Conference Transcript - IR 2026-06-10

Joe O’day, Analyst — Wells Fargo

All right, here we go. I'm Joe O'Day. I lead the Maltese team at Wells Fargo, and we are very pleased to continue discussions with Ingersoll Rand and Vic Kinney, who is the CFO of the company. Vic, thank you very much for being with us today.

Vic Kinney, CFO

Yeah, thanks for having us.

Joe O’day, Analyst — Wells Fargo

We're going to go right into the Q&A, and let's start on short-cycle demand side of things. There's no shortage of interest in that. When we look at PMI in the U.S., we look at durable goods orders, the general tone actually from this conference, short cycle enthusiasm remains, and there's support behind the data trends. I think one of the key focus questions we get is we do see a lag between that organic growth kicking into gear at Ingersoll relative to, say, the general short cycle group in multi-industry. And so just dig into that a little bit for us in terms of what you're seeing in the trends, how you think about that lag.

Vic Kinney, CFO

For sure. So, yeah, I mean, I think if you think about, you know, let's take them into pieces here. So first and foremost, the short cycle side, the momentum, things of that nature. I think as we expressed in our Q1 call, whether it was in the ITS side or the PST side, definitely see trends getting better there, similar to kind of what you said. You know, I think in terms of what you've seen, kind of whether it be the historical, to use the words, kind of a couple hundred basis points, underperformance, things of that nature. I think that comes to two things. One, I think the geographic kind of dispersion of the company, kind of our geographic exposures, as well as the fact that you do have other aspects of business on the long cycle side and stuff like that that can create some noise. So as an example, over the last few years, I think not surprisingly, we've talked about, you know, whether last year some of that uncertainty that existed in North America because of the tariffs, the year before that, some of the reset in the China market. And then we had some, I'd say, specific nuances with our business with regards to some of the non-repeat of businesses like the EV battery business in China and some of the RNG exposure in the U.S., which I think created a little bit of an overhang on some of those numbers. So I think when we look at some of the short cycle momentum right now, I think we're excited about some of the, I'd say, normalization of the trends that we've been seeing, particularly compared to the prior years. I think when you look historically and you put some of that noise behind us, the good news is it's that. It is behind us. We have not walked into 2026 with another $100 million headwind or anything like that. The China business has kind of reset. North America, we've talked about. Europe has actually probably been our most stable region over the last few years, and I don't think anything's dramatically changed on that front. So, you know, I think the good news here is it's setting up for, you know, a better backdrop on a go-forward basis. You know, the one thing we did mention in Q1 is that, you know, we do have, roughly speaking, 20%, 25% of our original equipment business is longer cycle in nature. I think the positive on that is that the longer cycle funnels continue to remain relatively healthy. In Q1, we did see some of the noise from the Middle East that, you know, were a couple discrete projects. The good news is we already saw one of those projects click through in April. So a lot of that is just really more so timing based. But I think on the long cycle side, yes, there's always going to be some degree of timing in terms of when those click through to orders. But I think the good news is the funnels themselves continue to remain relatively healthy. We don't see cancellations or things of that nature. So it's really much more just a timing nuance. But, you know, that's why, you know, we still remain encouraged that, you know, that long cycle will click through. And, you know, with a better macro backdrop, you know, hopefully that should set up for a better growth algorithm as we think forward.

Joe O’day, Analyst — Wells Fargo

And do you have any sort of rule of thumb when you think about the short cycle versus long cycle if you were to focus on, you know, ITS in particular? But that timing lag between, you know, we'll start to see it here in the shorter cycle stuff before it hits.

Vic Kinney, CFO

Yeah, so maybe to set the stage here on ITS. So roughly speaking, I think it's 37%, 38%. So we'll say roughly 40% is aftermarket, which is obviously much more correlated to utilization and things of that nature of the equipment. Then when you look at the original equipment, roughly speaking, 20% to 25% is long cycle. that leaves around 75% as short to medium cycle. When you think about the dynamics between the two, to keep it fairly simple, the short to medium cycle, order to shipment, it's a little bit contingent on the product and the region, but you're anywhere from like 30 to 90 days. So in that 60-day timeframe on average. And then on the longer cycle side, the longer cycle side for us are much more what we call kind of the engineer to order kind of systems or packages. And so you're looking at things that typically have a price tag that's at least roughly speaking half a million dollars, but typically seven figure price tag. and higher and the order to shipment is typically anywhere from six to 18 months so you know it can take some time to obviously get from the funnel to an order and then order to actual full shipment and full factory something testing and everything with the customers can be anywhere from you know a year to year and a half so there is a bit of a duality there um but that's also typically why for example in the first half of most calendar years you see a book to bill above one that's more indicative of some of those longer cycle projects being booked in the first half and then

