the back half of the year and kind of maybe to put a little bit of a finer point on the second half, particularly as far as, you know, the moving parts. First and foremost, we do expect, obviously, second half to be better than first half. But, again, that's very consistent with what we put out in our prior guidance. And I think the organic orders growth and book-to-build that Vicente kind of referenced earlier, you know, through the first half of the year supports that view. As far as kind of the large moving parts, let me kind of break it down for you a little bit. But in the second half of the year, we do expect organic volume growth to be, you know, down in the low single-digit range, which compares to being down in the kind of mid-single-digit range in the first half of the year. And on pricing, we expect pricing to be in the, let's call it 3.5% to 4% total range with a relatively even split between base pricing and tariff-related pricing. And it's worth noting that that base price of about 2% is very much in line with what we've always indicated is a normal level of pricing that we should be able to, you know, generate in the business. And then on the margins, I think it's exactly what you would expect. We do expect to see sequential margin improvement with Q4 kind of being the high watermark for the year.

That's very helpful. Thank you. And when we're thinking about the organic sales sort of year on year, you know, total company, let's say, I think the first half was down about three and a half percent year on year. The full year guide is sort of minus one. So you're up maybe, you know, low single digit in the second half year on year on organic sales at your guide midpoint. Does all that growth come in the fourth quarter? Or, you know, do we see sort of flattish organic sales in Q3? And is that the same for both segments?

yeah let me let me start there i i do think q4 will be a little bit of a healthier growth than than q3 um you know so q3 you know slightly positive q4 slightly a little bit better than that is kind of the way the ramp will work between q3 and q4 uh the way that you outlined obviously the first half and the second half expectations is is largely correct and consistent with kind of what i what i said before and then you know your your second part of your question in terms of the two segments, what I would say is not dramatically different between the two segments. You know, I think, you know, you've seen fairly consistent performance, you know, in terms of the volume side of the equation in the first half for ITS and PST.

Hey, thanks. Good morning, everyone. Hey, good morning. Appreciate you hitting the ILC right up front. But we just talk about sort of dealing with M&A over time, right? These, you know, these bolt-ons are, you know, they look like they're always sort of a layup and you want to do as many as you can. I think they make sense. I would think as the company gets bigger, right, and the targets potentially get bigger, there's always going to be things that maybe have some interest, but, you know, 20, 25, 30% of sales might be something you didn't really want and came along for the ride, similar with what happened with ILC. So maybe just a little bit more color on, you know, what you did to protect yourself. You know, you've mentioned some indemnities or something along those lines. And how do you think about, like, managing kind of, you know, potentially larger, more complex M&A down the road?

Yeah, Jeff, no, good question. I, you know, a couple of things to note. So even going to the ILC, you know, despite everything that you hear, you know, we still are very enthusiastic with the life science side of the business, which, again, it was 75% of the portion of the business. In totality, the ILC dover, we expect to still be at mid-single-digit ROIC by year three, which we view for this kind of large transaction to be actually not bad. But clearly, on the bolt-on, as you said, we can get to mid-teens RIC by year three. We always expected that, you know, larger transactions would be less than that. And this is providing us a platform for the life sciences that we have spoken about in the past. And now, as we continue with our playbook, you know, you make this kind of larger anchor of a platform and start bolting on at the same rate and kind of multiples that we have seen historically done with bolt-ons, and that lead fluid as we announced that, and we have another one here in the LOI that we expect to close pretty soon here over the next few days that it will be fairly similar in nature to kind of what we see here historically. Again, mid-teams ROIC and bolt-ons. In terms of how we do large transactions, I mean, think about, too, as well, when we combine Gartner-Denver and Inglisro Run. I mean, we leverage IRX for the integration pretty extensively. And ever since then, you know, five years later, after more than 70 transactions, we definitely have done a lot of lessons learned, a lot of continuous improvement, a lot of guidance around how do we continue to improve our methodology. So we do have a playbook, and part of that playbook and holistic approach includes not only the comprehensive diligence, but also negotiated, you know, representations and warranties. And, you know, in these ILC Dover transactions, these reps and warranties were backed by insurance, and we have filed a claim under that policy. As you can imagine, I mean, these things are complex. We completed our internal investigation, which was pretty extensive, and we felt ready to file. This is not something I want to emphasize. This is also something not that is taking up management team away from running the business. And in parallel, we have continued to, specifically to ILC, to invest, as we have said in prior quarters, You know, adding new team members, creating the P&Ls, and running the playbook that we've run post-integration.

