Earnings Call Transcript - IR Q1 2026

Operator, Operator

Hello, and welcome to the Ingersoll Rand First Quarter 2026 Earnings Call. Operator instructions were provided. I would now like to turn the conference to Matthew Fort, Vice President, Investor Relations. You may begin.

Matthew Fort, Vice President, Investor Relations

Thank you, and welcome to the Ingersoll Rand 2026 First 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 reference these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference 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, 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 2026 guidance. For today's Q&A session, we ask that each caller keep to one question and one follow-up to allow time for other participants. At this time, I will turn the call over to Vicente.

Vicente Reynal, Chairman and CEO

Thanks, Matthew. Good morning, everyone, and thank you for joining us today. Beginning on Slide 3. The first quarter represented a solid start to 2026, especially given the continued complexity of the global operating landscape in the markets where we play. Adjusted EPS grew high single digits with revenue and adjusted EBITDA finishing in line with expectations. This performance reflects the durability of our portfolio and the consistency of our execution. Conditions remain mixed, but we're seeing continued improvement across several end markets and in short cycle activity. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline remains robust, focused on differentiated technology and services that strengthen our portfolio and enhance our organic growth profile. Finally, IRX remains a key differentiator, allowing us to remain agile and stay focused on what we can control, including operational execution, disciplined pricing and capital allocation. On Slide 4, our inorganic growth strategy remains a core element of our overall strategy and the pipeline remains robust. This is supported by our value creation flywheel, which is a core engine of our performance, generating durable free cash flow, which further enables consistent high-return capital deployment. We're pleased to announce the signing of Fox S.r.l., which is expected to close at the end of this month. As a leading manufacturer of hydropneumatic accumulators and position dampeners, Fox enhances our pump technology by utilizing dampeners to absorb pressure pulses. This protects downstream pipes and equipment, helping customers reduce downtime and maintenance costs and thereby increasing the return on investment offered by our solutions. Today, we have over 200 companies in our funnel with 10 transactions currently at the LOI stage. More than 90% of these opportunities remain internally sourced, which reflects the strength of our operating model and deep industry relationships. We continue to expect 400 to 500 basis points of annualized inorganic revenue to be acquired in 2026, and we have a few additional deals expected to close in the coming months. Our approach to M&A remains unchanged, which is disciplined valuation, strategic fit and a focus on bolt-on acquisitions that strengthen our core technologies or expand into attractive adjacencies. Now I will hand it over to Vik, who will share an update on our financial performance for the first quarter.

Vikram Kini, Chief Financial Officer

Thanks, Vicente. Starting on Slide 5. Orders finished up 5% year-over-year, resulting in a book-to-bill of 1.07x, which is consistent with normal seasonality. Worth noting, we did see a delay in orders of approximately $40 million, which was driven by a few long-cycle projects. This delay was primarily driven by the conflict in the Middle East. We believe that the impact is transitory, and we expect these orders to be recovered in the balance of 2026. As a matter of fact, we have already recovered approximately one-third of these orders in the month of April. Excluding that delay, organic orders would have finished approximately flat year-over-year. Total revenue grew 8% year-over-year, finishing in line with expectations. For the first quarter, adjusted EBITDA also finished in line with expectations at $469 million with an adjusted EBITDA margin of 25.4%. The year-over-year margin pressure was primarily driven by the flow-through on organic volume declines, the dilutive impact from tariffs and continued strategic investments for commercial growth. Corporate costs were $38 million. Our Q1 adjusted tax rate was 19.8% and adjusted earnings per share was $0.77 for the quarter, up 7% year-over-year. On the next slide, free cash flow for the first quarter was $163 million, finishing largely in line with expectations and normal working capital seasonality. With nearly $4 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Our leverage remains well below 2x, providing us with flexibility to continue to deploy capital effectively throughout 2026 and beyond. Our capital allocation strategy remains unchanged, which prioritizes M&A, while also maintaining our commitment to share repurchases and quarterly dividends. Now I'll hand the call over to Vicente, who will review our segment results as well as full year guidance.