Joe O’day, Analyst — Wells Fargo

revenue more so through the second half of the year and and when you think of the the complexion of accelerating growth aftermarket short cycle longer cycle is the idea that that aftermarket has has been steady for a while or your customers can be using facilities more yeah i think the

Vic Kinney, CFO

aftermarket has you know historically is a little bit of a better growth you know all things held equal you know dollar for dollar i think it also speaks to the fact that on the aftermarket side you know one of our single biggest organic growth initiatives which you've heard us talk about quite explicitly is the recurring revenue side and that's what's squarely in that kind of bucket and probably has been all things held equal probably the single best growth you know outlet from a total company perspective in terms of you know unique initiative or things of that nature so yes i mean i think typically speaking you see that short cycle kind of the beast that comes back a little bit quicker the long cycle kind of has its dynamic and then the you know the after market is kind of largely following that compressor or you know blower pump utilization yep um you

Joe O’day, Analyst — Wells Fargo

You touched on it a little bit with Europe and some stable trends there, but that typically is another area of focus as people think about the organic growth and a little bit more China exposure than average multi, a little bit more Europe exposure. Just touch on those regions a little bit and what you're seeing in the demand trends.

Vic Kinney, CFO

So maybe just to set the stage here, you know, America's for us is about half of our revenue base and that's largely U.S. centric, not exclusively, but U.S. obviously be the biggest Interestingly enough, Europe is about a third, excuse me, and then Asia Pacific will be about 15%. And off that 15%, about 10%, 11% is China. So just to set the stage here. Interestingly enough, very comparable trends between our ITS and our precision technologies business. So within the PST segment, the precision technologies, the niche pump business, very similar revenue exposure. So you don't see a dramatic shift between the two. They actually kind of mimic each other very well in that respect. As far as China kind of set the stage there, you're right. Obviously, that business has kind of reset a little bit from where we were probably two to three years ago. That business, China, was probably closer to 15% of total company revenue. It's reset to lower double digits, about 11%. I think the good news here is that kind of reset is largely there, right? That kind of happened over the course of the last few years. In fact, as we sit here today, I think in our first quarter earnings, we actually tied that China, through the lens of ITS, Actually, I think it's shown its third quarter of organic orders momentum. So, yes, that's off of a little bit of a lower baseline. But, you know, I think it speaks to some of the, you know, the nimbleness of the team and what they're doing. Because that business in China historically has been largely compressor centric. It's largely from the legacy Ingersoll Rand side. It's clearly that business won't show organic momentum with at least some contribution from the compressor side. It's still the largest piece. So that's relatively stable at this point in time. where you're seeing some of the pockets of growth opportunities are in areas like blower and vacuum and some of the localization of M&A. So blower vacuum technologies that really came from Gardner Denver that that market really didn't have as much access to, now leveraging that Ingersoll Rand channel, you're seeing better traction. Same thing on the M&A front, as we've done now close to 80 bolt-on transactions since the merger. And those that are, I'd say, pertinent to the ITS side and have applicability in China, that team has probably been the poster child in terms of localizing for the local market. So I think that speaks to what's going on in China. Yes, you've obviously seen some headwinds over the last few years, but I think we're encouraged by the fact that that team is showing growth in what is a, it's a tough operated environment. On the European side, a way I would probably characterize it is, you know, we've seen relative stability in the Western European front. Obviously, not all components of Western Europe are made equal. Clearly, the Central Europe, Germany piece has been a little bit slower treading. Germany, not frankly our biggest market. We're much more UK, France, Mediterranean, you know, Spain, areas of that nature, which have comparatively been a little bit healthier. So I think as we sit here right now, I think stability is probably the right word to say. So I'm still encouraged by what we're seeing there. You know, we do have our India business, which is kind of part of our, we run it with Europe, India, smaller business, but with probably our single best growth region of the total company. So completely acknowledge that, yeah, what you're saying in terms of Europe and china i think the china comp growth headwinds are largely behind us we're encouraged by at least what we're seeing a little more stabilization now europe has been relatively stable and that's kind

Joe O’day, Analyst — Wells Fargo

of what we're still seeing right now and then related to price points so you talked about the longer cycle you can do half a million and a lot of seven-figure price points um when you think about the shorter cycle side of things uh you know just any any color on the price points within that percentage of mix to understand, are you still seeing levels where customers might hesitate a little bit, you know, waiting for firm confidence before moving forward with stuff?

