Hello, and thank you for being here. My name is Regina, and I will be your conference operator today. I want to welcome everyone to the Ingersoll Rand Third Quarter 2025 Earnings Conference Call. I would now like to turn the conference over to Matthew Fort, Vice President of Investor Relations. Please proceed.

Thank you, and welcome to the Ingersoll Rand 2025 Third Quarter Earnings Call. I'm Matthew Fort, Vice President of Investor Relations. And joining me this morning are Vicente Reynal, Chairman and CEO; and Vik Kini, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon, and we will be referencing 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 2 for more details. In addition, during 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 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. At this time, I will turn the call over to Vicente.

Thanks, Matthew, and good morning to all. Beginning on Slide 3, in a dynamic macro environment, we continue to deliver durable growth driven by disciplined execution and the strength of IRX. Year-to-date, organic orders are up 2% with a book-to-bill of 1.04x. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline is robust with a strategic focus on targeted bolt-on opportunities that enhance our existing portfolio. Finally, our teams are focused on controlling what we can control and leveraging IRX to navigate the dynamic market environment. On Slide 4, our value creation flywheel remains a central engine of our performance, generating strong free cash flow that fuels disciplined high-return capital deployment and strategic flexibility. It is our ownership mindset, employees acting and thinking like owners that propels IRX and drives our outperformance. This combination of culture and system delivers durable value creation. We remain committed to our capital allocation strategy, using our strong free cash flow and disciplined M&A approach to pursue targeted high-return bolt-on acquisitions that add market-leading products and technologies to our portfolio. Year-to-date, we have executed with both pace and precision, closing 14 transactions with 9 additional transactions under LOI. These high-return bolt-ons averaging a 9.5x pre-synergy multiple expand our technological capabilities. Our disciplined M&A engine continues to compound durable above-market growth. We remain on track towards achieving our annual target of adding 400 to 500 basis points of inorganic revenue acquired on an annual basis. Our acquisition of Dave Barry Plastics is the second addition that we have made to our Life Science platform this year. A designer and manufacturer of custom cleaning room solutions, Dave Barry Plastics enhances our capabilities within life science applications in biopharma production and their products are highly complementary to our existing biopharma business. I will now turn the presentation over to Vik to provide an update on our Q3 financial performance.

Thanks, Vicente. Starting on Slide 5. Orders showed continued strength in the third quarter, up 8% year-over-year or up 2% organically with a book-to-bill of 0.99x. Sequentially, from Q2 to Q3, we saw low single-digit growth both in orders and backlog. It is important to note that since the end of 2024, backlog is up high teens from a percentage perspective. Order performance remains positive with both our ITS and PST segments delivering year-to-date organic order growth in the low single digits. The third quarter finished largely in line with expectations for revenue, adjusted EBITDA, and adjusted earnings per share, showing strong execution despite the dynamic market environment. The company delivered third quarter adjusted EBITDA of $545 million with an adjusted EBITDA margin of 27.9%. We have delivered solid sequential growth in adjusted EBITDA margin over the course of the year. Additionally, we have recently implemented proactive measures to optimize our cost structure. While these actions will have limited impact in 2025, they position us well heading into 2026. The year-over-year margin decline was primarily driven by tariff-related dilution and targeted investments to support organic growth. Corporate costs were $30 million, largely reflecting incentive compensation adjustments, which are aligned with performance. Our Q3 adjusted tax rate was 23.9% and adjusted earnings per share was $0.86 for the quarter, up 2% year-over-year and up 11% on a 2-year stack. On the next slide, free cash flow for the third quarter was $326 million and is approximately flat year-over-year on a year-to-date basis. With $3.8 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Leverage increased modestly to 1.8x, driven by proactive capital deployment, including $249 million in M&A, $193 million in share repurchases, and $8 million in dividends within the quarter. The $193 million in share repurchases made during the third quarter represented approximately 2.5 million shares. Year-to-date, we have deployed $460 million to M&A at an average pre-synergy adjusted EBITDA purchase multiple of approximately 9.5x and returned approximately $700 million to shareholders through share repurchases. This performance reinforces our ability to effectively deploy capital while maintaining top-tier balance sheet flexibility. In addition, with our strong balance sheet, we will continue to evaluate more share repurchases without affecting our M&A bolt-on approach. I will now turn the call back to Vicente to discuss our segment results.

