格南登福 (IR) 2025 Q4 法說會逐字稿

Hello, and welcome to the Ingersoll Rand fourth quarter 2025 earnings call. (Operator Instructions)

I would now like to turn the conference over to Matthew Fort, Vice President, Investor Relations. You may begin.

Thank you, and welcome to the Ingersoll Rand 2025 fourth 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 call will be available later today.

Before we start, I want to remind everyone that certain statements on this call are forward-looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward-looking statements on Slide 2 for more details.

In addition, 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 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.

Thanks, Matthew, and good morning to all. Beginning on Slide 3, we ended the year on a strong note. Delivering low single-digit organic order growth for both the fourth quarter and the full year. Additionally, our return to organic revenue growth reflects positive momentum heading into 2026.

We're also very pleased with the momentum we continue to see on our recurring revenue initiative, which exceeded $450 million in 2025. With a backlog of recurring revenue of approximately $1.1 billion in future revenue from existing contracts. This is a clear demonstration of how we continue to make great progress towards achieving our recurring revenue target.

Turning to inorganic growth. Our disciplined approach to M&A continues to be a key driver of our success. Our acquisition pipeline remains robust with a strategic focus on enhancing our existing portfolio.

Finally, our teams remain nimble through the use of IRX and continue to leverage our economic growth engine to outperform in the markets in which we serve.

On Slide 4, our inorganic growth flywheel remains robust, underpinned by a strong pipeline and disciplined deal execution. The value creation flywheel remains a core engine of performance, delivering durable free cash flow and enabling consistent high-return capital deployment.

In 2025, we demonstrated both efficiency and precision in our execution, investing $525 million across 16 transactions which collectively generated approximately $275 million in annualized inorganic revenue. These high-return acquisitions averaged a nine times pre-synergy multiple and expanded our technological capabilities demonstrating that our M&A engine continues to help us drive above-market growth, and we're off to a great start heading into 2026, with nine additional transactions currently under LOI.

In January, we completed our first acquisition of 2026 with Scinomix, a leading manufacturer specializing in technologies that optimize workflow solutions to improve throughput accuracy and traceability across multiple life science and markets.

This dynamic acquisition advances our Life Science strategy by combining complementary technologies to deliver high-value end-to-end laboratory solutions.

Now I will hand it over to Vik, who will share an update on our financial performance for Q4 and the full year.

Thanks, Vicente. Starting on Slide 5. Orders showed continued strength in the fourth quarter, up 8% year-over-year or up 1% organically, with both our ITS and PST segments delivering low single-digit organic order growth. Consistent with normal seasonality, fourth quarter book-to-bill finished at 0.93 turns. As Vicente mentioned earlier on the call, we finished the year strong with revenue up 10%.

Organic revenue grew 3% year-over-year, which included both positive price and volume. We delivered fourth quarter adjusted EBITDA of $580 million and adjusted EBITDA margins remained strong at 27.7%, reflecting the durability of our operating model with year-over-year margin pressure primarily driven by tariff impacts and intentional commercial investments for growth.

Corporate costs were $31 million, our Q4 adjusted tax rate was 21.2% and adjusted earnings per share was $0.96 for the quarter, up 14% year-over-year.

Moving to the full year results on Slide 6. Orders were up 9% year-over-year or up 1% organically. Heading into 2026, we are well positioned, finishing 2025 with a book-to-bill above 1 and both the ITS and PST segments delivering low single-digit organic order growth for the full year.

Total revenue was up 6% year-over-year, while organic revenue finished the year down 1% due in large part to tough first half comps with a clear improvement in trajectory as the year progressed and positive momentum exiting 2025.

For the full year, our results exceeded the upper end of our prior guidance range for both adjusted EBITDA and adjusted earnings per share. The company delivered adjusted EBITDA of approximately $2.1 billion with an adjusted EBITDA margin of 27.4%. And adjusted earnings per share for the year was $3.34, up 2% year-over-year including a full year adjusted tax rate of 22.8%.

On the next slide, free cash flow for the fourth quarter was $462 million. With $3.8 billion in total liquidity, our balance sheet remains a strategic asset, enabling continued investment in high-return opportunities. Leverage continues to be well under two times even as we continue to strongly deploy capital in 2025, including $525 million in M&A, $1 billion in share repurchases and $32 million in dividends. This performance reinforces our ability to effectively deploy capital while maintaining top-tier balance sheet flexibility.

Now I'll hand the call over to Vicente, who will go over our segment results.

Thanks, Vik. On Slide 8, ITS orders finished up 9% in the fourth quarter. Book-to-bill for the quarter was 0.93 and finished above one for the full year. The segment delivered organic orders growth in the low single digits making all four quarters of positive organic order growth in 2025.

All three regions, Americas, EMEA and Asia Pacific saw positive organic order growth for the full year. Revenue grew 11% year-over-year, including organic revenue growth of 3%. Adjusted EBITDA margins finished at 28.9% and which was down year-over-year, largely driven by the dilutive impact of tariffs and continued commercial investments for growth.

