Ingersoll Rand showcases durable growth with 8% order increase, but adjusts EPS guidance to $3.28 due to tariff impacts and pricing delays.

Regina - Operator - (00:01:02)

Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time I'd like to welcome everyone to the Ingersoll Rand third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press Star then the number one on your telephone keypad. To withdraw your question, press star one again. I'd now like to turn the conference over to Matthew Ford, Vice President, Investor Relations. Please go ahead.

Matthew Ford - Vice President, Investor Relations - (00:01:38)

Thank you and welcome to the Ingersoll Rand 2025 third quarter earnings calls. Hi, I'm Matthew Ford, Vice President of Investor Relations and joining me this morning are Vicente Renal, Chairman and CEO, and Vic Kinney, Chief Financial Officer. We issued our earnings release and presentation yesterday afternoon and we will be referencing these during the call. Both are available on the Investor Relations section of our website. In addition, a replay of this conference call will be available later today. Before we start, I want to remind everyone that certain statements on this call are forward looking in nature and are subject to the risks and uncertainties discussed in our previous SEC filings, which you should read in conjunction with the information provided on this call. Please review the forward looking statements on slide 2 for more details. In addition today's remarks, we will refer to certain non Generally Accepted Accounting Principles (GAAP) financial measures. You can find a reconciliation of these measures to the most comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP) in our slide presentation and in our earnings release. Both are available on the Investor Relations section of our website. On today's call, we will review our company and segment financial highlights and provide an update to our full year 2025 guidance. For today's Q and A session, we ask that each caller keep to one question and one follow up to allow for other participants. At this time, I will turn the call over to Vicente.

Vicente - (00:02:59)

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

Vic - (00:05:27)

Thanks Vicente starting on slide 5 orders showed continued strength in the third quarter up 8% year over year or up 2% organically. With a book to bill of 0.99 times sequentially from Q2 to Q3 we saw low single digit growth both in orders and backlog. It is important to note that since the end of 2024 backlog is up high teens. From a percentage perspective, order performance remains positive with both our Industrial Technologies and Services (ITS) and Precision and Science Technologies (PST) segments delivering year to date organic order growth in the low single digits. The third quarter finished largely in line with expectations for revenue, adjusted EBITDA and adjusted earnings per share showing strong execution. Despite the dynamic market environment, the company delivered third quarter adjusted EBITDA of $545 million USD with an adjusted EBITDA margin of 27.9%. We have delivered solid sequential growth in adjusted EBITDA margin over the course of the year. Additionally, we have recently implemented proactive measures to optimize our cost structure. While these actions will have limited impact in 2025, they position us well heading into 2026. The year over year margin decline was primarily driven by tariff related dilution and targeted investments to support organic growth. Corporate costs were $30 million, largely reflecting incentive compensation adjustments which are aligned with performance. Our Q3 adjusted tax rate was 23.9% and adjusted earnings per share was $0.86 for the quarter, up 2% year over year and up 11% on a two year stack on the next slide. Free cash flow for the third quarter was $326 million USD and is approximately flat year over year. On a year to date basis. With $3.8 billion in total liquidity, our balance sheet remains a strategic asset enabling continued investment in high return opportunities. Leverage increased modestly to 1.8 times driven by proactive capital deployment including $249,000,000 in M&A $193,000,000 in share repurchases and $8,000,000 in dividends within the quarter. The $193 million in share repurchases made during the third quarter represented approximately 2.5 million shares. Year to date we have deployed $460,000,000 to M& A at an average pre synergy adjusted EBITDA purchase multiple of approximately 9.5 times and returned approximately $700 million to shareholders through share repurchases. This performance reinforces our ability to effectively deploy capital while maintaining top tier balance sheet flexibility. In addition, with our strong balance sheet we will continue to evaluate more share repurchases without affecting our M and a bolt on approach. I will now turn the call back to Vicente to discuss our segment results.