Thanks, Vik. On Slide 7, third quarter orders for IPS finished up 7%. Book-to-bill for the quarter was 0.99x, and it is 1.04x year-to-date. The segment delivered organic order growth in the low single digits, making the third consecutive quarter of positive organic order growth. Revenue declined slightly year-over-year, driven mainly by tough comps in renewable natural gas projects in the U.S., but momentum across other end markets remain solid. Adjusted EBITDA margins finished at 29%. It is important to note that we view the current dynamic tariff environment as a temporary impact on our margin expansion. Additionally, we remain committed to delivering our long-term Investor Day targets of 30% adjusted EBITDA margins by 2027, and we see continued opportunities for further expansion of margins within ITS over the long term. Moving to the product line highlights. Compressor orders were up high single digits, demonstrating continued momentum. Industrial vacuum and blower orders were up low single digits and power tools and lifting orders were up also low single digits. On a regional view, we saw orders in the Americas and Europe, Middle East, India, and Africa up high single digits and Asia Pacific up mid-single digits. We're excited to announce a game-changing leap in our innovation journey. This month, we introduced in Europe our META Contact Cool Compressor. Packaged in a remarkably compact design, this compressor offers unmatched best-in-class efficiency, thanks to very advanced newly engineered airs, motors, and packaging for enhanced performance. The META 45 produces up to an 11% increase in flow while occupying 40% less space. Additionally, the META compressor delivers a 14% reduction in energy consumption, enhancing productivity and reducing total cost of ownership for the customer. Originally introduced under the CompAir brand, this product reflects Ingersoll Rand's multichannel, multi-brand approach as this technology will also be launched in 2026 under other key brands across the world. Turning to Slide 8. Q3 orders in PST were up 11% year-over-year with a book-to-bill of 1.01x. Organic orders were up 7%. Year-to-date, PST has delivered organic order growth of 2% with a book-to-bill of 1.02x. Third quarter revenue finished up 5% year-over-year, driven by a relatively equal balance of organic growth, foreign exchange, and M&A. PST delivered adjusted EBITDA of $128 million, which was up 8% year-over-year with a margin of 30.8%. Adjusted EBITDA margins improved 130 basis points sequentially and up 80 basis points year-over-year, demonstrating continued strong execution. We continue to see nice sequential improvements and remain well positioned to meet our long-term Investor Day target of delivering adjusted EBITDA margins in the mid-30s. For our PST innovation in action, we're highlighting our Flexan product line within the Life Science business. Leveraging its expertise, Flexan successfully transferred the manufacturing of critical Class III implantable silicon-based devices without any disruption to downstream manufacturing or patient care supply chains. As a result of this seamless transition, customer product yield rates saw a substantial improvement, increasing from 55% to over 90%, reinforcing our value proposition in Life Sciences. As we move to Slide 9, our full year guidance for total revenue and our expectations for organic volume growth remain unchanged. The midpoint of our adjusted EBITDA guidance has been modified to $2.075 billion, largely driven by two main factors. First, the effect of incremental Section 232 tariffs and other tariff increases announced in August. Pricing actions have been executed to offset these incremental tariffs. However, based on the timing of customers' notifications and the timing of those pricing actions to convert from orders to revenue, we expect this pricing to be realized in 2026. And second, our backlog has continued to grow, resulting in a delayed realization of previously taken pricing actions in the second half of the year. These two drivers have been partially offset by lower corporate costs, which largely reflect adjustments to incentive compensation. As a result, the midpoint of adjusted EPS guidance has been reduced to $3.28 from $3.40. Our revised view of 2025 incorporates a prudent perspective for Q4 based on both the timing of tariffs and price realization. We expect both segments' adjusted EBITDA margin percentage to be approximately flat on a sequential basis compared to the third quarter. It is important to note that our current guidance does not reflect any of the potential tariff reductions that were announced yesterday. For the rest of the components of our full year guidance, we anticipate our adjusted tax rate to be roughly 23.5%, net interest expense to be about $220 million, and CapEx to be around 2% of revenue. We have updated our share count assumptions to approximately 402 million shares, which reflects the impact of the share repurchases made year-to-date. We remain committed to leveraging our robust balance sheet to strategically deploy capital and drive value for our shareholders. Finally, on Slide 10. As we conclude this portion of the call, I want to emphasize that we remain nimble and prepared to adapt to a continued dynamic global market environment. Our teams continue to demonstrate resilience and execute at a high level, delivering strong results despite ongoing macro volatility. We remain disciplined in our approach to capital allocation, leveraging our robust balance sheet to generate durable long-term value for our shareholders. And to our employees, thank you for your continued dedication and focus. Your ownership mindset and the use of IRX enable us to stay agile and control what we can control, delivering another solid quarter of performance. With that, I'll turn the call back to the operator and open it for Q&A.