Vicente Reynal, Chairman and CEO

Thank you, Vik. On Slide 7, ITS orders finished up 5% for the first quarter. Book-to-bill for the quarter was 1.08x. Organic orders for the quarter were down 3%. Excluding the impact of delayed orders, which Vik mentioned, organic orders finished approximately flat. Important to note that on a two-year stack, organic orders are up 1%. On a total segment basis, revenue grew 7% year-over-year. Adjusted EBITDA margin finished at 26.7%, which was down year-over-year, largely driven by the flow-through on organic volume declines, the dilutive impact of tariffs and continued commercial investments for growth. On a reported basis, every ITS product line grew orders, except the power tools and lifting. On an organic basis, let me provide some additional color on orders by product line. Compressors were down year-over-year, driven by the previously noted timing on the large projects. The blower and vacuum business continues to perform well and was up year-over-year. Power Tools and Lifting was down year-over-year, driven by the lift in business. And we remain encouraged by the core tool business growing organically mid-single digits, driven by launches in new product technologies as well as growth in the short-cycle momentum that we're seeing. From a regional perspective, here are a few highlights on organic orders. We saw stabilized compressor activity in the U.S., and we continue to see encouraging order trends across many of our compressor categories. Additionally, China continues to outperform the underlying market, delivering another quarter of positive organic order growth. In our Innovation in Action section, we're excited to share a large win in carbon capture, where Ingersoll Rand was selected to provide a combined vacuum and blower application for an innovative carbon capture technology, which utilizes a proprietary gas separation process. This technology is applicable across a wide range of applications, including transportation like rail, power generation for data centers as well as industrial engines. Although this innovation is still in its early stages, we're encouraged by positive outcomes demonstrated through the integration of our connected technologies. Turning to Slide 8. Q1 orders in PST were up 6% year-over-year with a book-to-bill of 1.04x. Organic orders saw a modest increase of 1%. Our Life Science business maintained robust growth with a double-digit increase in orders, while the remainder of PST business was impacted by the timing of some large projects. In the Precision Technology business, the short-cycle book-and-ship business continued to see organic order growth. First quarter organic revenue finished up 4%, with both Precision Technologies and Life Science Technologies businesses delivering positive organic revenue growth in the quarter. PST delivered adjusted EBITDA of $122 million, which was up 15% year-over-year. Adjusted EBITDA margins improved 120 basis points year-over-year, reflecting continued strong operational execution. For our PST Innovation in Action, we are highlighting a great win for our Life Science business, which integrates core ITS product technologies into ILC Dover's end-to-end bulk powder system solutions. ILC Dover developed a comprehensive fully integrated bulk powder system, which includes hardware, containment and mixing in collaboration with our own vacuum technology for a leading pharmaceutical manufacturer. This end-to-end design, assembly and installation utilize both ILC Dover powder solutions as well as our Elmo Rietschle vacuum pumps for powder conveyance. As we move to Slide 9, we are reaffirming our full year guidance for 2026. Total company revenue is expected to grow between 2.5% and 4.5%, and driven by organic growth of 1% at the midpoint, growth from M&A of approximately 2%, which includes the carryover impact from all transactions completed as well as the recently announced signed transaction of Fox. And finally, we expect FX to be a tailwind of approximately 0.5%. Total adjusted EBITDA for the company is expected to be in the range of $2.13 billion and $2.19 billion. Corporate costs are planned at $170 million and are expected to be incurred evenly per quarter throughout the remainder of the year. Adjusted EPS is projected to fall within the range of $3.45 and $3.57, which is approximately 5% growth at the midpoint. We anticipate our adjusted tax rate to be roughly 23%. Net interest expense to be about $230 million and share count to be approximately 394 million. Free cash flow to adjusted net income conversion is expected to be approximately 95%. The phasing of revenue adjusted EBITDA and adjusted EPS is expected to be consistent with what we have seen in prior years as outlined on the table. We continue to monitor the changes in tariffs carefully, including the recent changes in Section 232 tariffs. We remain able and continue to be adjusting our mitigation actions to best minimize the effect of tariffs as well as inflation. And as a result, we do not currently expect any net tariff and inflation impact to our full year guidance. Additionally, as I mentioned earlier in the call, most of the orders from the Middle East are tightly long-cycle projects. We anticipate order recovery throughout the year and with strong execution from the team expect no impact on full year revenue or adjusted EBITDA at this time. Finally, on Slide 10, as we conclude this segment of the call, I believe our performance in 2025 provides a solid start in 2026 with a book-to-bill above 1x and the improvement in the short-cycle business sets us up well for continued success throughout the remainder of 2026. We remain agile to effectively navigate the complex global environment. Through disciplined execution, ample liquidity and a strong balance sheet, we continue to differentiate Ingersoll Rand as an investment. Our approach to capital allocation remains unchanged, leveraging our strong free cash flow to drive durable earnings growth and create long-term shareholder value. IRX remains the backbone of the organization, enabling operational execution. Finally, and most important, I would like to thank our employees for the ongoing dedication and commitment to embracing our ownership mindset. Thank you for help in delivering another strong quarter. And with that, I will hand the call back to the operator and open it for Q&A.

Operator, Operator

Operator: Your first question comes from Mike Halloran with Baird.