Vicente - (00:08:22)

Thanks Vic on slide 7 third quarter orders for its finished up 7%. Book to bill for the quarter was 0.99 times and it is 1.04 times year to date. The segment delivered organic order growth in the low single digits making the third consecutive quarter of positive organic order growth. Revenue declined slightly year over year driven mainly by tough comps in renewable natural gas projects in the us. The momentum across other end markets remains solid. Adjusted EBITDA margins finish at 29%. It is important to note that we view the current dynamic tariff environment as a temporary impact on our margin expansion. Additionally, we remain committed to delivering our long term investor day targets of 30% adjusted EBITDA margins by 2027 and we see continued opportunities for further expand margins within ITS over the long term moving to the product line Highlights Compressor orders were up high single digits demonstrating continued momentum. Industrial vacuum and blower orders were up low single digits and power tools and lifting orders were up also low single digits. On a regional view we saw orders in Americas in Europe, Middle East, India, Africa up high single digits and Asia Pacific up mid single digits. We very excited to announce a game changing leap in our innovation journey. This month we introduced in Europe our Meta Contact-Cool Compressor packaged in a Remarkably compact design, this compressor offers unmatched best in class efficiency thanks to very advanced newly engineered errands, motors and packaging. For enhanced performance, the Meta 45 produces up to an 11% increase in flow while occupying 40% less space. Additionally, the Meta compressor delivers a 14% reduction in energy consumption, delivering productivity and reducing total cost of ownership for the customer. Originally introduced under the CompAir brand, this product reflects Ingersoll Ran's multi channel multi brand approach as this technology will also be launched in 2026 on their other key brands across the World Turn to Slide 8 Q3 orders in PST were up 11% year over year with a book to bill of 1.01 times. Organic orders were up 7% year to date, PST has delivered organic quarter growth of 2% with a book to bill of 1.02 times. Third quarter revenue finished up 5% year over year driven by a relatively equal balance of organic growth, FX and M&A. PST delivered adjusted EBITDA of $128 million which was up 8% year over year with a margin of 30.8%. Adjusted EBITDA margins improved 130 basis points sequentially and up 80 basis points year over year, demonstrating continued strong execution. We continue to see nice sequential improvements and remain well positioned to meet our long term investor day target of delivering adjusted EBITDA margins in the mid-30s. For our PST innovation in action, we're highlighting our FlexSim product line within the life science business. Leveraging its expertise, Flexsan successfully transferred the manufacturing of critical Class 3 implantable silicone based devices without any disruption to downstream manufacturing or patient care supply chains. As a result of this seamless transition, customer product yield rates saw a substantial improvement, increasing from 55% to over 90%, reinforcing our value proposition in life sciences. As we move to slide nine, our full year guidance for total revenue and our expectations for organic volume growth remain unchanged. The midpoint of our adjusted EBITDA guidance has been modified to 2.075 billion, largely driven by two main factors. First, the effect of incremental section 232 tariffs and other tariff increases announced in August, pricing actions have been executed to offset these incremental tariffs. However, based on the timing of customers notifications and the timing of those pricing actions to convert from orders to revenue, we expect this pricing to be realized in 2026 and second, our backlog has continued to grow resulting in a delayed realization of pricing actions previously taken in the second half of the year. These two drivers have been partially offset by lower corporate costs, which largely reflect adjustments to incentive compensation. As a result, the midpoint of adjusted EPS guidance has been reduced to $3.28 from $3.40. A revised view of 2025 incorporates a prudent view of Q4 based on both the timing of tariffs and price realization. We expect both segments adjusted EBITDA margins percentage to be approximately flat on a sequential basis compared to the third quarter. It is important to note that our current guidance does not reflect any of the potential tariff reductions which were announced yesterday. For the rest of the components of our full year guidance, we anticipate our adjusted tax rate to be roughly 23.5%, net interest expense to be about $220 million and capex to be around 2% of revenue. We have updated our share count assumption to approximately 402 million shares, which reflects the impact of the share repurchases made year to date. We remain committed to leverage our robust balance sheet to strategically deploy capital and drive value for our shareholders. Finally, on slide 10 as we conclude this portion of the call, I want to emphasize that we remain nimble and prepared to adapt to a continued dynamic global market environment. Our teams continue to demonstrate resilience and execute at a high level, delivering strong results despite ongoing macro volatility. We remain disciplined in our approach to capital allocation, leveraging our robust balance sheet to generate durable long term value for our shareholders and to our employees. Thank you for your continued dedication and focus. Your ownership mindset and the use of IRX enable us to stay agile and control what we can control, delivering another solid quarter of performance. With that, I'll turn the call back to the operator and open it for Q and A.