Our first question will come from the line of Mike Halloran with Baird.

Maybe just some more color on what you're seeing from an end market perspective and how you see momentum playing out into 2026. If you could do that for both segments as well as maybe geographies. Thought process here, Vicente, is you've kind of been floating around from an end market perspective for a little while now with choppy end markets. And so the question here is, do you see anything on the horizon that can break you out of that more systemically? Any green shoots and kind of just walk through the regions and some of the categories.

Yes, Mike, I'll say that, first of all, we're pleased how the organic orders have continued to progress sequentially so far in 2025. Clearly, they're going to translate here into revenue. But to put it in perspective, this is the third quarter of positive organic orders. Q3 was positive across all regions, except basically the vacuum and blower business in Europe, which, as you very well know, tends to be a little bit more lumpy, but we still expect that to be positive from a second half perspective. So I would say that the trend continues to improve. Clearly, you saw how PST has continued to accelerate the orders momentum. And I think in the ITS, indeed, we're seeing some better sequential improvements. You saw sequential orders kind of improve from Q2 to Q3. Having said this, I think we need to see a bit more clarity on the tariff situation to remove completely the uncertainty in the industrial landscape, which I would consider maybe the main drag. We think yesterday was definitely a very good step in terms of what the administration said about what the new tariff regime or new tariff policy could turn out to be. But in the meantime, we continue to focus on controlling what we can control. I think we're moving into 2026 with a heavy backlog. We expect a full year of 2025 book-to-bill to finish at or slightly above 1. You saw how Q3 also finished approximately 1, which is usually below 1 in the 0.9 range, but we did better than that. And there is also the benefit we're seeing in terms of the good exposure that we have to some secular trends, whether markets around wastewater or even the life science investments that we've done, whether it could be biopharma, medical device, or some of the tools business, just to name a few, that could potentially help us offset some of that slower recovery in the core industrial end markets. But again, considering marketing qualified leads, the long cycle funnel, all of that continues to move in the right direction, and we see no cancellations whatsoever, which again bodes well for when things will start getting unlocked that we see that incremental momentum.

And then just focusing on the margin commentary you made in the prepared remarks about confidence in the 2027 EBITDA margins for the two segments. Maybe just put that in context from two perspectives. One, as we get to '26, are we going to see a little bit of an uptick here as things balance out more on the price-cost side and get back to that normal equation? And then maybe help just bridge what needs to happen for those two segments to get to those targets from here?

Yes. Look, I think as we said, from an ITS perspective, I mean, we expect margin expansion to remain a little bit muted during the first half of the year as we continue to come to tariffs, which have been put in place throughout 2025. We will continue to offset these costs through pricing as well as leveraging IRX for some of the self-help initiatives like I2V and also the operational tariff mitigation and continued targeted actions that we just discussed. I would also remind that gross margins continue to be flat to maybe slightly up. So obviously, that reflects the fact that we continue to invest in SG&A, particularly more on the sales and the commercial initiatives, and that you’ve seen that kind of some of the offsets. ITS is at roughly 29% EBITDA margin. I mean, we're basically right there in terms of what we said we could get by 2027. Clearly, no concern based on all the activity that we're doing. And you're seeing how the PST now at roughly about 31% margin that we achieved here in Q3 and that has seen some good sequential improvement throughout every quarter in 2025; we see the momentum continuing there, further supporting our confidence that by 2027, we'll definitely be able to meet the targets that we set out during Investor Day.

Our next question will come from the line of Julian Mitchell with Barclays.