For a more detailed breakdown on organic orders at a regional level for Q4 Americas was up low single digits. EMEA was down mid-single digits and Asia Pacific was up low double digits, driven by China up low single digits and the rest of Asia up mid-20s.

Compressor organic order trends were in line with the regional trends just mentioned for Americas, EMEA and China. This marks the third quarter in a row where we saw organic order growth in China, underscoring our agility through the effective use of IRX and the success of our demand generation activities, delivering consistent growth in what remains a very challenging market.

In our Innovation inaction section, we're pleased to introduce the latest aeration technology for wastewater applications developed by one of our recent acquisitions. This advanced technology has been integrated with one of our high-efficiency blowers, allowing us to deliver increased oxygen while reducing power consumption.

This combination allows us to achieve up to 34% in [], creating a strong return on investment for the customer. This initiative demonstrates our commitment to leveraging both established and new acquired technologies to offer greater energy efficiency to our customers and expand our aftermarket revenue opportunities.

Turning to Slide 9. Q4 orders in PST were up 6% year-over-year with a book-to-bill of 0.96. Organic orders were up 1% and including our life science businesses, which delivered mid-teens organic order growth. For the full year, PST delivered organic order growth of 2% with a book-to-bill of one time.

We're also pleased to highlight that both our Precision Technologies and Life Science Technologies businesses saw positive organic order growth for the full year. Additionally, we are encouraged by the acceleration in the organic order momentum as the second half of the year finished up mid-single digits.

Fourth quarter revenue finished up at 8% year-over-year with organic revenue growth of 4%. PST delivered adjusted EBITDA of $127 million, which was up 19% year-over-year with a margin of 30.4%. Adjusted EBITDA margin improved 280 basis points year-over-year demonstrating continued strong execution against a relatively easy comp from Q4 of prior year.

For the full year, adjusted EBITDA margin finished at 30%, which is up 40 basis points year-over-year. For our PST innovation in action were showcasing our award-winning EZ JetFlo product from our Life Science business. EZ JetFlo is a disposable single-use mixer designed for biopharma production. Featuring a sealed transfer system that improves safety by reducing cars contamination risk and yielding operator from airborne powders.

When payer with EZ BioPac Bags, it allows for fast turnaround without the need for cleaning or validation while delivering straightforward operation for quicker powder dissolution compared to competitive alternatives.

As we move to Slide 10, we're issuing our full year guidance for 2026. Total company revenue is expected to grow between 2.5% and 4.5%, driven by organic order growth of 1% at the midpoint, 1.5% growth from M&A which includes a carryover from all transactions completed in 2025 as well as the previously announced dynamic acquisition and 1% FX tailwind.

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 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 approximately 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 will be around 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 in the table.

In addition, based on our guidance at the midpoint, we expect EPS to grow at a similar mid-single-digit growth rate in both the first and second half of the year.

Finally, on Slide 11. As we wrap up this part of the call, I'm confident that are strong finishing 2025, puts us in an excellent position for success in 2026. We maintain agility and readiness to adapt to the ongoing changes in the global market landscape.

Our teams have consistently demonstrated resilient and high level of execution, achieving strong results in this very complex environment. We remain disciplined with our approach of capital allocation leveraging our robust balance sheet to generate durable earnings growth and long-term shareholder value.

Finally, I would like to thank our employees for your ongoing dedication and commitment to embracing an ownership mindset. Thank you for your help in delivering another robust quarter and full year.

Now I will hand the call back to the operator and open it for Q&A.

(Operator Instructions)

Mike Halloran, Baird.

I want to start on the -- in the guidance, what sort of end market trajectory is embedded in the guidance? And then the shorter cycle side of your businesses, are you seeing any signs of change in what would the businesses that you would look at to internally for leading indicators on your side?

Sure, Mike. So let me start with the end market commentary first, as it relates to what we're currently seeing in the market, which is the basis of our initial guide here. portfolio continues to demonstrate resiliency. As you have seen, I mean, as a reminder, 40% of our revenue is aftermarket, which tends to be very stable. And from a high level, some end market commentary, life sciences is progressing and improving sequentially.

As a reminder, we demonstrated our growth with orders in the mid-teens during the performance and kind of double click on the life sciences more pharma and biopharma production. We continue to see very good funnel and booking activity both in the US and outside the US Our Medical Device business, which is there in region for region is driving some very good funnel activity. I was actually with a team in China last week, and there's just a lot of good potential to serve our customers in China, for example, on the medical device side.

The lab analytical diagnostic equipment market, very good pipeline activity, given some of the US resharing of drug discovery and development and the need for automation to mitigate resharing costs, therefore, the acquisition that we made with Scinomix, which plays very well in that kind of end market.

On the general industrial side, we have seen more stability, especially in the back half of 2025 as we kind of have passed the peak of uncertainty related to tariffs. And that being said, we're cautiously optimistic about the improving trends moving into 2026.