Vic Kinney, CFO

I mean, listen, I think there's always going to be some sense of that. But, you know, I think, you know, when I parse out price points between, you know, like 10 to 20 or 30 to 40, no, I wouldn't like delineate in that respect. You know, I think when it comes to the short to medium cycle side, you know, yes, price is always going to be a factor. But, you know, at the end of the day, customers are paying for quality reliability energy efficiency which is really what our products bring to bear so um you know i would tell you as long as you can have the innovation the reliability the lead times that match you know you can generally you know you know get the price hopefully that you're kind of looking for so nothing is dramatically different on that front what i would say on the pricing front right now is that not surprisingly you've kind of now you're getting past a lot of the tariff noise that happened in 2025 you're lapping a lot of those pricing actions that were taken last year, and you're getting much more into what I would consider to be a bit more of the normal pricing environment as we sit here right now, which is kind of returning back to that 1% to 2% kind of standard. That's typically what you see in this business. That's where we're kind of migrating back towards. Nothing is dramatically different on that front. Obviously, China is a little bit of a tougher pricing environment, all things held equal. But other than that, North America and Europe tend to be operating as you would expect. Let's move to the price cost side

Joe O’day, Analyst — Wells Fargo

And if you have a question at any point, just raise your hand and I'll get to you. On the 232 stuff and going back to August and just explain the headwind that that presented from a cost side of things, the response and the timing of how all that is played out, we had a point where that is all kind of in reported numbers.

Vic Kinney, CFO

To keep it relatively simple, yes. Obviously, in the back half of the year, the timing of when some of those tariffs were coming in, as opposed to the timing of announced pricing transactions, when that's actually on the channel, when that actually ripples through the order book into revenue, there's inherently always a little bit of timing there. The reality is we said we kind of worked through that timing in the back half of last year, and that's what you've largely seen. So I think as we sit here right now, yes, you know, year over year, particularly in the first quarter, and you remember the tariffs really happened second quarter of last year, you still have some of the year over year comp dynamics, as you would expect. But generally speaking, at this point in time, price kind of matching those inflationary headwinds, you know, those are really offsetting. As we mentioned, from the time that this started, we were not really looking to make margin on tariffs, right? We were pushing off one for one. And as such, it was kind of dollar neutral, but margin dilutive. obviously as we comp that out here into the back half of the year that normalizes a bit and then compounded with the fact that you'll get some normal price it should lend itself to a better price cost equation all things held equal we'll obviously continue to monitor what's going on in the market real time but the team is largely managing through that any context on the magnitude

Joe O’day, Analyst — Wells Fargo

of that margin dilution or the magnitude of price that was required as a result of those

Vic Kinney, CFO

yeah i mean we didn't we didn't we didn't you know i'd say quantify it externally so i'll consistent with kind of what we talked about before, you did see elevated pricing levels that were above that 1% to 2% average norm. That was clearly driven by the tariff dynamics. Like I said, it was largely offsetting the cost one for one. So I'd say the levels of price that you saw really in the back half of last year, over and above that kind of 1% to 1.5%, 2% realm, which you saw higher than that, that was really the driver there. That's returning much more to the norm as we speak right now. So again, I think as we move into the back half of the year, those expectations of much more normal course pricing. And I could say, having been with a company for 15 years now, 1% to 2% has historically always been kind of that sweet spot. I don't think anything is dramatically different as we think about going forward in a more normalized

Joe O’day, Analyst — Wells Fargo

environment. And when you think about the raw material inflation earlier in this year, and then inflation tied to kind of the at least tension, anything there that's requiring additional