Maybe I just wanted to understand, so the guide midpoint this year suggests that you're running at kind of incremental EBITDA margins, total company is sort of in the mid-teens this year in terms of the drop-through from 5% sales growth into EBITDA. That's clearly well below what you should be doing. So maybe just parse out for us the main headwinds within that, that there's maybe an M&A headwind, the price/cost aspect, maybe something in mix. And when we're looking at next year, should we assume that EBITDA margins remain muted in the first half, kind of flat or down year-on-year as you try to work through the tariff headwind?

Yes. Let me start with the first part of that. In terms of the margin profile you've seen and kind of, as you said, the incrementals and things of that nature, I think there's probably two large drivers of that or three drivers of that here in 2025. First, clearly, the biggest driver is just the impact of tariffs that you've seen over the course of the year. Clearly, that's been probably the single biggest drag on the margin profile and obviously subduing what are typical incrementals. But that being said, as Vicente just mentioned, gross margins have effectively been flat across the board, which I think does speak to the proactive measures that the teams have taken with regards to pricing actions as well as kind of the general productivity equation. The other piece, Julian, is what I would say, I wouldn't necessarily describe it as a mix, but I would say it's probably the deleverage you're seeing on the organic volume drop, which is being offset by what I would say, M&A and FX. But clearly, those come in at slightly different margin profiles, particularly on the M&A as we kind of bring it in in the first year. Clearly, that comes in at a lower margin profile than the overall segment or the overall company, but one that we bring to generally fleet average by year three, if not sooner. So those are probably the biggest drivers as well as what Vicente just said on the ongoing commercial investment. This is something we've been hyper-focused on across the businesses as well as areas like demand generation to continue to drive ongoing organic growth. And then the second part of your question, yes, I think I'll go back to what Vicente just said, more muted impact as we move through the first half of the year as we digest the comps on tariffs and things like that and then a little bit better coming out of that to the back half of the year.

That's helpful. And then just my follow-up would be, you called out price and the sort of lag on that working through on Slide 9. Just wondered if you could maybe kind of quantify for us that split of price versus volume in the third quarter and how we should think about the pace of price ramping up in the next sort of couple of quarters?

Yes, Julian, in Q3, from an organic growth perspective, price was roughly 3%, 2.7% to be exact for the total company. And as you think about the change in the fourth quarter guide, it's largely driven by two factors. I mean, two-thirds is the change driven by the incremental effect of the recently enacted tariffs that we just talked about. And the remaining one-third is the change driven by what we saw in Q3, which is the delayed realization of the in-year pricing due to the backlog growth.

And maybe, Julian, just to add another point to that. I think in Q4, you should expect to see pricing from a percentage perspective be relatively consistent with what you saw there in Q3, the number Vicente I just mentioned.

Our next question is from the line of Jeff Sprague with Vertical Research.

Maybe just come back to tariffs. Just a simple question. Can you just tell us what the gross headwind is and what the incremental impact of the 232 tariffs in August were?

Yes, Jeff, I'll take that one. So I think, as you remember, in our last call, we said approximately $80 million for the year. What we'll say here is that number is slightly in excess of $100 million at this point in time. And clearly, as Vicente mentioned in the prepared comments, we've taken the requisite price actions. It's just a matter of timing, and we expect that to kind of catch up as we move into 2026.

Yes. And then I understand the comment about getting a little while for backlog to be realized. But also, you do have a lot of shorter cycle business where arguably the price should be coming through as soon as maybe even the fourth quarter, but certainly the first half. I mean, correct me if I'm wrong, are there some other kind of short-cycle versus long-cycle backlog conversion dynamics that we should be thinking about?

No, Jeff, I think you are right in your thinking. We've implemented several pricing actions throughout the year, not just one, especially in response to tariffs and our global business operations. While there is a short-cycle business, there is still a usual rhythm and lead time for those orders. Your framing is accurate; with the increase in backlog, we expect pricing to materialize, though it will come later than initially expected. This means we anticipate a catch-up as we approach 2026.

Our next question will come from the line of Andy Kaplowitz with Citigroup.

Vik, can you give us a little more color regarding how your end market verticals are doing in ITS, just focusing on clean energy. As you know, clean energy was the largest vertical of ITS if we go back to '23. And today, you mentioned renewable natural gas weakness. So could you give us some more color on that vertical? How much of a drag it is right now? And would you say comps begin to get a lot easier in '26?