Long-cycle project perspective, we haven't seen any kind of dramatic changes as the funnel remains very healthy. And I think it's -- the other important point of note is we'll continue to remain very encouraged about the recurring revenue.

In terms of some of the indicators that you were asking, Mike, I mean, PMI, for us, continues to serve as a good overall gauge for short-cycle businesses, and we're optimistic about the uptick we recently saw in the US PMI here in January. And however, we think it's too early to call a meaningful inflection and as a result of just one data point, which has been down for such a long period of time. And therefore, the reason why we took a prudent approach here as we started here.

So it sounds like the guidance itself assumes just the current trajectory continues as opposed to some sort of inflection up in any of the pieces? And then Related to that, are there any end markets that you're specifically worried about this year, maybe better put, if you look at the last couple of years, where there's been headwinds, do you think those persist into '26 here? Or are we at the point where we've at least flushed out a lot of the headwinds.

I know the China piece has been a headwind from a market perspective that you've turned to growth. Any other things there you would point to or areas you would point to?

Yes. So related to the guidance, you're exactly as you said, Mike. We're not embedding any market recovery here. I'm very stable sequentially here from what we are seeing today. So that's what we're embedded in the guidance.

In terms of the end market, some of the headwinds, as you very well -- as we kind of articulated, whether RNG, electric vehicle, photovoltaic, a lot of that is behind us. And I think also the good news here too as well, as I mentioned on the early remarks, our team in China, now three four of delivering positive organic order growth the past three quarters in a row, not what the market is doing, but also sticks loudly as to what the team is doing.

I was with the team in China last week and it's very impressive, the amount of innovation and technology and new end markets and new solutions that they're launching in order to penetrate the market and see that organic growth.

Julian Mitchell, Barclays.

Just trying to understand the seasonality through the year a little bit better. So is it fair to assume the guidance is based on roughly that one point of organic revenue growth year-on-year fairly evenly through the year. And then on EPS growth, I think you mentioned mid-single digits year-on-year in both halves. Are you starting out first quarter around that mid-single-digit EPS growth as well?

Yes, Julian, I'll take that one here. So as far as the organic growth comment, first and foremost, starting with Q1, we expect Q1 organic to be, I'd say, roughly flat to maybe very slightly down. But then as we move through the balance of the year, we expect, I would call it, comparable low single-digit growth -- organic growth for Q2, Q3 and Q4.

So as Vicente said here, a bit of normalization perhaps as we get from Q2 to Q4, but no meaningful market recovery or anything like that necessarily baked into the guidance. As far as the EPS question, generally, the way you're characterizing it is a fair way to think about it here. As we indicated, we expect to see a relatively even earnings growth on a quarterly basis and particularly on the first half versus second half as well.

That's helpful. And then maybe my follow-up would be on the EBITDA margins. So I think the guidance embeds full year EBITDA margins are flattish. Is the way to think about that, maybe a small decline year-on-year in the first half because of price cost and then that flips around. And in light of some of the commentary in the last sort of 8 hours or so.

Maybe help us understand kind of the scale of the price cost headwinds that you have been seeing, whether dollars or margin percent?

Yes, sure. Julian, I'll start. As far as the margin profile and kind of the way you've talked about it, you're completely correct. I think even as we talked about on our last earnings call, we did expect some headwinds on the margin front, particularly in the first half of the year, particularly as we lap kind of some of the annualizing of the tariffs.

So that's largely impacting the first half of 2026. And then clearly, as we move to the second half of the year, we would expect some of the results of, what I'll call, in-year pricing actions, some of the productivity measures as well as some of the controllable, I would say, actions that we've taken internally to drive a better margin profile into the back half of the year.

As far as the price cost piece of the equation, let me just start by saying, one, I think the fourth quarter largely played itself out as expected. Worth noting though that I think the teams executed really well, which you saw specifically in that Q4 performance. And as far as the price cost equation and things of that nature, kind of going back to my earlier comments. One, we do expect price cost to be positive for the full year.

Now if we take that in terms of the two components, first half and second half, like I said, price cost is expected to be a bit more constrained in the first half of the year given the timing of the tariff impact. However, we do expect to be price cost neutral in the first half. And then we expect to see that margin expansion take hold in the second half for the factors I kind of earlier described.

Jeff Sprague, Vertical Research.

Thank you. Good morning, everyone. Just a couple of things. First, just back on the short cycle, yes, we've all seen the PMI semi, I just want to kind of clarify a little bit, though, are you not seeing any actual pickup in short-cycle pockets, whether it's, I don't know, tools or small compressors or the like is sort of question number one.

And then does the guide actually anticipate volumes turning positive by the time we get to the back half of the year? Obviously, you've been running on negative volumes, positive price for the better part of eight quarters here, I guess.