Vic Kinney, CFO

pricing responses? So, you know, I think like everyone else managing through it, you know, I think whether it comes to some of the oil driven and oil derivatives or lubricants or plastics, you know, obviously we're dealing with that like anyone else. So when I say that we're kind of back to, you know, a little bit of the normal course pricing, to some extent that includes obviously an expectation that you're going to be offsetting some requisite amount, you know, of inflationary pressures or headwinds and things like that, as you would expect in this environment or like anyone else is dealing with. So I think the simple answer is the team's been working through that you know i would say in normal course pricing actions have been taken um it's important to note that you know pricing for us is not uniform across the enterprise meaning we don't have a set day for every business every region every product line we take a price increase in fact quite the contrary we actually are staggered by business every business has their own cadence and even in certain cases equipment versus aftermarket it's not a peanut butter spread approach so i think based on some of the exposures we've made sure to account for that as we've gone through what we consider to be some of the normal course pricing to make sure that we're mitigating those

Joe O’day, Analyst — Wells Fargo

pressures as much as possible. And have you seen any impact on the competitive landscape just based on where folks are manufacturing, where they're selling, how that would have had differences in

Vic Kinney, CFO

the cost and price and then kind of? Yeah, I mean, obviously, we can speak to what we've seen and what we've done here. You know, I think just to keep it simple, we have a model that's very much in region for region, right? So you do not have a meaningful amount of like intercompany serving one region serving another we have very very very limited exposure in that respect but that's the model that we've set up now of course we have a global supply chain and so you know you do have your you know us business for example procuring a certain components from asia or china just you know from a third party perspective um so you know that's what's led to some of our exposure which we've been managing clearly some of our competitors have different models as you've seen and i think you would expect they've been taking the requisite actions whether it be for deploying inventory things of that nature to try to manage you know would we still maintain here that we think are in region for region model in the grand scheme is a model that we want to subscribe to in the sense that we think it serves customers in the best possible manner hopefully manages some of those global supply chain dynamics but also manages lead times to customers yes hard for us to speak to kind of what others have seen and done but you know I would say this is always historically been a fairly orderly market in that sense so you know we expect competitors to you know behave relatively prudently as well and then anything on middle

Joe O’day, Analyst — Wells Fargo

east as it relates to demand impact logistics added costs there and and coming back to you did see some push out in orders yeah you caught about a third of that in in april anything that

Vic Kinney, CFO

you've seen since then yeah so to keep it simple here the first quarter did we see you know any dramatic impact on the the revenue and earnings side not not really it was you know yes we managed through it we saw a little bit of noise and just the timing of some of the orders you mentioned one of which you know had already kind of come back by the time we had done the earnings call um you know i think our expectation is that um you know the balance of those orders would come back over the course of the year like we've said the funnels nothing's dramatically changed you're not seeing cancellation things like that now of course every day that we wake up and see new news there you know it continues to create a little bit of uncertainty so it would be good for that to get behind us just to get kind of that uncertainty out of the air but i don't think that's any different from anyone else in that respect so you know i think the simple way to say it right now is um you know we're still managing through the teams doing a exceptional job our employees are all safe in the area in the region um you know getting a little bit more certainty would obviously be helpful but the teams continue to manage through any you know meaningful disruptions or anything like that nothing of that nature to speak to at this point in

Joe O’day, Analyst — Wells Fargo

and what about the the energy efficiency opportunity tied to that so the the degree to what for how long do we need to see disruptions before customers start to react and you can talk a little bit about the efficiency opportunity of replacement and new equipment.