Yes, Andy, as I mentioned during the call, the ITS segment, specifically in North America, was definitely a challenge. When we look at Q3 from a revenue standpoint, that’s where we have our comparable figures. However, the orders in the ITS Americas, particularly in North America, saw a mid-single digit increase on an organic basis. This indicates that despite the challenges in the industrial market, our team in the Americas was able to achieve positive organic orders. Additionally, we experienced a high single-digit increase in orders for compressors as well. I would say the difficult comparisons related to clean energy are mostly behind us. Clean energy continues to represent a strong market, especially in countries like Brazil, certain nations in Europe, and India, where the government is advocating for significant investments in biogas. Overall, clean energy remains a promising market. The more challenging comparisons we encountered due to the acceleration of the IRA last year that weren't replicated this year are now behind us.

And then PST orders, as you said, were up 7%, which is a relatively significant inflection versus the last quarter. Was that just ILC Dover becoming organic and having easier comps? Or did you see more material improvement across the portfolio? And could you comment on your legacy Gardner Denver Medical business and how that's doing?

Yes. I'll say it was a good combination of all the different businesses within the PST performing fairly well. I mean, obviously, some better than others. But clearly, the Life Science platform, which includes the legacy Gardner Denver Medical, performed very well. But even also on some of the other short-cycle industrial businesses, we saw some good momentum as well. So I'd say very evenly good performance across the entire segment.

Our next question will come from the line of Nigel Coe with Wolfe Research.

I’m not sure if you want to address this sensitive topic, but do you have any initial insights on 2026 based on the backlog, customer discussions, and MQL momentum? To unpack your earlier comments about gross margins, I understand you mentioned they would be relatively stable in 2026, which suggests that overall margins will also remain flat that year. Any additional insights would be appreciated.

Yes. Nigel, I'll say, as we look into 2026, again, first of all, we're positive and enthusiastic about continued momentum on the organic orders, particularly here in the third quarter, where we saw organic orders really across all regions and all businesses, except for one, which we called out as timing perspective. And so as we move into 2026, yes, we're very pleased with how backlog continues to progress and build. We expect that full year book-to-bill is going to finish slightly above 1, which again implies very good momentum here still in the second half, which typically book-to-bill is less than 1 in the second half, but we're seeing that we expect this to be slightly different here in 2025. At this point in time, it is too early to call it out. We'll provide you with clearly more detailed commentary as we go into our next call. But so far, it seems to be more positive.

Okay. That's great. Vik, you mentioned $100 million of in-year tariff inflation. How does that look for 2026 when we consider annualization and all the inventory turnover? What will the full impact be in 2026? Are the actions you're taking solely related to pricing and surcharges, or are you also adjusting supply chains to lessen the effects of these tariffs?

Yes, Nigel, so I'll start with the second part of that question first. Clearly, it's a combination of both. I think as we talked about earlier in the year, we kind of took a dual approach, surcharges and kind of more list price actions. I would say that's kind of more fading off to now; everything is converting to normal course list prices, which is what we've indicated originally. Absolutely, we are working on what I would call operational tariff mitigation efforts, and it takes on kind of all the forms you would expect in terms of resources, things around small, I'd say, supply chain from an intercompany perspective, and things like that. And so right now, we expect that to probably have a little bit more of a meaningful impact into 2026 just because it takes time for those to realize and for inventories to bleed down and for those changes to happen. And clearly, there's been a lot of change over the course of the year. As far as the 2026 impact, I'll just say, clearly, numbers are changing quite considerably. So we're not going to get into trying to size, quite frankly, the gross impact into 2026 at this point in time just because even frankly, as of yesterday, things have continued to change. But I think we feel quite comfortable that with the pricing and the operational mitigation actions we have in place, we feel we have those covered. I will also go back to what Vicente mentioned during the prepared comments that the way we framed up Q4 and the tariff numbers that have been embedded, we do view as a bit of a worst-case view at this point in time and one that we'll continue to monitor, particularly as the macro environment continues to change quite considerably.

Our next question will come from the line of Joe Ritchie with Goldman Sachs.