Michael Halloran, Analyst, Baird

Maybe we could just start on what you're seeing on short-cycle versus long-cycle side of the business. On the short-cycle side, are you seeing sequential acceleration? Are you seeing signs of improvement in demand normalizing? And then on the long-cycle side, maybe just talk about what you're seeing outside of the Middle East where you talked about the project delays and if you're seeing delays more systemically or what the customers are saying? Or if there's any signs that side of the business might be improving?

Vicente Reynal, Chairman and CEO

Yes, sure, Michael. So Mike, on the short cycle, looking specifically at the U.S., we're seeing signs of stabilization and improvement, which is definitely consistent with the ISM moving back to above 50 now for the past few quarters. I'll say that compressor activity in the U.S. stabilized during the quarter as well. And we're seeing encouraging order trend across several compressor categories. In addition, the short-cycle businesses continue to improve. As we mentioned on the prepared remarks, our core tool business is growing organically at a mid-single-digit rate. That's a good indicator for us to see on that short cycle. And then within the PST side, in Precision Technology, we saw book-and-turn or short-cycle business grow organically which also lines up really well with what we're seeing and actually continued improvement as we went through the quarter and here into April. In terms of the long cycle, we categorize the longer-cycle funnel activity as remaining stable as well. And as we think about continued rising energy prices in Europe, we see these as a potential longer-term tailwind given the nature of our products and the value that we create for our customers in terms of delivering energy efficiency products and services. As we indicated before, what we're seeing right now is customers taking a little bit more time in decision-making and finalizing, which is consistent with what we have said before in terms of the elongation of the funnel and the overall decision making. However, projects are not canceled or anything of that nature. So we feel this is just a bit of timing in terms of the elongation of the decisions that has not decreased. And as we have mentioned previously, specific to the Middle East, we have seen some of these longer-cycle projects being delayed, but we expect that to come back over the course of 2026. And as Vik mentioned in the prepared remarks, already one-third of those projects have come in and booked here in the month of April.

Michael Halloran, Analyst, Baird

And then maybe the follow-up is just to put that in the context of how you're thinking about the guidance for this year. How much of that is embedded sequentially? Are you embedding some level of improvement as we work through the year? And as we think about how the orders are going to cadence out, I know you guys don't give specific guidance here, but how should that work out through the year when you consider comps, you having some of the projects, some sequential improvement as we're thinking about the short-cycle side of things?

Vicente Reynal, Chairman and CEO

Yes, Mike, as we think about delivering the full year organic revenue guide, our expectations for organic growth and the cadence through the year has not changed from the original guidance. As you have seen on the midpoint of our guide, we're expecting about 1% full year organic growth and when we provided our original guidance, we indicated slightly negative organic growth in Q1 and then low single-digit growth for Q2 to Q4. Q1 kind of came in as we expected and even—actually, if we were to exclude the Middle East pushouts, it came even better than what we expected. So as we think about our second half guide that implies low single-digit organic growth, which is supported by a very good solid backlog growth from 2025 where our full year book-to-bill was above 1x, Q1 here in 2026, again, book-to-bill above 1x, 1.07x. As we mentioned here before, the ongoing momentum in the short-cycle activity, which we have seen in both segments, provides a good setup as we go into the second half, ongoing commercial investments for growth, including a very focused approach on penetrated markets. And then as we all know, the prior year comps will continue to moderate, particularly in ITS as we move into the second half.

Operator, Operator

Operator: Your next question comes from Julian Mitchell with Barclays.

Julian Mitchell, Analyst, Barclays

I know you've given the color on sort of first half, second half splits on revenue and earnings and so forth in the deck. But just wondered if you could perhaps hone in a little bit on what you're anticipating for the second quarter. Just backing the numbers out, it looks like kind of organic sales company-wide may be flattish year-on-year in Q2 and then the EBITDA margin is down, I don't know, 50 to 100 bps year-on-year in the quarter. I just wonder if those are roughly accurate and any kind of segment color for what you're seeing in the current quarter?

Vikram Kini, Chief Financial Officer

Yes, Julian, I'll take that one here. So I think first your read is pretty directionally correct. I think Vicente kind of outlined the full year and expectations, but maybe to give a touch more color specifically in terms of the phasing, both first half, second half as well as second quarter. First and foremost, just to reiterate, our expectations and assumptions for phasing for EBITDA delivery in the year haven't changed. First half of the year being in that kind of 45.5% to 46% range, the balance in the second half. As far as Q2, one, we do expect sequential improvement on margins from Q1 to Q2. But in Q2, margins, we do still expect to be slightly down year-over-year, kind of in that 50 to 100 basis point range. It's primarily driven by ITS. We do still expect to see continued margin expansion year-over-year on the PST side. And then just to fill in the color there on the organic revenue side of the equation, as Vicente just mentioned, Q1 was expected to be slightly down, and that's exactly what we saw. From an overall perspective, Q2 is expected to be flattish to slightly up. And then the low single-digit growth on the organic side is what we're expecting in the second half based on the drivers that Vicente just walked through.