Yes. No, Jeff, I -- we're seeing some pickup in the short cycle, clearly. I mean as you saw from the order rates as we kind of deliver here in the fourth quarter, and we see somewhat of the momentum continuing here as we enter 2026 and into January.

So the order momentum, I'll say, continues. I think with the remarks that I made is PMI just turned above 50 in the US for the first time in 38 months or so in January, and we're just saying, hey, that's only one data point. But we're seeing definitely that better momentum and kind of inflecting points. We just want to see more data points of kind of continued better market performance.

Yes, in terms of -- go ahead, yes.

Go ahead, sorry.

Just a question on the volume side of the equation. Again, the best way I would probably describe this as we do expect volume performance to improve as we think about the second half versus the first half. I think it's probably closer to probably somewhere in the flattish realm, if you think about it as we get to the back half of the year and as we exit the year, but as Vicente said here, we haven't baked any what I'll call a meaningful recovery per se. And obviously, I mean as markets continue to hopefully improve, we would expect that to be an area for potential outperformance in the future. We just obviously want to see it materialize first.

And just a follow-up on capital deployment, if I could. It's not clear that maybe you have capital deployment in the guide, the share count number. Maybe we can get close to that just on the annualization of what you did on the repo. I do see interest expense coming down a little bit. I don't know if that's rates or cash generation debt reduction.

Can you just clarify what if anything is in the guide from a capital deployment standpoint?

Yes, sure, Jeff. I would say the approach is very consistent with how we've historically. So essentially, I'll take the pieces here. One, from the share count perspective, you're just seeing the annualization of the actions already taken in 2025, where we did approximately $1 billion of share repurchases. So you're just seeing that now materialize into the share count piece of the equation.

From an M&A perspective, consistent with how we've historically kind of guided, you've seen the M&A impact is just the carryover of acquisitions completed in 2025 as well as the one deal that we have completed here thus far in 2026, which is the Scinomix acquisition that Vicente indicated.

As far as the balance of the equation, whether it be interest expense or things of that nature, I would say it's fairly consistent with 2025 level. So everything there is generally as we've historically indicated and guided.

Joe O'Dea, Wells Fargo.

Can you dig in a little bit on the acquisition opportunity set when you talk about the 400 bps , 500 bps of annualized revenue expected to be acquired in just in terms of the composition of the pipeline right now, it sounds like primarily in the bolt-on side of things, but anything that could be in the larger side as well. what that would mean, what your appetite is for anything in that kind of larger category.

So the opportunity in the funnel remains really strong, already executed one acquisition with Scinomix and currently have nine companies under LOI. A characterized pipeline still as being bolt-on in nature, but there's definitely a couple that we have been cultivating for quite some time that could be on the larger purchase price or maybe billion or so.

But again, it's -- the current pipeline is bolt-on in nature today. But we're definitely seeing a lot of good activity and particularly on what I just referred to. I mean, the -- our cultivation process continues to remain very strong, and we're seeing better bolt-on years to as well.

And then on the recurring revenue side, I think this has gone from $200 million a couple of years ago to $300 million to over $450 million. Just a little bit of color around what's kind of driving some of the traction there, where you're most pleased. And then how you think about the opportunity in '26 and sort of where that could get to? .

Yes. Absolutely. I mean, we're very excited about some of the milestones that we achieved here in 2025. And not only the $450 million of revenue, which, as you very well said, a couple of years ago, it was approximately $200 million.

But the fact that we now have approximately $1.1 billion in future revenue from existing contracts in what we call in the backlog or in the bank.

So that gives us good confidence here as we can continue.

The ramp, we always said that will not be linear and will require continued run to achieve our long-term Investor Day target. And we will provide an update to that on our next Investor Day. But I think it's -- we're seeing the good resiliency from the team, not only as we expand into some of the regions, but as we expand the recurring revenue into many other technologies.

But we're pleased with the performance supplier, and the teams are working very hard to continue to accelerate.

Nigel Coe, Wolfe Research.

Thanks. Good morning, everyone. Hope as well. Lots of details so far. Vik, I just wanted to go back to your comments on 1Q being flat to maybe slightly down.

relative to the, call it, 3% organic you posted in 4Q. So that would imply a pretty significant kind of Q-over-Q deceleration. So just wondering, was there any timing of shipments that benefited 4Q that informs that view? And then just maybe just if you could just dimensionalize the price cost and investment spending that you are highlighting.

And any sense on how we should think about (inaudible) margins again, first half is the second half?

Yes, sure, Nigel. Let me take the first one. So as far as I'd say the revenue from Q4 to Q1, Remember, I would characterize what you're seeing really as normal seasonality. If you look at typically speaking, in any cadence of the year, you typically have.

Q4 is typically our strongest quarter of the year, typically characterized by a lot of the shipments in some of our longer cycle project businesses.

That business typically has a little bit more of a stronger orders profile in the first half of the year, a little stronger shipment profile in the back half of the year. 2025 was very much in line with that.