I want to follow up on what Jeff mentioned earlier regarding how pricing develops and how your backlog typically forms throughout the year. My understanding is that you build your backlog in the first half and then fulfill it in the second half. I'm curious how the relationship between tariffs and pricing plays into this, particularly in terms of offsetting increased tariffs. Is it possible that during the first half, while building your backlog, you weren't fully considering the cost environment that has emerged in the second half? I want to ensure I understand this correctly.

Yes, Joe. So I think a couple of things to think about. I think the way you're framing it out is the right way to think about it. As just kind of a reminder, the book-to-bill, you typically see above 1 in the first half, you typically say below 1 in the second half. That kind of gets to a rough average of 1 for the year. And I think, as Vicente mentioned here, what is kind of the change at this point in time is we are definitely seeing book-to-bill steady around that 1x number here in the back half of the year. So what's happening here is the typical backlog burn that you see in the back half of the year is not as big as it typically is. And so what's happening here is as we've done pricing increases over the course of the year, I'd say more of those orders with recent price increases are going into backlog, whereas we would typically have seen those flush through the second half. And clearly, with the, I’d say, the Section 232 tariffs and all of the other tariff-related actions that happened at that same time with India and Brazil and some of the other components that happened in late August. So as Vicente mentioned, as we've taken the measures to counteract those with the normal notifications to customers and the typical order to revenue conversion, that's just now pending into 2026. The good news is, obviously, we feel like we've taken those actions. We see those actions coming through when we look at bookings and things of that nature, so we feel pretty confident moving into 2026 that that equation will get back to normal.

Got it. That's helpful, Vik. I guess maybe just then the corollary to this. So what happens in an environment where tariffs go away? Like do we see like will we see a meaningful expansion in your profitability and your margins? I know you're using both pricing and surcharges. But in an environment where you have materially lower tariffs going forward, does that impact your business?

Pricing will remain stable. We have never made price reductions based on this. As mentioned earlier, the current tariff pricing we have implemented is primarily to cover costs on a 1:1 basis. Therefore, if tariffs decrease, there may be a potential advantage.

Our next question comes from the line of Chris Snyder with Morgan Stanley.

Could you maybe provide some color or just numbers on how organic ITS orders came in by region, just to get a sense for some of the industrial momentum we're seeing across the geographies?

Yes, sure. From an Americas perspective, organic orders in Q3 ITS, Americas was up mid-single digits. China or Asia Pacific was also positive with China actually up low single digits, the rest of Asia Pacific up mid-teens. Then EMEA, Europe, Middle East, India, was basically down, say, high single digits. And as I called out on the call, really driven by timing on our industrial vacuum and blower business, which is heavily project related. But if you look at India, India continues to be very positive, and it was just basically solely co-located to one business in Europe that it is a matter of timing.

I appreciate that. To follow up on the earlier commentary regarding tariff price costs, it appears that the tariff headwind this year is increasing from $80 million to over $100 million. This suggests there will be a significant impact moving into next year, particularly with an isolated increment of $20 million to $25 million in Q4. So, is the tariff headwind expected to be greater next year than it is this year? Additionally, related to this, the 232 situation feels quite incremental. Is there any specific reason the company has chosen not to implement surcharges or take quicker pricing actions this time, compared to what we experienced in the spring?

Yes, Chris. So I think to your first part of the question, do we see a wraparound impact into 2026 on the tariffs? Yes. And that's why we said we do expect margin expansion in the first half of the year to be relatively muted. But at the same time here, we feel like we've taken the requisite pricing actions and those are coming through. Those are in backlog and will continue to come through into the first part of 2026. As far as the list price versus surcharge equation, listen, as we said before, we have done an equitable mix of those, I would say, over the course of this year. I think it's kind of the norm, particularly as things start to stabilize a little bit more. And I do think we're going to start to see a little bit more stabilization, at least at this point in time moving forward. It's kind of always been the intent to move those to more list price actions. And even surcharges, remember, they don't happen instantaneously, right? There's an appropriate notification and things like that. So in that respect, surcharges kind of mimic list price in the context of the timing and realization. But again, it’s always been our intent to migrate to that list price equation, and that's exactly what we're doing at this point in time.

Our next question will come from the line of Stephen Volkmann with Jefferies.

I hope you don't mind, I'm not going to ask anything about tariffs. Just quickly, Vik, I think you mentioned in your comments some additional cost actions. And I just wanted to make sure, is there something else going on with footprint or headcount or anything? Or is it kind of what you've already outlined?