Great. Thanks for that, Culler. And then just on the MQLs specifically, anything in just the nature of these longer cycle projects that stand out regionally, vertical market, you know, different flavors, or is there kind of a consistent theme in what you're seeing on the longer cycle side?

Yeah, let me also say, you know, about the NQL, kind of a little bit of color here, NQLs and the long cycle. So, as we step back, I mean, we always say that demand generation, which is our kind of what we call our marketing generation engine, should help with provide a point of tour of growth above the market. And that kind of demand generation is kind of what leads a lot to these NQLs. And you see that on the overall compressor performance or even China, where we're seeing some organic positive, despite the market that is not growing, we attribute that to the efforts to instigate demand and find pockets of growth through these NQLs and demand generation activity. Clearly, what you have seen here in the past couple of quarters is definitely a little bit of uncertainty, like large projects shifting and other macro factors that are masking the MQLs not converting factor and providing that and showing that into the organic growth overall picture here. But we feel, you know, continue to feel encouraged by the momentum we see in MQLs. It is real demand and market that we feel it will come over time, convert to orders, and we'll definitely continue to keep those customers in our funnel, and we're prepared to close those orders as they see the opportunities. In terms of then the long cycle, I'd say, you know, fairly spread. I mean, you know, here in the second quarter, we saw a lot of good solid momentum in wastewater facilities. I mean, water and wastewater infrastructure, that's why you saw our vacuum and blower business to continue to accelerate and, you know, we continue to see some pretty good performance in terms of some of the reshowing that we see, you know, whether countries like India that is accelerating their side

of localization for supply chains.

Great.

The next question comes from Rob Wertheimer with Milius Research. Your line is open.

Good morning, and thanks for the discussion there. I mean, it's a little bit related to what I was going to ask in the MQL arena, where you've had a little while of, and it's not unique to you, but delayed decision-making projects and not making a completely true funnel. And I guess my question is, is the reason for that changed over time? There was politics a while ago. Is tariff resolution an unlock here, or do you hear more from customers around interest rates or any sense of what might really kind of unwind that? And if you would, I don't know if you can also characterize, as you talked about those larger projects. But when you see hesitancy, does it go all the way down to smaller stuff, or do you have steady flow and then it's really just the bigger things?

Yeah, well, so it is – I would say I'll call that as being more of a tired resolution. I mean, I think there's this continued movement of the percentage number that we obviously see at ourselves, and that's creating a, you know, flows and the unpredictability and uncertainty of what that creates. In terms of some of the, you know, I will also add, you know, this build, the big, beautiful build act as well, that created a holdout for some projects too as well as you can imagine on renewable energy and things of that nature. So, you know, to the second question, Rob, in terms of kind of of this long cycle, you know, we continue to see the movement. I mean, definitely much slower than what we typically have seen in the past. And the range, it kind of varies. I would say it will be sight, not ready, you know, a bit of a change in technical work and technical specs, kind of some tweaks in the technical specs that kind of go back to then having the APC to redesign and kind of work with us as a team to redesign. But I think the good news here is that we continue to see that engagement, and it's not cancellation of projects. It's just basically a much slower move of these projects through the funnel due to, in that case, I would say changing specs or overcapacity or EPCs not having the engineering resources to complete the project and put it into a purchase order.

Got it. Perfect. Thank you.

The next question comes from Andy Keplowitz with Citigroup. Your line is open.

Good morning, everyone. Good morning, indeed. Vicente, just on PST, can you give more color into your legacy Gardner Denver medical business? Are you seeing any green shoots there into the business turning? And then stepping back on PST, as you know, you haven't seen sort of that mid-single-digit plus growth algorithm in a while here. I do think you've used your confidence in the second half, as you talked about. But can you talk about your confidence in acceleration of overall PST moving forward?