So I think what you're referring to here as far as kind of the sequential movement between Q4 and Q1, very standard. And in fact, I would say the revenue and earnings seasonality that's baked into our 2026 guide is almost -- it's actually exactly what you saw in prior years. So again, I would characterize that as standard and not being atypical compared to kind of what you've seen in prior years.

As far as the price cost and really more so of the investments, obviously, we haven't necessarily quantified the exact number here for you. But what I would characterize it as is a couple of kind of moving factors, and we can also talk about kind of the ITS margin profile as well. I think in terms of the investments. It's the same continued, I would say, commercial investments that you've seen us talk about historically.

So whether that be at the corporate level, things around centralized demand generation, things of that nature, some of the kind of normal course investments for growth, as well as within the actual business, really much more front-end commercial, engineering and related innovation, if I will say, in commercial-related investments.

So again, I would say that's a continued trend in theme. You've seen us be very consistent with that in 2025 as well. So I think is much more of a, I'll call it, continuation in that respect. As far as the margin question, I think you asked about ITS, I think the best way to kind of describe it here is our expectation for ITS margins is that on a total year basis, we do expect to be relatively flattish year-over-year on a full year basis.

That's largely driven, I would say, by the two factors that we mentioned here, the tariff-related expenses, really the carryover there. We are offsetting with price, but obviously, that's still kind of dilutive from a margin perspective. as well as the, I'd say, continued targeted commercial investment for growth.

PST, we do expect to be up triple-digit margin expansion in the sense, really, frankly, strong operational execution, I would say, the continued integration and execution on some of the acquired assets. And then what I would say is probably a slightly easier comp particularly in the first half of the year comparatively to the rest of the business. And then we obviously highlighted kind of corporate costs at a total company level, which we expect to be roughly even per quarter through the course.

That was great color. And just a quick one on the PST orders. Obviously, great momentum in Life Sciences. I think you said up mid-teens. But that implies there was a significant decline in other business units.

Just wondering if you could just touch on that quickly.

Sure, Nigel. So I mean, basically, very, very happy and excited with what we're seeing on the Life Sciences side. The precision technology, also the delivery deliver fairly nice, which is about 60% of the total segment, and that business is performing in line with what you have seen in (inaudible).

So the last piece is basically the Aerospace and Defense business, which is down due to order timing, nothing unexpected. The business is generally moving sideways from 2025 to 2026. But that was basically kind of the offset in the segment.

Nicole DeBlase, Deutsche Bank. .

Can we just start with -- when you look at the full year guidance for organic flat to up 2%, are you looking for something similar magnitude in both PST and ITS.

Sure, Nicole. I'll take that one. Yes, I think the simple answer is it's comparable, right? I think in terms of the overall, I would say, we expect a slightly healthier overall full year from PST as compared to Obviously, that kind of blends to the midpoint, if you will, of what you see as far as the overall guide.

But yes, I think relatively comparable trajectory as you think about the sequential movement from Q1 into the back half of the year.

Okay. Understood. And then can we just dig a little bit more into what you're seeing from a longer cycle project perspective? The sense you had talked about for several quarters in 2025, like delays in decision-making activity or decision-making process from your customers? How did that kind of go in the fourth quarter and into the early part of 2026?

Yes. I mean I'll say that the positive side is that the long cycle project funnel continues to be very, very active. We saw even some resurgence of adding more into the funnel as we were kind of gravitating here at the end of the year and a very good start here into the beginning of 2026.

In terms of the delays in decision-making and kind of what we call about the elongation, that kind of continues to still be there. But the good news is that projects are not getting canceled. And that we continue to see some good momentum. So again, it continues to build upon basically seeing that the funnel continues to grow and which bodes well for us as we kind of come here into 2026 from an order perspective.

Nathan Jones, Stifel.

I guess I'll just start off with a question on the EBITDA guidance. I mean it's pretty clear you're not planning on much in the way of volume growth. You get a little bit of addition to EBITDA from M&A. It doesn't seem to really embed any cost actions or any product in the guide. Can you talk about any expectations you have to for cost out or for productivity gains during 2028?

Yes. Sure, Nathan. I'll start with that one here. So I think the guide does include some requisite, I would say, productivity or cost action. Let me kind of take those in pieces here.

So clearly, I'd say the headwind from a margin perspective, kind of earlier stated is really the kind of the carryover of the tariffs, right? So even though there are pricing actions that are offsetting on a full year basis, but still is a little bit of a headwind from a margin perspective. Despite that, you're still seeing that we are growing earnings per share in a requisite comparable manner, quarterly or first half, second half.

The driver of that or the kind of the offset tends to come from some of those cost actions. So first and foremost, you have seen in our financials here that we have taken some proactive restructuring actions in the back half of 2025. Those will continue to materialize into savings into 2026. I'd say payback periods on those actions are very much in line with what you've seen us do historically. So that clearly is, I'd say, kind of the first item.