Yes, Steve. I would say that we recorded a specific charge related to restructuring actions. This reflects some proactive cost measures we are implementing due to the current environment. To summarize, we have taken actions that are somewhat typical as prudent cost measures in this situation. These actions are primarily focused on headcount rather than footprint or other areas. The impact of these measures will be more noticeable in 2026, based on the timing of when we implemented them and how such restructuring actions usually unfold.

Great. Okay. And then maybe, Vicente, how should we think about the significant announcements related to pharma and the reshoring in life sciences that may be occurring? I'm curious if you are seeing quoting activity and if you have had any orders that you could attribute to that trend. Also, could you comment on your fair share of that end market?

Yes, Steve, it's definitely real. We're seeing it. We're actually in very close conversations with large companies. Obviously, it doesn't happen immediately, as you can imagine, it takes time. I think you saw maybe one of the larger life science companies say that they expect revenue from those to be more in like '27, '28. We'll see. But yes, it's real. I think the exciting piece here is that a lot of the investments are happening in what they call APIs, biopharma APIs. A lot of it is more around maybe could be small molecule APIs, which play very well into the investments that we have done with ILC. And so we're leveraging the customer intimacy that, in this case, ILC has to find ways to expand the portfolio of offerings that we can deliver to some of those companies such as vacuum pumps or even oil-free compressors in this case. So I think it's very exciting to see, and it could be a good growth vector for us here as we move forward.

Our next question will come from the line of Joe O'Dea with Wells Fargo.

I wanted to start on PST. And it looks like over time, the sort of coincident correlation of kind of orders and revenue has gone up, meaning a little bit more book and ship within the quarter. And so if, in fact, that is happening within the business and anything about mix that would be driving that? And then tying that into the comment about some delayed realization of price because of backlog growth, if you could just expand on that, if that's sort of certain mix within the portfolio that's seeing that.

Sure, Joe. So I think your comment around the PST composition and things of that nature is a fair statement. This business, not too dissimilar to ITS, has a distinct component that's kind of short to medium cycle. And then there are projects that are typically longer cycle in nature. So I think that’s a fair statement. I think particularly in some of the PST or some of the life sciences businesses, that tends to be a touch more book and ship or shorter cycle comparatively speaking. So I think that's kind of a fair statement. Now as far as the backlog dynamics and pricing that we've mentioned, I would say there's a multitude of factors driving this. But I think without question, it's probably a little bit more pronounced on the ITS side comparatively speaking to PST. I think that's clearly a fair statement in the context of where you're seeing that pricing delay in terms of the realization. So as far as PST, though, I mean, I think the business has continued to perform quite well. I think Vicente had obviously made some remarks about the organic order momentum. But clearly, this is a business that’s continued to see good, healthy both year-over-year and sequential margin expansion, 80 basis points year-over-year, 130 basis points sequentially. It's playing close to about 31% EBITDA margins. We would expect Q4 to be in a similar zone. And obviously, the year-over-year will look quite healthy given where Q4 PST margins were last year. So we feel continued optimism on where PST is trending. And I'd say they're doing the requisite work on the tariffs and mitigation as well.

That's great color. And I guess it means this isn't necessarily a persistent shift. It's just a matter of as projects come back then you could see a little bit more of a return to maybe a 1 quarter lag. It's just lower project activity right now would be a factor.

Yes.

Okay. And then just in terms of appetite on the inorganic side and as we see the broader deal environment heating up, how you're approaching the bolt-on versus larger deal opportunity set? And how you think about something like appetite for size at the ILC or larger level in the next 12 to 18 months versus kind of laser-focused on bolt-on?

Yes, we are currently very focused on bolt-on acquisitions. As you can see from the number we've completed this year, we have nine more under letter of intent, and these investments are yielding excellent returns. The pre-synergy multiple averages 9.5 times, and we expect to achieve mid-teens return on invested capital by year three across all these bolt-ons. As we have previously indicated, we may consider a larger deal every three to five years, but for now, our strategy is centered around bolt-ons. For instance, we completed a deal like ILC last year, and we are now concentrating on these smaller acquisitions, having successfully integrated three bolt-ons into that platform.

Our next question will come from the line of Nathan Jones with Stifel.