Vic Kinney, CFO

Yeah, for sure. So, I mean, first and foremost, total cost of ownership, energy efficiency, the fact that compressors can consume up to 30% of the energy in a manufacturing facility, that's always part of the narrative, right? I think to your point here, if energy prices are elevated, but most importantly, stay elevated for a period of time, we're not talking like weeks or a month, for an extended period of time, then that can become a much more, I think, relevant part of the conversation for customers to think about we obviously use our demand generation engine to make sure that that education is obviously getting out to the customer base um you know the way i think about it here and you know is yes to keep it simple higher energy prices for a longer period of time inherently will lead to a greater payback on a compressor right you know we've seen instances in the past where you know if the average is you know something that can be in the two-year time frame or thereabouts the economics can lend itself to you know a year in certain cases we even saw you know in certain isolated instances even better than that now does that mean that everyone's throwing away compression technology and go but no i don't want to lead to that at this point you know if people have two three four year old equipment they're still going to utilize that equipment but i do think it lends itself to the question that you know maybe as compressors that compressor leeches midlife and you have to go through the big air end overhaul or the big kind of engine overhaul if you will is the right thing to do to do that or maybe invest in new technology so maybe maybe there's a replacement a little bit earlier than what otherwise been done under the right circumstances so i think without question we're having those conversations clearly this environment lends itself to making sure that customers are at least aware of what their options may be what the economics may be and you know we obviously do everything we can to help them with the decision-making criteria what that means from a total cost of ownership from a savings and a payback perspective so um you know i think we're encouraged that we will continue to push on that joe have we seen that necessarily be like something that we can speak to there and i wouldn't go that far you know through the first quarter or anything of that yet but it was still early days we want to see that energy prices at a higher level for a more extended period of time and we'll see kind of where that materializes to and and as you go

Joe O’day, Analyst — Wells Fargo

to market is a two-year payback generally what you need to target um in order to move those

Vic Kinney, CFO

conversations forward yeah i mean listen i i i almost look at it through the lens of you know we're an industrial manufacturer and like anyone else we look at all of our capex projects and we rack and stack them and generally speaking if something hits a two-year payback it's pretty compelling right and so i would tend to think our customers would have a fairly comparable kind of perspective as well so um yes i mean i think that that is you know would generally hit return thresholds return criteria the right level of savings and payback that customers will be looking for i can tell you through the lens of ingersol ran very similar for us as well

Joe O’day, Analyst — Wells Fargo

um shifting to the margin side of things there's a lot of focus on the anticipated margin acceleration over the course of the year and you know looking at both at each segment level and so So when we look at ITS and think about what consensus has embedded is pretty decent margin, step up Q1 to Q2, and again, Q2 to Q3. And it sounds like the pricing side of that doesn't change very much. But just kind of walk us through the building blocks.

Vic Kinney, CFO

Sure. So maybe to kind of put a finer point on the pricing side, I think there is, so just to keep it two distinct pieces here, obviously, as we move through the first half this year, you're kind of analyzing the tariff actions that were taken last year, the pricing. but there are in-year pricing actions that are being taken right now and remember as you annualize and calendar the the price the cost actions from a tariff right that really happens as we speak now as you're taking new pricing actions now that should lend itself to a slightly better pricing equation price cost in the back half so there is a little bit of that going on in the back half i would also point to the fact that you know i think our guidance kind of outlined at broad strokes slightly negative volume in the first half of the year slightly better in the back half of the year. So slight volume improvement in the back half of the year. Obviously, with, you know, business that plays in the, you know, 40% plus gross margin profile, that's obviously a contributor. The other two pieces I'll point to would be one on the productivity side of the equation. So when you think about direct material productivity, whether it be through classical procurement measures or things like I2V, where we're redesigning products, those follow cost of goods sold. And obviously, as you have your heavier shipment quarters in the back half of the year, you typically always see ITS margins have a step up from a first quarter into the back half of year so that'll be no different than this year in terms of that productivity factor following just your revenue and cost goods sold profile in the back half and maybe the fourth point which a little bit more nuanced for this year compared to years past in the back half of last year you did see us take some fairly meaningful restructuring charges and that was i think prudent restructuring of the organization and the business just given the macro landscape um just to be clear here those were global actions um total company but obviously its is roughly speaking 80 of the revenue so So that's obviously where the preponderance of the impact should set and those actions, you know, you saw the charges in the back half of the year, you can expect that execution was happening kind of in the first few months of this year, the first half of this year, depending on the regions. So that should lead to a little bit of a better cost profile in the back half of the year, all things held equal from a structural or SG&A perspective.

Joe O’day, Analyst — Wells Fargo

And so seasonally, there's typically a volume step up from Q1 to Q2. There will be sequential implements on that back half. You get more of that kind of price cost.