Yeah, the legacy of Denver medical business, you know, I categorize it as we're seeing good momentum on what we call the fluid handling side of the business. This is a business that particularly plays well with personalization of cancer research and cancer medicine, where we continue to see some pretty good momentum. And, you know, when you think about that, what we kind of put it on the slides, it's the second consecutive quarter of organic revenue growth in the life sciences. Now, naturally, being organic, that speaks volumes to that. That's basically the legacy Gardner Denver business. So, again, another good growth. So you can see that that is turning and seeing some better flow. In terms of kind of your mid-single digits for the PST, yeah, I mean, I mean, I categorize that as we called out, I mean, again, good orders growth in the first quarter. In this quarter, if it wasn't because of some of these large projects, and again, these are large projects that specifically we decided to kind of abandon the market in terms of hydrogen refueling stations and things of that nature, that we decided that it was better not to continue to pursue that. then that is if you were to eliminate that that puts us into positive organic order growth and when you look and kind of peel the onion and these kind of what it was called the legacy PST or we call precision technology that's you know some of those pump businesses are so growth in that mid single digit from an order perspective so again that's what we continue to feel good about there's a turning point and inflicting point and we expect that that, you know, continue to improve on a sequential basis.

Senator, that's helpful. And then maybe this one's for Vic. Maybe just a little more color into that IT&S margin in Q2 because I think you expected margin to sequentially increase and it did decrease a bit. I know you called out all the factors that impacted margin, but were there any in particular that were slightly worse than you were expecting? Can you talk about your confidence level? I know you've got improving margin dialed in for the second half.

Yeah. So, Andy, I think just to kind of restate that, you know, we mentioned the factors with regards to the, you know, the volume, some of the M&A, and then kind of the dilutive impact on the tariff pricing offsetting costs one for one. Was there anything that I would say was tremendously out of sorts, out of expectation? No, I wouldn't point to anything of a dramatic nature. You know, again, this is a business that's, you know, still playing, you know, that 29%, roughly speaking, EBITDA margin profile. So, extremely healthy and one that we've quite frankly kept up in that 29%, you know, level despite some of the volume headwinds that we've called out. So, you know, I do think that, you know, we expect to see sequential margin expansion as we stated in kind of the earlier question, kind of in line with kind of normal, what I would call seasonality. But, again, nothing, I would say, out of sorts or anything that we think, you know, caused any concern or anything of that nature that we saw in Q2.

Appreciate the color.

The next question comes from Nigel Coe with Wolf Research. Your line is open.

Good morning, guys. So I just wanted to make sure I've got the right numbers. So price, I think you said, Vic, 3.5%, 4% in the back half of the year. So I'm just wondering, you know, is that equally distributed across the portfolio? So I think we'll hear more about ITS. Are we seeing that in services and equipment? And are we seeing that globally, or is this more concentrated in U.S. equipment, so therefore U.S. compressors will be up close to the 10%? Just any color there would be helpful.

Yeah, so let me maybe start at the top of the house, and I'll maybe work my way down, Nigel. One, I think that that expectation of, you know, 3.5%, 4%, I think it's actually fairly comparable between the two segments, and like we said, a relatively equitable split between or even split between what I'll call base pricing, which, as you would expect, has the typical flow that you would expect, and then the tariff-related pricing, which is essentially offsetting tariffs one-for-one. Now, as far as the second part of your question, as far as the regional splits, I would say that when you think about ITS, I would say it is pretty well equitably spread and split with maybe the exception of China is obviously a bit of a tighter pricing environment, comparatively speaking, which is probably as I was expecting. But I think when you think about Europe, America, Latin America, even the power tools business between the components, i.e. the compressors and or the aftermarket of the service, we don't take what I would call a peanut butter approach to pricing. It's very targeted. I would say that's even been the case for related actions. With the pricing kind of strategy you've seen us do historically, Maybe the only nuance here is that tariff-related pricing, which is, you know, I'd say.

And then maybe just following up on Rob's question around, you know, what sort of unlocks the adjustment cycle? Because I think the way you sort of framed the second half volumes, you know, down low single digits was conservatism back in April. Now we've sort of hardwired that. It feels like we've got better visibility with tariffs, et cetera. So just wondering, are we seeing like a sort of a step down here? another step down in the market? Are we seeing a push out in decisions? So I guess the question is, you know, what's changed versus April in terms of that sort of concertedism view that kind of unlocks this demand cycle?