I guess first question, you guys had talked over this year and probably late last year as well about elongating quote-to-order times. Can you talk about any changes that you've seen there in aggregate for the business or any pieces of the business where you may have seen that either getting worse or getting better as a leading indicator for more customer confidence as we head into next year?

Yes, Nathan, it is definitely not getting worse. And I think maybe I would call it out to be more stable, with a few pockets of getting better. But right now, no incremental change that we are seeing. The good news again is that what we have in the funnel is not getting canceled.

You said what you have in the funnel is not getting canceled?

Yes, that's correct.

And I think one of the other things that you talked about as a headwind when demand was maybe a little bit healthier was a lack of engineering resource, a lack of front-end ability for customers to get these projects designed, get them moving as a bottleneck. With a little bit lower demand that we've seen here, has that alleviated at all? Or do you still see that as a headwind to some reacceleration when customer confidence improves?

I would say that the situation has alleviated a bit. But keep in mind that some of these engineering firms tend to also work on a lot of the hyperscaler investments that are happening. And so it goes through the same, in some cases, areas, but it's not as what we may have seen before. I would say slightly better.

Our next question will come from the line of Nicole DeBlase with Deutsche Bank.

Just a couple of tie-ups. We've obviously gotten through a lot here. I guess maybe piggybacking on to Steve's question about the actions that you're taking with respect to costs. Anything on sizing that, Vik, the impact as we kind of roll into 2026? Is it like one-for-one versus what you spent? Just kind of get a sense of that.

Yes. So typically speaking, that's probably not too far off in terms of what you've seen. So typically speaking, on headcount actions, it’s a mix across the globe. So roughly speaking, a one-year payback or somewhere in that general ballpark is not that far off. So that's probably a pretty decent proxy to use as you think about moving into next year.

Okay. Perfect. And then with respect to buybacks, I know if we go back to the second quarter call, you talked about doing up to $250 million additional buybacks in the back half. We're now at $193 million of that as of Q3. So any thoughts on appetite for continued buybacks during the fourth quarter?

Nicole, we definitely have the strength in the balance sheet to be able to do more. So as we continue to see more continued dislocation, yes, I mean, we will be doing more in addition to continuing to do the M&A. I mean, we believe we can continue to do both.

Our next question will come from the line of David Raso with Evercore ISI.

I was curious about the competitive dynamic with the recent Section 232. If I'm correct, it includes some compressors that maybe weren't involved before. Just curious how that plays into your competitive dynamic and maybe also thinking through your ability to make some of these price increases stick or have maybe further headroom to raise price.

Yes. No, David, great question. I mean, if you were to look at the details of the 232 that happened here in August, it was basically removing any of all the exclusions that were on air and gas compressors. So obviously, that puts a strain not only on some of our components but also a lot of the competitors that have to import product from other countries. So with our in-region for region, that kind of offers eventually a bit of a better competitive advantage for us. And it's still too early to see how this will play out. But obviously, we're taking this as a great opportunity for us to accelerate our market share and penetration.

And when it comes to the backlog, I appreciate it's not easy to do with customers, but is there any opportunities to reprice some of the longer-dated backlog?

The very long cycle projects, those that tend to be 12 to 18 months, have clauses that, as their changes occur, we can actually make adjustments based on special alloys and things of that nature. So I would say that from a long cycle perspective, we're not worried about that. I also will say that on the long cycle, we have the opportunity to work with the supply chain to find ways to mitigate the cost. But I say so that is mainly on the long cycle. The short and medium cycle, it's difficult to go back and put anything in the contract and have to go back and change. I mean, you're reopening the invoice, reopening the purchase orders, and it's just a bit more messy.

And this concludes our question-and-answer session. I'll turn the call back over to Vicente for closing comments.

Thank you, Regina. I just want to say one more time, thank you to our employees. In this very dynamic macro environment that we're playing, we continue to deliver durable growth that we believe is due to very disciplined execution and the strength of IRX combined or compounded with our ownership mindset. So thank you to our employees for staying focused on controlling what we can control and leveraging IRX to navigate this dynamic market environment. We believe we're making the right investments for the long-term future, and we'll definitely see long-term value creation. Thank you again.

This will conclude today's call. Thank you all for joining. You may now disconnect.