Julian Mitchell, Analyst, Barclays

That's very helpful. And then just my follow-up would be around the ITS business. As you said, margins are down there for five quarters in a row year-on-year, down again second quarter. Maybe help us understand kind of the confidence on those being up in the second half? And anything you could flesh out in terms of price cost impacts, anything changing competitively with what's happening on tariffs and inflation in ITS, please?

Vikram Kini, Chief Financial Officer

Sure. I'll start on that one there, Julian. So obviously, a fair comment from your side. I'll note that obviously, the last five quarters, the majority of those have been impacted by the kind of the tariff dynamics and the underlying impact that's had on some of the demand environment, which is really the driver of what you're seeing on the margin front. I think from a total year perspective, our expectation on a full year basis is that ITS will be approximately flat year-over-year. As we indicated, Q1 was going to be the most challenging quarter, particularly given we hadn't really started comping or lapping the tariffs from prior year, which really started in the second quarter. As far as the second half and to your question, we do expect that's where margin expansion kind of comes back, supported by, I would say, the slightly better organic volume outlook that we have expected in the back half of the year. Continued improvement in price-cost driven by, I'd say, full implementation of all the tariff-related pricing actions that have been taken as well as some of the targeted in-year actions that we always execute on. And then many of the productivity initiatives, including we took some meaningful restructuring charges in the back half of last year, which we would expect to continue to bolster margins, particularly as we move into the back half of this year. So I think that's what gets us to that kind of flattish margin on a year-over-year basis. But yes, it is a little bit more back-end weighted as a result of those drivers.

Vicente Reynal, Chairman and CEO

And the only thing I will add is that the exit rate on margin expansion will be consistent with our long-term targets.

Operator, Operator

Operator: Your next question comes from Jeff Sprague with Vertical Research Partners.

Jeffrey Sprague, Analyst, Vertical Research Partners

Just a couple of things first. Just the language on tariff here that you don't expect any impact. Does that mean you haven't sorted it all yet, and you're still kind of working through it? Maybe you could just kind of talk us through the AIFA change versus the 232 change. I guess you're saying you think you land kind of net neutral. But again, just looking for a little more clarity there.

Vikram Kini, Chief Financial Officer

Yes. Jeff, happy to provide a little bit more. Obviously, a number of moving pieces to keep it simple here. No, we have obviously worked through all those individual new components. And I think the simple takeaway is what you indicated here that at this time, those moving factors, whether it be the tariff-related changes, some of the underlying disinflationary movements in the market as well as a lot of the proactive measures that our internal teams have been working on from a mitigation perspective, those are kind of netting out relatively neutral on a full year basis. So our rate at this point in time based on what has been announced is relatively neutral. And obviously, like everyone else, we're anxious to see how things continue to play themselves out for the balance of the year.

Jeffrey Sprague, Analyst, Vertical Research Partners

And then maybe unrelated, just a little more color on Life Sciences, if you could, just how the year is unfolding, what you see in the pipeline? It looks like some of the Life Sciences reshoring announcements of a year or two ago, we're seeing some ground break on some bigger projects. Just wondering what the funnel looks like there? And is the visibility actually improving?

Vicente Reynal, Chairman and CEO

Yes, definitely improving. And clearly, we're pleased with what we saw here in the first quarter, double-digit organic order growth momentum on the Life Science side. A lot of these return and investments that we're seeing, particularly in biopharma and very specific around API production in the U.S., it's really a great trend for us in terms of the product that we have. So good visibility. As a matter of fact, this week, we had a great session with one of the largest biopharma companies here in the U.S. where we can collaborate as we look into specific technologies that we can actually put and help them to accelerate some of the productivity and production that they have to do here in the U.S. So looking good, and we feel positive about it.

Operator, Operator

Operator: The next question comes from Joe O'Dea with Wells Fargo.

Joseph O'Dea, Analyst, Wells Fargo

Just wanted to circle back on the EBITDA margin trajectory with ITS because I expect that will be the biggest area of focus coming out of this quarter. And if we're talking about something like, call it, 27.5% to 28% in Q2, and moving to something that approximates 30% in the back half. Just if you could unpack any quantification around that? I know you gave some of the items. But any more detail around like the pricing that you put in place for tariffs, but the timing of when that starts to flow through the P&L or the impact from the restructuring, any other cost mitigation just to help with a little bit of the quantification around that bridge from Q2 into the back half.