Yeah, no, I... Good question. I mean, you know, what we decided to do here in the Garden is continue to be on the precautionary side as we think about the volume side. And that is, obviously today, there's a deadline in a lot of the tariffs. So we see some of the outcome of that, but we, you know, I think a lot of that clarity will definitely unlock what we consider a lot of the conversations that we're having with many customers, that they're just saying, hey, we've been holding on for a little while. What is it? Waiting a few more weeks or a few more months to kind of complete this holistic picture. So we do think that based on a lot of the conversations, whether it is the tax incentives depreciation in the U.S. and clarity of that, or if you go to Asia Pacific or countries outside of China, customers kind of waiting to see, I mean, South Korea, good to see the outcome of that tariff and Japan. So a lot of that clarity is going to start driving the decision and the unlocking of what we're seeing in our funnels. That's our view. But right now, we decided to continue to be precautionary.

The next question comes from Joe Ritchie with Goldman Sachs. Your line is open.

Hey, guys.

Hey, thanks for the initial comments on ILC Dover. I just want to be clear, I guess, maybe around one specific item. So the customer that you referred to, I know you don't want to call it out by name, but is it consistent with the, you know, reduction in guidance, the revenue guide that you saw a year ago when the transaction had just closed? Or is this the new customer that we're talking about within the aerospace and defense sector?

Yeah, Joe, this is a new customer, a customer in a project that is really tied to the next generation International Space Station, which has been delayed. I mean, the funding for this seems to be kind of having approved already in the big, beautiful bill, but it's kind of just getting delayed. So, that's basically the decline.

Joe, the only thing I'd add to that, though, is as you saw in our guidance, though, you know, there's really no change to the organic equation other than the tariff pricing. So, I think, you know, the team has done a nice job to kind of supplement and offset that volume. So, that's, again, why you're not seeing any, you know, short-term change to the current guide.

Okay, got it. No, appreciate the clarification there. And then I know we've had some discussions around the marketing qualified leads and then ultimately that's turning into better organic growth. I guess when I take a look at maybe just the compressor business or ITS just the last couple years, the order growth has been fairly muted. And so, you know, I know we're getting – we're starting to get some questions from investors, like whether structurally there's any concerns around maybe the longer-term growth algorithm for compressors going forward. So, you know, Vicente, maybe you can kind of tackle that question head on and how you feel about the long-term, you know, kind of growth opportunity within compressors and why maybe we've seen a little bit more muted growth over the last few years.

Yeah, Joe, the long term absolutely does not change. And if anything else, we continue to get more excited because obviously as we go and attach a lot of these solutions for recurrent revenue, that provides, in our view, you know, even better upside than what we even consider originally when we were looking at a lot of this back in the Garner Denver days. I think what you have seen here over the past couple of years is that there's definitely been a lot of kind of fluctuation of large projects or large kind of one-time investments, whether renewable natural gas in the U.S. that turned to be almost $100 million revenue that then next year turns to basically call it down to 10 to 20. So I think when you peel the onion and take a lot of those projects and look at fundamentally the base of what we're seeing in the compressor market, We continue to see pretty, I mean, I'll say positive, stable growth, comparable to what we call historically as that GDP plus. And then on top of that, we try to overcome that. So I think, you know, it feels like over the past couple of years, we have seen obviously a more normalization of these large compressors. And now we're seeing like China as an example. Again, one month is not a trend, but China is an example. We're now, after all that kind of large investments in projects such as electric vehicle, battery production, and things of that nature, now we're getting into much of that normalcy. And China, the market is not growing, but our team in China saw positive organic growth here in the second quarter. And, you know, we're not predicting that China is going to continue to be accelerating, but, again, we continue to expect that we take some shares. So no fundamental change in the growth algorithm. And I think as we can see more normalization here, X large projects, things will be more stable.

Thank you.

The next question comes from Chris Snyder with Morgan Stanley. Your line is open.