Vic Kinney, CFO

Typically speaking for ITS, and you could argue when is the last year we saw typical, but that aside here, Q1 is your lightest shipment quarter. Q4 is your heaviest Q2, Q3 in between. That's typically how it plays itself out. So, yes, to your point, that seasonality factor, which is kind of what I was saying, the revenue a little bit healthier in the back half of the year, the volumes and or the cost could sold a little bit heavier in Q4 second half compared to first half, that does bring along for the ride some of the productivity with it as well. And the way

Joe O’day, Analyst — Wells Fargo

it's being modeled, there's more margin expansion through the year in ITS, but there's good margin expansion in PST as well through the course of the year. Anything different about the complexion

Vic Kinney, CFO

of the drivers behind that? Yeah, so I think a couple things here. Obviously, from a dollar for dollar perspective on the tariff front, obviously ITS probably had a little bit more impact there. It's not to say that PST didn't, but ITS probably had a little bit more there. So from a PST side, I'd say the margin expansion that you're seeing, one obviously from the volume side, right? You've seen the organic kind of momentum we've been seeing for a few quarters. It's lent itself to, I think we've had three consecutive quarters when I was taking up above 30% EBITDA margins in PST. So we've kind of hit that level and now stayed above said level, which is very encouraging to say as we kind of continue on that track to that mid-30s EBITDA margin profile. When you think about some of the levers, though, very similar in nature here. Obviously, PST is taking its requisite pricing actions in year, as you would expect, very similar to ITS. Two, I think the volume side of the equation, I mean, this is a business that plays kind of closer to mid-40s gross margin profile. So the volume piece here is very beneficial. You have definitely seen growth drivers from the life sciences side. You know, we saw double-digit organic orders in Q1, you know, and i think the biopharma business is the one that obviously is the the healthiest of the growers thus far in that business so i think as you continue to see that momentum that's kind of just the volume click through there combined with the pricing and then listen i think the pst side um you'll continue to see some of the same productivity driver is no different than its um you know i think we've said it kind of explicitly that pst probably was a little bit of a later adopter of some of the kind of just standard irx work and things like that just as far as the merger, ITS was probably the more focal point. So that obviously continues to lead to a little bit of, I don't want to say the word catch-up, but a little bit of opportunity that still exists there in PST that maybe you've seen some of that comparable opportunity taken a little bit earlier in ITS. And then, you know, the other piece here is, you know, I think we're still encouraged by the fact that the ILC Dover business now is kind of firmly the anchor on that life sciences side of the equation. You've seen the integration kind of now take root there. I think a lot of that is largely behind us in terms of the structural and some of that areas. But now continuing to leverage things like demand generation and things like that to help continue to accelerate some of that growth cadence, I think we're encouraged by that momentum we're seeing.

Joe O’day, Analyst — Wells Fargo

And as part of the productivity, is tariff mitigation a factor at all in terms of sourcing or, you know, metal content, like how you're approaching that?

Vic Kinney, CFO

Yes. I mean, I would say whether you call it classical tariff mitigation or even I2V, because they start to dovetail across each other in terms of how do you redesign a product to limit your exposures to, you know, one component versus another, they kind of all fit together. So I would say in terms of the tariff mitigation, a lot of that, you know, what actions could have been taken have largely been largely there. Now, as far as resourcing, i.e., like, you know, going from one supplier to another supplier, potential some tweaks and redesigns of products, I would consider now that's kind of part of firmly the productivity part of the equation. And, yes, those are very much priest and partial. When we say procurement and I2B, it's exactly those types of initiatives that we're looking at.

Joe O’day, Analyst — Wells Fargo

Wanted to dig in a little bit more on the life sciences side and maybe just start by explaining the life sciences business. There are a few different markets you're really playing in there.