Vikram Kini, Chief Financial Officer

Yes, sure. Joe, obviously, we're not going to necessarily provide the exact specifics on the individual components, but let me give a little bit more color on some of the moving parts. So one, I think, obviously, your read on the directional movement of margins is in line with expectations. As we've indicated, we do expect to see sequential margin improvements here as we move through the year. Frankly, both a statement about ITS as well as PST for that matter. On the ITS front, just to delve into the components a couple of moving factors. One, obviously, as I indicated here, we do expect to see organic volumes improve in the second half compared to the first half levels. Clearly, those do come with a normal flow-through, which will be a benefit that you haven't really seen in the numbers over the last few quarters, just given some of the volume dynamics. Second piece would be price. Specific to price, all of the tariff-related pricing actions were largely taken through 2025. And you are seeing those in the numbers as we speak. What you haven't necessarily seen is some of the in-year 2026 actions, which is a catalyst of some of the margin expansion you would expect to see in the back half of the year. The other factors I would point to are productivity initiatives. The restructuring has been taken; that restructuring is global in nature. It does take some time for some of those actions to be fully executed, which we expect to largely conclude here through the first half of this year and those benefits to start being more visible into the back half of the year. And the other piece would be the direct material side. Direct materials are approximately 70% of our cost of goods sold. There is significant activity going on, whether it be on the supplier front or classical direct material procurement. As you've seen in years past, those benefits tend to be much more visible when you have your seasonally strongest quarter, which is always in the back half of the year and particularly the fourth quarter. So again, that's another driver of the back half margin expansion that you're not necessarily seeing manifest right now in the first quarter.

Joseph O'Dea, Analyst, Wells Fargo

All helpful details. And then just on the demand front, when you talk about some of the order delays and some of that coming back in the quarter, trying to understand a little bit of the ripple effect from the conflict. So if you could just talk about what you're seeing in Europe overall demand and then over the course of March and April, if you have seen any impact associated with the conflict or if that order impact is largely contained to the Middle East region?

Vicente Reynal, Chairman and CEO

Yes, Joe, it is mainly contained right now to the Middle East. In the Middle East, it was really a handful of long-cycle large projects that as the conflict started people had to stay at home and were not able to leave. We have a lot of our team members safe and sound, but they could not leave their houses to go and talk to customers, and the same happened at the customer side. So that is what created some of the delay and the impact. Already in the month of April, one-third of those orders have already booked into us, and we don't see any cancellations whatsoever. So at this point in time, it is mainly timing. As we think about continued potential impact in Europe, the main impact that we see is clearly the increase in energy prices, which we view as a potential long-term tailwind for us, given the nature of our products, and how we can create energy efficiency for customers. The teams mentioned a win where they are saving upwards of $15,000 per month at a specific location, creating a payback for a compressor anywhere around a one-year payback. Not everyone will be like that, but that is the type of value we are focused on delivering to help customers lower their energy costs.

Operator, Operator

Operator: Your next question comes from Amit Mehrotra with UBS.

Amit Mehrotra, Analyst, UBS

I just—sorry to revisit this, but I want to sort of revisit the triangulation between organic growth in the quarter, orders both kind of flat to down and then this 1% full year organic growth and then the comps actually get a little bit harder as we progress through the year on organic growth. So I'm just trying to triangulate those three things and if there's kind of this embedded expectation of demand that we're not seeing yet as we progress through the year. Or maybe that's not. Maybe you can clarify that for me.

Vikram Kini, Chief Financial Officer

Sure, Amit. I'll start. First and foremost, the short-cycle side of our business, whether on the ITS side or the PST side, is the piece that we're seeing stabilization and improvement in compared to the last few quarters. That's encouraging. It's the base of the business and will drive improvement in the demand environment. The order numbers you saw in Q1 were more impacted by longer-cycle projects that typically book in the first half of the year and go into backlog, and those might be 6 to 18 months in duration. We expect those projects to get to the finish line; we view much of the impact as timing and transitory. Those projects will continue to feed the backlog into the back half of this year and into 2027. We're encouraged by what we're seeing in the shorter-cycle book-and-ship businesses and the momentum in Life Sciences.

Amit Mehrotra, Analyst, UBS

Okay. And I just wanted to follow up on that point and maybe Vicente, the short-cycle stuff seems encouraging underneath the surface, but ultimately, it's not piercing its way through to the organic growth profile of the business. My understanding is you guys took a lot of price over the last several years. I'd love for you to opine on whether there's a demand elasticity issue vis-à-vis pricing and market share. Like is there something else going on where some of the short-cycle momentum that we're seeing across the broader industrial is not really piercing through your organic growth in the moment?