Thank you. So I understand that the organic guide down is just a function of less tariff-related price. But last quarter, it seemed like a portion of, you know, the volume cut was just a function of this higher price coming through, which brings, you know, elasticity concerns. So I guess now that we have, you know, price coming in a little bit lower, but no positive volume response from that, do you think that's an indication that underlying demand is falling as we've gone through the year?

Yeah, Chris, I'll take that. So I think like we said when we gave the guidance framework a quarter ago, we said we're taking, you know, a precautionary view of the year given the uncertainty. And I think the simple way to think about that is we just haven't changed that view as we kind of think about, you know, the equation. And that's what you see in the framework from a guidance perspective. Now, to Vicente's point, that was kind of just made as we hopefully get a little bit more, you know, certainty on where tariffs land and things like that with some of the things from the, you know, the bill and things of that nature. Those should hopefully be, you know, tailwinds in the grand scheme of the equation. And listen to the degree that the volume equation is a little bit healthier than what our guidance applies. We'll consider that maybe the upside of the framework we put forth. But I think we just saw it prudent to keep the, you know, the precautionary kind of outlook that we had before. And that's kind of, I think, you know, what you should see from the guidance framework. Nothing more than that.

Thank you. Very much appreciate that. But I guess, you know, has there been any change in sentiment from international customers following the tariffs? And I guess if we look at the overall company order slattish, is there anything you could provide on the regional splits there?

Yeah, sure, Chris. I'll say that, you know, from a regional perspective, you know, we saw positive orders organically even in EMEA, Europe, Middle East, and India. So, again, you know, if I were to think about this holistically, I'll say Asia Pacific, you know, what we called out, China, positive, organically, I'll say the rest of the countries, maybe a little bit of more kind of waiting. These customers are waiting for better clarification of the tariff agreements. I'll call out EMEA as being fairly resilient, as I just said. Latin America remains very healthy and encouraged by the results that we're driving with the investments that we continue to make. And North America, you know, it's luggage, I mean, in the second quarter, given all the uncertainty around there. So we remain – but we remain very cautious, optimistic about the medium term here in North America. So, you know, long cycle, continue to see strong momentum in longer cycle, which helps build that backlog for 2026.

Thank you. I appreciate that.

The next question comes from Joe O'Day with Wells Fargo. Your line is open.

Hi. um i want to hey i uh i want to start just on on back half bridge and when we think about some of the key drivers and so the volume assumption moving to down low single from first half of the year down mid single that seems like it's really comps and so there's no kind of underlying assumption in volume sequentially being much better and then on the ebitda side price cost seems like it would be the most important driver. Is that pricing in place such that there is a notable step up from 2Q to 2Q3, or is there still pricing that you plan to implement in the back half of the year?

Yeah, Joe, this is, like, let me take that one. So, you know, I think the way you framed it out on the volume side is fairly, you know, I'd say it's a pretty good assessment, but I do think it's worth noting that, you know, With the positive organic orders on the ITS side that we've seen in the first half and the book-to-bill, it does give us more conviction in that slight improvement on the organic volume side you see from the first half to the second half. As far as your price-cost equation, yes, and I think simply stated here, those pricing actions have essentially – they're in place, have been taken. We obviously are tracking and monitoring that. I think we have, you know, good visibility to that kind of already being in place. So I think the simple answer to your question is, yeah, I think you've framed it up fairly nicely. And that's kind of, you know, I think one of the drivers of the back half margin expansion. Not the only one. Like I said, some of the seasonality and volume and some of the productivity factors that come in, as well as some of the ongoing integration of some of the bolt-on M&A, including.

And then on the clean energy vertical in ITS, can you unpack that a little bit? Just talk about what you're seeing in terms of demand trends, some of the end markets, kind of regional activity, just overall, kind of what you're watching there for the opportunity set.