The second one is what I would call the kind of normal course productivity. So that would be direct material as well as kind of Remember, those tend to follow, I'd say, the phasing of revenue very similarly to what you've seen in prior years. So those do tend to have a little bit more of a second half weighting, but that's just because they follow kind of the shipments.

And then the other piece, Nathan, would be that we are obviously taking, I'd say, some targeted pricing actions in the course of the year like we typically do. Those will obviously be taken business by business, region by region. Through the course of the year, and you'll start to see some of that materialize in the revenue base, particularly as move into the second half of the year.

So I'd say those are kind of the moving factors here that are, I would say, offsetting both some of the tariff-related headwinds, some of the kind of, I'd say, reinvestments that you're seeing from a commercial growth perspective as well as some of the increased corporate costs on a year-over-year basis.

And then I guess in terms of forward-looking indicators, you talked about per margin a good reading in January in the US, obviously. You guys just over the last few years, talked about marketing qualified leads, as an indicator for your own business. Can you talk about what that's telling you in various regions and whether that's giving you any more confidence in the order rates in the short term.

Yes, sure, Nathan. So absolutely. I mean I think our marketing qualified leads is part of core of what we track ourselves internally by region, by product line, by -- even by end market. we continue to see some fairly good momentum on how the marketing qualified leads continue to grow.

Now a lot of that is because of, obviously, our kind of self-help engine on how we reach new customer accounts. So roughly half of those marketing qualified leads are coming in from new customer accounts. as we try to obviously continue to take share. So that's why we're seeing some good acceleration in terms of NPL continue to be strong. But as I said before, decision-making is kind of this elongation.

But again, all indicators, PMIs and MQLs looking to be on the proper trend as we see here.

Chris Snyder, Morgan Stanley.

When we look at the pickup in Q4 organic growth, was this more so driven by momentum in the short-cycle businesses? Or did some of the longer cycle orders in the backlog begin to convert? And I asked because I noticed that this was the first quarter since the first half of '24 where organic sales outpaced orders.

So maybe it's signaling some level of backlog release. I'm just wondering if could that remain a tailwind for the business into the first half of '26.

Yes, Chris, great question. So I'd start with, first and foremost, the Q4 performance, I saw, I would say, had a requisite, I'd say, a component of both, what I say, the base business or short cycle inclusive of aftermarket and recurring revenue as well as the long cycle.

I go back to my earlier comment that the second half of the year, particularly Q4 tends to be a heavier shipment quarter particularly on the long cycle project side of the equation, Q4 '25 was no exception to that. So I think that probably speaks to the drivers of that 3% organic kind of pickup that you saw.

And then as far as the organic order versus organic sales, probably the simplest way I'd probably describe that is the book-to-bill, first of all, from a full year perspective, slightly over one. So one, we're encouraged by the fact that you have seen some backlog build, which I think also provides some of that increased visibility but also just some of that backlog that we can execute as we move into 2026.

I think as far as the absolute book-to-bill in Q4 slightly below one. Again, I would call it very standard, just again because of the long cycle nature and dynamics of the shipments we see. So again, I think, to your point, encouraged by what we saw in Q4. And clearly, we continue to kind of watch the leading indicators and see that hopefully continue here as we move into 2026, but encouraged by the contribution of both short cycle and the project side in Q4.

I appreciate that. And then maybe just a follow-up. Could you provide some color on what's expected for the life science organic growth in 2026 within the guide? And it seems like obviously, still really good momentum there with the Q4 order rates up mid-teens. But anything to call out on the slope of organic growth?

Because I do imagine that the comps into '26 are getting a good deal more difficult than they were in '25 on the organic growth side.

Yes. Sure, Chris. As far as the guy, we're not going to kind of break the PST component into the different components. But what we can say here is I think the way you've described it is exactly the way we're thinking about it.

One, definitely encouraged and Vicente kind of provided a little bit of color on kind of the drivers we're seeing at the kind of different components of the Life Sciences business. So I think we're incredibly encouraged by what we're seeing, whether it be on really the biopharma side or even kind of the legacy kind of Ingersoll Rand medical business that we've had in terms of some of the improving trends.

Clearly, we talked about the aerospace piece, which is really kind of moving sideways from '25 to 2026, which is kind of a little bit of that, I would call more of the offset comparatively speaking, as it's kind of just part of that overall umbrella businesses.

So I think the simple answer here is I think we continue to be really encouraged. The other piece I would mention here is the fact that the bolt-on M&A kind of playbook is really taking root as well in our life sciences portfolio. You see a number of bolt-ons in 2025 that will obviously become organic here at parts during the course of 2026, which we think will continue to contribute.

And then the Scinomix acquisition that we just did here in January, which we think is a very attractive kind of nice additive complementary bolt-on to our existing kind of life sciences portfolio. So again, I think your point is very valid. I think the comps clearly, they are there, but I think we're still encouraged by the momentum we're seeing, which you saw in the Q4 order rate.

Stephen Volkmann, Jefferies.