Vic Kinney, CFO

Yeah, so our life sciences business, you know, roughly speaking, six to seven hundred million dollar business, it's kind of got two building blocks of where it's kind of four, you know, the life sciences piece discreetly is three businesses, but they kind of come from two different places. So the first one is you have the legacy, what I'll call Ingersoll Rand medical business. So the business that's been part of the portfolio forever, approximately $300 million in size. If you remember, this is the business that was probably the biggest beneficiary from COVID. It obviously makes, you know, miniaturized compression and pump technology that goes into a host of what I'll call OEM, you know, devices, diagnostic machines, things like that. It also has some outlets and applications and breathing applications. So that was the big run-up during COVID. You saw the big reset to sub $300 million. And I think what you've seen here is now, you know, I'd say steady kind of, you know, growth kind of off that trough. You've seen, you know, a bit of a recovery here in terms of just some, you know, I'd say better growth cadence as we looked over the last two years. So, you know, that business is the largest there, but largely serving larger like, you know, OEM, you know, it's an OEM component manufacturer. So that's kind of where you should think about some of their kind of end market applications, diagnostic machines, things of that nature. Then the other businesses really came from the ILC Dover acquisition. So the first would be the biopharma business, you know, let's call it squiggle $200 million in size. But obviously, this is playing very large in single-use containment and technologies that are used in things like GLP-1s, high-potency APIs, personalization of medical treatments, things like that, things that have obviously been very high in the news and continues to see very good growth traction. So obviously, this business has been, you know, prior to our acquisition, a double-digit kind of grower. It's maintained comparable momentum. Obviously, it's been the one that, you know, in Q1, for example, you know, was the, let's say, the largest contributor to that double-digit growth cadence you've been seeing and continues to operate well at very healthy margins. The third business, so interesting, it's $300 million, $200 million. The third business is $100 million. So it kind of makes the math kind of easy. And this is our medical device business. So this is where we are manufacturing, you know, medical device components for, you know, for large, you know, manufacturers of, you know, medical equipment, whether it be, you know, like a catheter or whatever it might be. And we're being, you know, contracted to manufacture a specific component that's usually through like silicon or thermoplastic type engineering, very precise. This business, a little bit of a different growth cadence, whereas the other two businesses kind of behave very similar in terms of their normal book and ship dynamics and things of that nature. This business has that, but this business also is being specced into these end market kind of applications. You typically live a two to three year type of spec in process with one of these large customers. once you've gotten specced in then you live the life cycle of that product line and so when i say this one's a little bit different for me this is about looking at kind of the medium term kind of funnel because it's about layering those different you know applications on top of each other and getting specced into those new applications and as you look at those new products and those new processes how do those rack and stack over the medium term so yes there's a short-term dynamic but i think we're encouraged by that kind of medium term funnel that you're seeing and then listen though the fourth business which is kind of the smallest piece it's squiggle 50 million bucks as the space business, you know, it's a pretty, you know, moving sideways type business, as you would expect, given kind of some of the end market applications, doesn't really move dramatically. So, you know, those are the four components there. Obviously, the first three are what are really driving the growth, and we're continuing to remain encouraged about what that future looks like.

Joe O’day, Analyst — Wells Fargo

And when you think about those three, are there product or capability gaps within there that would be higher priorities as growth opportunities for you?

Vic Kinney, CFO

I'm not sure I initially say gaps. What I would say here is a couple of things. One, very complementary to each other. So the fact that, for example, our medical device business can do plastic tubing type, plastic molding, things like that, that can be used with some of the pump technologies that might come from our iron medical business or other parts, there are complementary components there. The way I'd probably look at it now is I think you really have a beachhead, for like I would say this from a life sciences perspective, where you're thinking about six to seven hundred million dollars, you could actually find, I'd say, some complementary technology. And if you look over the course of the last year, as an example, we've done four bolt-ons in life sciences alone. You know, lead fluid from a pump technology perspective, synomics in terms of some lab automation. You know, you've seen, you know, Dave Barry Plastics, which is actually a complementary technology into our biopharma business. So you're actually seeing now the opportunity of, I wouldn't say necessarily, you know, fundamental gaps, but the opportunity to find complementary technologies that can be bolted on that kind of fit those businesses and be able to actually, I would say, mimic the model that you've seen kind of courting or saw ran, albeit in ITS and precision technologies historically. These are businesses that we're sourcing from an M&A perspective that are sole sourced. We're getting exclusivity. We're not going through big auction processes in those respects. They are multiples, you know, from pre-synergy multiple perspective, they're very comparable to what you've seen, low double digit. You can drive comparable returns. So it actually is proving to be kind of a nice anchor that you can now do a lot of the bolt on like you've seen in the core, the more core industrial side of the business historically.