Yeah, Joe, if I take it by regional, I think here in the U.S., and I made a comment about that, you know, about renewable natural gas. We're seeing stagnation there. Well, as we saw probably a couple years ago, I mean, some very good resurgence and acceleration due to the IRA implementation, we're seeing, you know, really slowdown now. So, again, that continues to be the case. You know, if you go to then Europe, I think Europe in terms of, you know, biogas and RNG production, that continues to be, I'll say, fairly good investment and good momentum there. And then when you go to even Asia Pacific, in particular China, anything related to kind of fuel gas booster application for power gen, you know, also pumping storage for hydropower, things of that nature are seeing some really acceleration in the China side. So, again, what we're seeing is definitely this kind of mix of different end markets based on where the regions that were co-located. again and last one will be Latin America good investments that we're seeing on on clean energy

great thank you the next question comes from Nathan Jones of steeple your line is open

good morning everyone well I just wanted to ask I wanted to just ask a follow-up on the the building of the platform for their for life sciences here um your lead fluid's obviously pretty small um and it'll take some time to build out a life sciences platform at that pace Any kind of color you can give us on, you know, if there are larger bolt-ons out there that you could use to build that more rapidly, do you think you need to deploy more capital into that to build scale? Just any color you can give us around, you know, the strategic pathway to building that business out.

Julian, I mean, not at this point, I will say, and keep in mind that, you know, we like to be more into kind of more niche applications and niche specific steps within the process. So, and that was basically ILC Dover. I mean, ILC Dover, great play into the GLP-1 and the powder containment and ADC, high-potency APIs that kind of collocate to immunotherapies in the future grand scheme of things. Same thing with lift fluid. I mean, lift fluid, very highly great technology in peristaltic pump technology that now we can leverage not only in HF but globally. And these that we have in LOI that will close, again, small bolt on, but provides a very niche application that is highly, highly complementary with what we do in ILC and how we sell to customers. So that's the path. I mean, the path will continue to be in these kind of very niche applications where we can command great share, and that will lead into good price, great margin, and our ability to be more closely to the customer.

I guess one on the accelerated depreciation that's in the BBB. It's probably unfair to ask, you know, if you think that'll be a catalyst for 4Q spending, but we have had periods historically where we've had accelerated depreciation. Maybe you could just comment on what historically you've seen that in terms of it being a catalyst for maybe late year spending to take advantage of those kinds of things.

Yeah, Nathan, I'll take that one. I'll keep it pretty simple. You're right. It's kind of hard to prognosticate what that may or may not mean. I think, you know, we view it as definitely, you know, a bit of a tailwind, you know, a good positive factor. You know, obviously we hope to see it kind of drive some degree of acceleration in second-half orders, but I don't think that our guide or the framework we put forth contemplates that, right? So, historically, you know, maybe some movement there, but nothing that I would consider to be, you know, an extreme needle mover, comparatively speaking.

Thanks for taking the questions. For you.

The next question is from Nicole DeBlaze with Deutsche Bank. Your line is open.

Yeah, thanks for squeezing me in, guys. Maybe just starting with the power tools and lifting business, I think the orders here, you know, got a bit worse, turned negative again. Can you give a little bit more color on what you're seeing there? And, you know, that's been a business that's been kind of tossed from an order perspective for a while now. Do you think that we're getting close to a bottom there?

Yeah, because, you know, I think Q1, we said that orders were actually positive in Q1, so I recall. Yeah, I mean, I would say nothing of significant color that I would call as being, you know, negative. You know, we're seeing, you know, we have in this business inside the business, there's a couple of different businesses, one around material handling that continues to actually do fairly well. and we're very positive with what we're seeing here on the Power Tool side as we're launching new products into the market. And so nothing of significance. Again, you know, it's a business that we continue to invest. We see, as you see, I mean, margins are pretty close to the fleet average and generates good cash.

Okay, got it. Thanks, Vicente. And then just as a follow-up, I know you guys said that you wouldn't give guidance on second half quarters. Totally understand that. But if you kind of do the math on normal seasonality, which is what you have said, you do kind of get to, like, an organic order decline in the third quarter, I believe, unless my math is wrong. Would you guys push back to that? Just curious on your perspective.