Just a couple of very quick ones for me. I'm curious, it seems like valuations are kind of going up across the board, not just yours, but I'm presuming in the M&A funnel as well. Just does that change anything in terms of how you manage your capital deployment?

No. No. No, Steve. I mean, we continue to actually, as you have seen, do really well with the pre-synergy multiple. In 2025, we averaged roughly 9.2 times to be exact, pre-synergy multiple and even the one that we acquired here in January continues to be in that kind of range.

So I think we're continuing to be very encouraged with what we're seeing now. What in our case, as you know, our M&A flywheel is differentiated in the sense that a lot of these transactions our sole source cultivation happens, family and companies.

So I think we have a bit of an advantage here for us to be able to continue with that and be able to have a very good price multiple.

Got it. And then just with respect to kind of the order cadence, is there anything that you can see now that would make that different in '26 relative to kind of the last couple of years?

Yes. Sure, Steve. So we obviously don't guide on orders, but I think the simple way to think about it here is we don't expect anything here to be dramatically different in terms of I'll just say the book-to-bill being won on a full year basis and typically a little bit healthier than that in the first half and a little below in the second half just given normal seasonality and some of the dynamics I mentioned on our long cycle business.

So not being at this point, we would point to that we expect to be dramatically different.

Joe Ritchie, Goldman Sachs.

Can you just touch on the margin profile of the recurring revenue business, the $450 million plus that you referenced I recall you guys talking about a gross margin profile that was north of 16%. I'm just wondering if that's actually coming through as expected? And maybe that will be question number one.

Sure, Joe. Let me start with that. So I think in general, the recurring revenue business, whether it be at its gold standard, what we call package care or the other components Yes, it is across the entire enterprise, typically a higher margin profile, comparatively speaking to, I'd say, the balance of our kind of normal course business.

Now that being said, Yes, margins can play in that range that you're speaking to. What I would probably tell you here, though, is we're also making sure that we're taking that opportunity to reinvest appropriately in the business. I've mentioned a few times here, some of those commercial reinvestments. Even on the recurring revenue side.

A lot of our commercial reinvestments are in areas like service technicians and things of that nature to make sure that we can continue to grow our recurring revenue base on a go-forward basis. So Again, I think on margin profiles that play in and around areas like you've mentioned, but also could you reinvest (inaudible).

Got it. Got it. So the way to think about it is like when you get the full run rate, you'll see probably a more accretive margin profile than what you're seeing today coming out of the business because of some of the red that you're doing. Is that a fair characteristic.

Yes. And then I guess the follow-on question is, look, I know that the M&A that's not completed is not part of the guide. But given your expectation that you'll do about potentially four to five point revenue contribution this year. What is the like first year margin profile look like for the things that you're looking at that you're hoping to complete in your pipeline today?

Yes, Joe, I'll start here. So obviously, a bit speculative because quite frankly, year-to-year and deal-to-deal, the margin profiles can clearly be a little bit different. The probably the best way I would describe it is that as Vicente said here, one, purchase multiple is quite prudent.

The ability to drive double-digit returns, if not mid-teens returns by year three and as such, take multiple turns out from controllable cost action, synergies, things of that nature, clearly is still the playbook.

If I had to put a broad kind of sweeping statement around it, the acquisitions that are maybe upon acquisition, maybe in the lower 20s margin profile, but ones that we see a pretty direct path to being in line with, if not better, than segment average margin profile is probably the best way to maybe explain it. But clearly, each acquisition is a little bit different.

And frankly, you've seen acquisitions that are immediately accretive upon acquisition in certain cases. So again, not all made equal. But that's probably the best way I would describe it.

David Raso, Evercore ISI.

I was interested to see the ITS organic orders in the quarter that EMEA was down mid-single digit, just we've heard generally more constructive things out of Europe. And I'm just curious if you're seeing -- was that sort of a comp sort of temporary? I'm just trying to see where there's areas that things that were down maybe or inflecting a little bit or just a unique dynamic. Can you explain to Europe? And then I have a quick follow-up.

Yes, just -- I mean nothing to read into it. I mean just project timing, basically, and that was basically -- I mean -- but again, we continue to be really encouraged. I mean you saw our EMEA business was basically driving very nice positive order growth for the full year.

So even in IPS, with commentary being negative still for the full year was up orders kind of positive low single-digit organic from a full year perspective.

That's I'm curious. I mean do you see that business as up the order rates back up in Europe? Or are they truly running at a negative level? Because I mean, year-to-date, we don't have a K but year-to-date, the revenues have been up in EMEA with an ITS. I'm just curious if there's...

Not an issue in the fourth quarter. No. I mean, again, some countries are doing better than others. I mean Mediterranean countries like Spain, Italy, France, seem to be actually growing faster than the Central Europe and Germany at this point in time. But obviously, a lot of good activity that we see moving through for the Central European countries as we kind of move forward yes.