Vicente Reynal, Chairman and CEO

Amit, when we unpack the data, on the PST side, the two-year stack organic orders are up mid-single digits. In the first quarter, Precision Technology—the more short-cycle part—did fairly well, offset by some long-cycle year-over-year comparisons. In ITS, the blower and vacuum side is more short-cycle, and our vacuum business based in Europe has been a good leading indicator for upswings in manufacturing demand. We're seeing improvement there. When you exclude some of the long-cycle timing effects, we do see short-cycle improving. Regarding demand elasticity, as long as we continue to innovate and sell on cost-of-ownership and payback—how our sales teams position our solutions—we believe the value proposition remains strong and supports continued demand.

Operator, Operator

Operator: Your next question comes from Nathan Jones with Stifel.

Nathan Jones, Analyst, Stifel

Vicente, I'd like to ask about the potential for high oil prices, higher energy prices in Europe to be a catalyst. We had a similar circumstance in 2022 and I believe there was a surge in demand for your products then. I'm hoping you can compare where we are today in Europe to where we were maybe in 2022. I know there were some government programs that helped there. But maybe just any color you can give us on the similarities and differences between now and then and how rising energy prices impacted the business back there?

Vicente Reynal, Chairman and CEO

Nathan, we're watching a lot of indicators to compare to 2022. Gas prices are not at the same level as back then, but they have spiked and increased; diesel prices are higher relative to petrol in parts of Europe, which is notable. We're still early into the conflicts in the Middle East and early into the acceleration of energy prices, but we believe this can be supportive for us. We're leveraging demand generation tools and re-evaluating ROI with customers to communicate the energy efficiency benefits of our newer technologies. We see opportunities to provide solutions that lower customer energy costs.

Nathan Jones, Analyst, Stifel

And my follow-up—You guys have frequently talked about the time from RFQ to booking as a sign of customer confidence. Can you talk about any changes you've seen there? Have RFQ-to-book times gotten shorter? Or are we still waiting for that to come back?

Vicente Reynal, Chairman and CEO

Yes, it has improved. It's certainly not back to very short historical levels. Historically, a marketing qualified lead might have taken 4 to 8 weeks, and while that has improved compared to the longer times we saw during the height of uncertainty, it's not yet back to pre-disruption levels.

Operator, Operator

Operator: Your next question comes from Nicole DeBlase with Deutsche Bank.

Nicole DeBlase, Analyst, Deutsche Bank

Yes. I guess maybe first, organic growth for PST pretty strong, and I think it was better than your expectations for maybe flattish originally for the first quarter. So if you could unpack that a little bit? And do you think that 4% growth that we saw in 1Q is sustainable throughout the rest of the year, meaning that maybe PST outperforms ITS in 2026?

Vicente Reynal, Chairman and CEO

Nicole, we were pleased with PST's performance. Life Sciences was a key contributor, and short-cycle businesses in PST performed well. As we move into April, we're encouraged by continued momentum. On a two-year stack, PST organic orders are mid-single-digit, which aligns with the segment’s target performance level. We are encouraged and see positive momentum as we move through the year.

Nicole DeBlase, Analyst, Deutsche Bank

Got it. Understood. And then thinking more about the progression of short cycle, did you actually see improvement in order activity on the short-cycle businesses throughout the quarter and then into April? And Vicente, can you remind us roughly what percentage of total sales are short cycle today?

Vicente Reynal, Chairman and CEO

Yes. We did see progressive improvement in short-cycle activity through the quarter and into April. Cadence is in line with expectations and we're pleased with the momentum.

Vikram Kini, Chief Financial Officer

Nicole, on the short-cycle versus long-cycle mix: roughly 40% of our revenue is aftermarket, which has a book-and-ship dynamic. On the goods side, approximately 75% of the original equipment side is more short-cycle in nature, which leaves about 25% that is longer-cycle project business. Both segments have a relatively equitable split between these dynamics.

Operator, Operator

Operator: Your next question comes from Chris Snyder with Morgan Stanley.

Christopher Snyder, Analyst, Morgan Stanley

I understand that price-cost is basically net neutral for you guys throughout the rest of the year when we net out all the tariff changes and any sort of mitigation. But is the expectation that the company will push more price in 2026 than what you thought coming into the year in response to inflation and as part of mitigation efforts? If so, any way to think about how much more price in '26 versus the expectations in January?