Yeah, Nicole, like we said, we're not going to try to, you know, guide on orders or anything like that. I think probably the best way to answer this is kind of how the Sente kind of framed up, you know, July. I think, you know, MQL momentum and kind of what we're seeing has been, you know, continue to move at a, you know, comparable pace as what you saw in Q2, you know, and you obviously saw the order performance there. And, you know, we spoke about the drivers between the two segments. So, again, nothing that we're seeing that's anything dramatically different, changing trends, things like that. And, listen, this is still kind of in the wake of, I would say, the uncertainty around tariffs, as we mentioned here. So, hopefully, you know, as certainty gets a little bit more, you know, a bit more certainty on the tariff front, hopefully that's something that can drive a little bit more certainty and acceleration. But again, not being, I would say that today we're seeing this anything dramatically different is what we saw. I think you too.

Understood. Thank you, Vic. I'll pop it on. Thank you, Nicole.

The next question comes from Andrew Biscaglia with BMP Paribas. Your line is open.

Hey, good morning, everyone. Morning, Andrew. I just wanted to check on capital allocation. It sounds like you have some M&A still with pipeline per usual, but what's your profits maybe for share repo over the near term? How are you thinking about that?

Yeah, Andrew, I'll keep it pretty simple here. I don't think anything's changed from our kind of capital allocation strategy. Yes, you did see some, you know, accelerated, you know, share repurchase activity in Q2, up to $500 million. We have said that we'll do up to about $250 million more for the balance of the year. But without question, the focal point of the capital allocation strategy sitting here today, as well as even moving into future years, will continue to be, you know, the M&A led by the bolt-on strategy, as Vicente mentioned. So, again, nothing has really changed, and we'll continue to execute on share repurchase very much in line with what you've kind of seen in prior years.

Yeah, okay. Okay, and then maybe just to check, you know, your aftermarket expansion has been solid. How do you foresee the year playing out or the next couple of years playing out? Maybe if we get a release on some decision-making in the capital equipment side. I guess, yeah, I guess, how are the dynamics? How do the dynamics feel to you on that kind of mix?

Yeah, I think we have always said that we want to continue to accelerate the growth on the aftermarket. And particularly, that's why the recurring revenue is a very, very important step and initiative on that. We want that percentage to continue to grow, even if the whole goods or new equipment gets unlocked and released and grow. We want to continue to outgrow that so that that percentage continues to be a bigger piece of the total equation.

The next question comes from Amit Mehrotra with UBS. Your line is open.

Thanks. I'll keep it quick here. We've obviously – we've observed, you know, pharma companies kind of announce pretty meaningful U.S. production capacity increases. I think we're tracking something like $300 billion over the next, you know, four or five years. None of those have been constructed yet. So maybe it's too early, but can you just talk about, you know, the opportunity that offers you, given, obviously, the exposure to that vertical?

Yeah, I mean, a great question. I mean, this is why we continue to be, you know, I guess optimistic about what we call this long cycle. I mean, that will typically, based on the size of some scope of those projects, it will fall into that, not only in the compressor side, but then even also, as you think, from an IOC perspective. Because, I mean, some of that expansion happens with some of our customers that are currently buying our products today. And, obviously, that will help even more so. So, yeah, it's an area that we're staying pretty close, pretty close with the EPCs that are doing it, with the construction firms, and then also clearly very close to the customer.

And is any of that – I mean, obviously, when I look at the first taskbook to build, typically it's sub one and then it's above one in the back half. but obviously you outperformed that in the first half. Is any of that in the book-to-bill, and do you still expect, you know, the normal seasonality of book-to-bill being above one in the second half to continue?

Yeah, I know. So we're, I mean, too early to see a lot of that. I mean, as you can imagine, the project gets announced, and it takes a while to get going. But no improvement. I mean, as it is right now, we're saying, you know, booked a bill of roughly one for the entire year, as I said. And that means, you know, maybe above one as we sold out, but that means that it will be less than one. That's kind of what we see in terms of the seasonality, and nothing that we change changes our mind right now, as we continue to be precautionary in this environment.

Got it. Okay, thank you very much. Appreciate it. Thank you, Amit.

That is all the time we have for questions. I'll turn the call to Vincente for closing remarks.

Thank you, Sarah. I appreciate the level of interest in things I ran. Thank you for all the great questions, and thank you to employees that are listening to the call, and let's just keep staying focused and controlling what you can control. Thank you, everyone.

This concludes today's conference call. Thank you for joining. You may now disconnect.