And then for a follow-up, maybe I missed it, but we're now essentially almost halfway through the quarter. Are organic sales currently running to your flat to down a little bit? Or you're just kind of given that guide and see how the rest of the quarter plays out. You just sounded a little more positive on the start of the year than the down flat to down first quarter organically?

Yes, David, I'll take that one. So I think the best way to say it here is that I think as we move through January, I'll probably reflect a little bit more on the orders side of the equation. Generally playing itself out as expected, nothing that we would consider to be atypical, whether it be from a seasonality perspective or even moving into 2026.

So again, nothing that's happened thus far that would say anything different from either the guidance or kind of the commentary that Vicente provided earlier.

Andrew Buscaglia, BNP Paribas.

Everyone Andrew, you made a comment earlier on China just that it is improving, and that's been a little bit of a change, let's say, in the last quarter or -- and other companies are kind of talking about that a little bit more, where can you -- can you get more specific about where you're seeing this improvement? And how you see that playing out in 2026.

Yes. I mean I think the improvement is really coming from a lot of the launch of new products and technologies that our team is doing into the market. So taking also acquisitions that we have done in the US and also Europe and taking that technology localizing in China and then selling in China for China.

So it's a good combination of really, what I would call a lot of the self-help initiatives that our team is driving more so than there's an overall market improvement in China.

So I think the encouragement -- I spent the last week with the team in China is just seeing that, is that the level of innovation and the level of speed on understanding how we can combine technologies to create differentiated solutions for our customers is pretty unique.

We gave one example about the blower combined with aeration. That's actually something new that now the team in China is launching, gives them a competitive advantage against some other companies. And again, taking technologies that we acquired in the US and localizing and driving that in China, for example.

Yes. More company-specific that (inaudible).

Yes. And you sound encouraging on Life Sciences. And again, that's kind of something else other companies are getting a little more constructive on for '26.

I want to touch on ILC Dover, I think because with these acquisitions, sometimes they go quiet and the growth sort of moderated or I don't know if you might say slowed, but for that business specifically, I just want to check, are we -- is this -- could this be a source of a sneaky upside if this acquisition kind of comes back?

And are there things you've done to it where we could potentially see it contributing to both overall growth and margins this year?

Yes. I mean we definitely have done a lot and encourage whether it is the setup with putting new leaders, very creation or kind of creating the P&L that were needed to really drive execution. The investments that were needed to really penetrate in some of better end markets and things of that nature that we have done a lot of work.

And what we have done here is then created a platform for then the acquisitions. And so far, we have done four into that kind of platform that we have. So -- that is just a lot of work that we have done and we continue to push hard to do better.

Andrew Kaplowitz, Citi.

Chris Natalia on behalf of Andrew Kaplowitz. It was the first question that I'll ask, at China being a bit picky here, but historically, you got to 100% FCF conversion this year, your guidance is under 100%. Is there anything holding you back in terms of free cash flow guidance. Any color you can provide there?

Sure. Natalia, I'll start with that one. So I think first from us. I think if you kind of look over the course of the last few years, we've been in that kind of low to mid-90s realm. So I think 95% free cash flow conversion is I would say not just even consistent but even, frankly, a touch better than what you've seen in the last few years.

Now that being said, clearly, targeting closer to 100%, I think, is clearly the I'd say the goal, if you will, I think there's not necessarily anything holding us back I do think that, clearly, not just earnings growth, but I would call it working capital efficiency, probably continues to be one of our kind of major areas for opportunity as we move forward, not surprisingly, areas around inventory and things like that, particularly coming out of 2025 where some of the tariff dynamics created some inventory build and things like that. It's probably our biggest source of opportunity as we move through 2026.

But no, I would say, generally, otherwise, we expect very consistent cash flow conversion, if not even slightly better than what you've seen in the last couple of years.

Got it. That's helpful. And then just curious about just industrial energy efficiency in the sense that when I think about compressors consuming energy and our factory, can you maybe talk about the customer payback that you're seeing right now?

Has that improved over the past year? Where you see it going? Any color on there would be helpful.

Yes, sure tell. I'd say that as price of electricity continues to rise, then that, for sure, will drive better performance in terms of the return on the investment for the customer. So we continue to see these paybacks clearly under two years. I mentioned maybe in China, I was actually visiting a very large customer in China where compressors we're consuming roughly 50% of the total energy at that facility.

Now this is a very, very large customer. But shows you the conversation was all about that. It was all about how can we help them connect that compressor and fine tune it to reduce that energy and therefore drive more efficiency for that customer. So I think it's encouraging to see that obviously, we have the right solutions here.

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

Thank you, Sara. Well, so as we wrap, I just want to say thank you for the continued interest in Ingersoll Rand and more important, thanks again to all of our employees, our ownership mindset and the culture of ownership is what creates a differentiation of us, our team, things like owners every day because they are.

And so we remain focused on disciplined execution very thoughtful capital allocation and building a company designed to outperform across the cycle. So thanks again, and we'll talk soon.

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