Vikram Kini, Chief Financial Officer

Chris, let me clarify. Price-cost being more neutral, particularly in the first quarter, reflects continued comp dynamics and tariff effects. As we move into the back half of the year, we do expect the price-cost dynamic to turn more positive. We're not taking incremental tariff-related actions at this point. We expect pricing to revert closer to a more normalized 1% to 2% range that you've seen historically, which includes targeted pricing actions where it makes sense. Those course pricing actions are still in play and contribute to the expectation of a more positive price-cost dynamic in the second half, particularly Q4.

Christopher Snyder, Analyst, Morgan Stanley

Appreciate it. And then maybe if I could just follow up on the Middle East. I understand there was an impact on orders in Q1, but for the full year, you guys are saying no impact on sales or orders for the full year. But did the Middle East have an impact on Q1 sales? And is there any impact that you expect to come through in Q2 on the revenue side?

Vikram Kini, Chief Financial Officer

To keep it simple: the teams did an exceptional job in Q1. On the shipment or revenue side, there was no meaningful impact in Q1. At this point in time, we are not expecting any material movement in Q2. But it is an area we are watching closely.

Operator, Operator

Operator: Your next question comes from Stephen Volkmann with Jefferies.

Stephen Volkmann, Analyst, Jefferies

Most of it's been answered, but I'm curious: we're approaching the two-year anniversary of ILC Dover now. Is there anything qualitative you can say around how that asset specifically is performing relative to the segment, maybe in terms of growth or margin, just to bring us up to speed on how that's doing?

Vicente Reynal, Chairman and CEO

We don't typically unpeel each business to that level by quarter, but after the two-year anniversary we're pleased with the investments and the integration. We have a full team leveraging IRX tools and we've made commercial investments to accelerate penetration. ILC Dover is an important part of the PST segment today, particularly in Life Sciences where we're seeing strong order momentum and integrating bolt-on acquisitions into the Life Science business. We're pleased with execution and see a bright future.

Stephen Volkmann, Analyst, Jefferies

And just a follow-on: is there anything in the M&A funnel, maybe of the 10 LOIs, that would be even close to that size of ILC Dover? Or is this all more like what we've seen year-to-date?

Vicente Reynal, Chairman and CEO

The LOIs are mostly bolt-on in nature. That said, there are a couple of transactions in the broader funnel that are larger. One is roughly a little more than $1 billion purchase price in the funnel, but it is not one of the 10 LOIs.

Operator, Operator

Operator: Your next question comes from Andy Kaplowitz with Citigroup.

Andrew Kaplowitz, Analyst, Citigroup

Vicente, you mentioned roughly 40% of the business is aftermarket. I think recurring revenue exceeded $450 million last year, and you talked about a backlog of $1.1 billion in future revenue. Has that continued to grow? What do you see in terms of mix for 2026 and moving forward?

Vicente Reynal, Chairman and CEO

Andy, recurring revenue continues to be an area of emphasis and is performing well. We have launched new solutions and are making progress toward the $1 billion recurring revenue target by run rate at the end of 2027. It's an area of focus that creates customer loyalty and stickiness, and we will continue to invest there.

Andrew Kaplowitz, Analyst, Citigroup

That's helpful. And then on the Middle East: you mentioned one-third of the delayed $40 million of long-cycle orders were back in April. Could you give more color on the nature of these orders? Do you think you need the Middle East conflict to end to get all of the orders back, or are they likely to come back over time even if the conflict lasts?

Vicente Reynal, Chairman and CEO

These were plant expansion and production capacity extension long-cycle orders. We don't expect the conflict to need to end for these to come back—many were timing and finalization of purchase orders prevented face-to-face interactions. We expect them to be booked over time. Additionally, reconstruction needs in the region could create further longer-term opportunities for our products.

Operator, Operator

Operator: Your next question comes from Nigel Coe with Wolfe Research.

Nigel Coe, Analyst, Wolfe Research

What percentage of the current portfolio do you think is levered to energy and process markets—oil and gas, chemical, etc.?

Vicente Reynal, Chairman and CEO

A lot of our technologies are applicable to multiple industries and in many cases agnostic. We're pivoting to help customers in situations like petrochemical expansions. For example, Nash liquid-ring pumps used in pulp and paper are also applicable to petrochemical destination towers to recompose products. The percentage of total revenue linked to energy and process markets can fluctuate depending on customer activity and how we approach those opportunities.

Nigel Coe, Analyst, Wolfe Research

Okay. And regarding Life Sciences, do you think the double-digit Life Sciences revenue growth can continue? Was there anything unusual in destocking or restocking activity there, or do you think Life Sciences growth can be sustained? How does Life Sciences margin compare to the average within PST?