Joe O’day, Analyst — Wells Fargo

That's a good segue into M&A for total Ingersoll. And so delivered at or above target for a number of years now, that's 400 to 500 basis points of acquired annualized inorganic revenue. we've seen a little bit lighter activity recently and so maybe just explain kind of what you're seeing out there is your appetite for larger deals going up to speak to the confidence of

Vic Kinney, CFO

reaching that four to five yeah i wouldn't read too too much into it as you know m&a can be a for lack of a touch episodic in some respects i think the way i would think about it here is you know year-to-date we've closed four transactions all small bolt-ons in nature when we did our earnings, whatever that was, six, eight weeks ago. We had 10 more under LOI. Those 10 are very much what I would consider to be down the middle of the fairway bolt-ons. LOIs typically have a pretty good hit rate to getting to the finish line of a closed transaction. You obviously still have to go through diligence and things, so you have to go through that process. But it speaks to the health of the funnel. It's not to say that the funnel is dramatically different. In fact, I would the funnel still multiple hundreds of companies in the funnel at varying stages of cultivation the fact that 10 under loi speaks to the fact that i think the activity levels are still quite high the the economics whether it be purchase multiple or return profile is very similar to what you've seen as far as your second question about uh appetite for a larger deal or things like that you know i think nothing's changed in that respect you know we've said that you know maybe every three to five years you'll see something a little bit more size like an i like ILC Dover was. In the interim, you're going to see us be very keen to continue the bolt-on routine. I think that there's a lot of opportunity to add differential technologies, but create value through the return profiles and the synergies that we can deliver there. So nothing's different in that respect. As far as anything more sized, like I said, we'll continue to keep monitoring the market. If there's something that's out there that makes sense, we won't be averse to looking at it, but it's got to hit the right deal criteria and things like that. In the interim, you're going to see the bolt-on routine continue to be the focal point. And is life sciences the most

Joe O’day, Analyst — Wells Fargo

attractive opportunity that you have when you think about that pipeline?

Vic Kinney, CFO

I would actually say the pipeline is quite equitable across both segments. Yes, obviously, you know, with the Aussie Dover transaction and now having that beachhead there, you know, it does open an aperture for more life sciences type M&A, comparatively speaking to probably where we were two or three years ago. But I think you're going to continue to see an equitable mix across both sides of the business. You know, ITS will continue to see its fair share of both on M&A. We continue to see opportunities on the precision technology side, including one of the four bolt-ons we did already this year. I think life science is intriguing, but don't think of the fact that you're going to divert capital to just one versus the other. No, I think you're going to continue to see an equitable spread across the board.

Joe O’day, Analyst — Wells Fargo

And then moving to the recurring revenue side of things, and yeah, you've achieved some good success so far on the targets, ultimately a target to get to a billion dollars. Just talk about the progress so far. Any thoughts on the timeline that it takes to get to that billion?

Vic Kinney, CFO

So listen, I think, probably not surprising to hear, but I think the recurring revenue initiative with CARE being kind of the gold standard there, arguably one-off, if not the highest kind of organic growth initiative we've had internally. You know, I think just to kind of speak to the momentum we've seen, you know, this is a business that, or this was a portion of the portfolio that was, you know, roughly $100 million when the merger happened. It was roughly $200 million when we did our investor day in 2023, and we eclipsed $450 million, roughly speaking, last year. So I think the fact that you continue to see great traction and momentum, this is no longer just a North America compressor story anymore. Yes, that's still the biggest piece, but you've really adapted this model from a current revenue perspective and care to Europe, Asia, Latin America, the Gardner Denver portfolio, where it makes sense, and other technologies, i.e. blower, vacuum, and pump. Where there is aftermarket content, there's probably some degree of a recurring revenue model that can be adapted. So I think the good news here is over the course of the last two years, you've really seen that model take root in a lot of our businesses. It's still relatively early days, but you now have like measurable baselines, I'd say, across most of our portfolio. As far as the path forward here, yeah, listen, I think we continue to be really excited about the future here. This is one where I tell you we're going to continue to see our expectation is continue to see this being one of the best growth drivers in the aftermarket portfolio as we think about 26 and 27. But to be very clear, it doesn't mean that there's like some like end of the game at any point in time. You know, I think that's just a milestone along the way here. We continue to be really optimistic about where the future holds here. And the fact that now we're getting better traction in the other parts of the portfolio, aside from just U.S.-centric compressors, I think is encouraging. And the good news here is as we continue to do M&A, as whether it be product acquisitions or even in certain cases targeted channel, those are both quite viable outlets to continue to proliferate that recurring revenue model. I think that brings us to the end, but thank you very much. Well, no, thank you for having us. Appreciate it.