Vikram Kini, Chief Financial Officer

Nigel, on margins, Life Sciences margin profile is comparable to the overall segment. It's an area where we've integrated ILC Dover assets with legacy Life Sciences assets. We see continued opportunity and solid margins in areas like biopharma. Regarding growth, we're encouraged by the double-digit order growth, but we haven't guided to double-digit growth for the entire year; we view the segment as operating in the mid-single-digit range on a two-year stack and expect continued momentum and margin expansion sequentially through the year.

Operator, Operator

Operator: Your next question comes from Joe Ritchie with Goldman Sachs.

Joseph Ritchie, Analyst, Goldman Sachs

Parsing out ITS margins this quarter: you've attributed it to volumes, tariffs and investments. It seems like tariffs probably had an outsized impact this quarter. Can you give some quantification on the tariff impact this quarter? If we're getting back to neutral as the year progresses, should we expect that to come back in upcoming quarters?

Vikram Kini, Chief Financial Officer

Joe, the two main drivers are tariff-related dynamics and flow-through on organic volume. We haven't quantified one versus another publicly, but those are the main factors. As we move into Q2 and beyond, the comps on tariffs moderate because many of the mitigation and pricing actions were taken through 2025, and you begin to lap those effects. With pricing, mitigation and productivity actions in place, margins should show better momentum exiting the year.

Joseph Ritchie, Analyst, Goldman Sachs

And maybe Vicente, on the M&A pipeline: you had a goal to grow PST to around a $2 billion-ish revenue run rate. As you think about your pipeline, how much of it is centered on PST versus ITS going forward?

Vicente Reynal, Chairman and CEO

On the PST side, we've grown it substantially since we started focusing there. The 10 LOIs are a good blend between ITS and PST, and we continue to see strong prospects in PST that we're excited about.

Operator, Operator

Operator: Your next question comes from David Raso with Evercore ISI.

David Raso, Analyst, Evercore ISI

For the second half of the year, ITS margins—can you give a sense of where growth will come from organically between compressors, vacuum and blowers and the lifting/power tools segments? And remind us on the relative margin between those areas?

Vikram Kini, Chief Financial Officer

David, power tools are the smallest piece. The margin profile between compressors, blowers and vacuum is quite comparable; you don't see a dramatic mix impact between them. Some technologies have more aftermarket than others, but in totality they're fairly comparable. Compressors are about 65% of the revenue base, so they'll be the largest driver by size. We expect positive contributions from all technologies, and shorter-cycle momentum in vacuum and parts of compressors should lend itself to back-half expansion.

David Raso, Analyst, Evercore ISI

When you say tariff impact gets better as the year goes on, can you clarify: in the first quarter, was pricing you put in against tariffs dropping revenue at 0 margin? Or are you getting an EBITDA hit that needs price to catch up in the second half?

Vikram Kini, Chief Financial Officer

It's more the former. The pricing actions related to tariffs were largely taken through 2025; you're now seeing those flows offset tariffs. On a dollar basis these actions are neutral, but they are margin dilutive. As you move through the year and lap those tariffs in the prior year, combined with mitigation and pricing actions, that's why we expect better momentum toward the back half of the year and Q4.

Operator, Operator

Operator: Your next question comes from Andrew Buscaglia with BNP Paribas.

Andrew Buscaglia, Analyst, BNP Paribas

I think I got one last question even this far in the queue. I think no one brought up China yet, and I want to say that your comment there was that orders still outperform underlying markets. Is that a comment around improvement or stabilization you've been commenting on the last couple of quarters? What are you seeing in that market?

Vicente Reynal, Chairman and CEO

China continues to outperform the markets we play in. We've localized technologies from other acquisitions in China for China, and the team has done a good job executing. Over the past three quarters we've shown positive organic growth in China, and we're pleased with the execution. We see opportunities in areas like medical devices and are taking share even if the overall China market isn't growing rapidly.

Andrew Buscaglia, Analyst, BNP Paribas

What do you see for the China market this year? What's your sense in terms of where that market is going for you guys?

Vicente Reynal, Chairman and CEO

We don't see the China market shrinking; we see us outgrowing and taking share in the market. It's highly competitive, but opportunities remain strong given our technologies and approach.

Operator, Operator

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

Vicente Reynal, Chairman and CEO

Thank you. Just finally, I want to pass one more thank you to our employees for their ongoing dedication and commitment to having that ownership mindset and controlling what we can control and continuing to deliver performance for our shareholders, which, by the way, all of our employees are a part of and they have skin in the game to continue to deliver long-term value performance for all of us. So thanks again for the interest, and we'll talk soon.

Operator, Operator

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