Regina - Operator - (00:15:04)

We will now begin the question and answer session. To ask a question, simply press STAR followed by the number one on your telephone keypad. We kindly ask that you please limit your questions to 1 and 1.

UNKNOWN - (00:15:14)

Follow up.

Regina - Operator - (00:15:15)

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

Mike Halloran - Equity Analyst - (00:15:20)

Hey, good morning.

UNKNOWN - (00:15:21)

Good morning everyone.

Vicente - (00:15:23)

Morning Mike. Hey Mike.

Mike Halloran - Equity Analyst - (00:15:25)

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

Vicente - (00:16:03)

Yeah, Mike, I'll say that, you know, first of all, we're pleased how the organic orders have continued to progress sequentially so far in 2025. Clearly they're going to translate here into the revenue. But I think from, from an order perspective, we, we. This is the third quarter of positive organic orders. Q3, to put in perspective, it was positive across all regions except basically the vacuum and blower business in Europe, which as you very well know, this tends to be a little bit more lumpy. But we still expect that to be positive on a second half view perspective. So I would say that the trend continues to improve. Clearly you saw how PST has continued to accelerate the order momentum. And I think in the ITS, indeed we're seeing some better sequential improvements, use of sequential orders kind of improve Q2 to Q3. You know, having said this, I think we need to see a bit more clarity on the tariff situation to remove the, to remove completely the uncertainty in the industrial landscape, which is what I would consider maybe the main drag. We think yesterday was definitely a very good step in terms of what the administration said about what the new tariff regime or new tariff policy could turn out to be. So, but in the meantime, I think, Mike, you know, we continue to focus on controlling what we can control. You know, I think we're moving into 2026 with a heavy backlog. We expect a full year of 2025 book to build to finish at or slightly above 1. You saw how Q3 also was basically approximately 1, which here usually Q3 and Q4 tends to be below 1 in the 0.9 kind of range, but we did better than that. And there's also the benefit we're seeing in terms of the good exposure that we have to some secular trends, whether markets around wastewater or even the life science investments that we have done, whether it could be Biopharma, medical device and some of the tools business, just to name a few, that could potentially help us offset some of that slower recovery in the core industrial end markets. But again, if you think about marketing qualified leads, the long cycle funnel, all of that continues to move in the right direction and we see no cancellations whatsoever, which again bodes well for when things will start getting unlocked, that we see that incremental momentum.

Mike Halloran - Equity Analyst - (00:18:51)

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

Vicente - (00:19:28)

Yeah, like I think as we said, you know, so from a, from an its perspective. Well let me, let me just kind of first step back. I mean we expect margin expansion to as we go into 2026 so maybe remain a little bit muted during the first half of the year as we will continue to comp the tariffs which have been put in place throughout 2025. We will continue to offset this cost through pricing as well as leveraging IRX for some of the self help initiatives like i2B and also the operational tariff mitigation and continue target actions that we just talked about. I will also remind that gross margins continue to be you know, flat to maybe slightly up. So obviously that reflects the fact that we're continue to invest, that we have continued to invest in SG and a particularly more on the sales and the commercial initiatives and that you've seen that's kind of some of the offsets. You know ITS is roughly 29 EBITDA margin. I mean we're basically right there in terms of what we said we could get by 2027. Clearly no concern based on all the activity that we're doing. And you're seeing how the PST now at roughly approximately 31% margin that we achieved here in Q3 and that has seen some good sequential improvement throughout Every quarter in 2025 we see the momentum still relying there and the changes that the team are doing to continue to accelerate that. So again that's, that's why we get that level of confidence that that by 2027 we'll definitely be able to get into the targets that we set out to be by during investors day. Thanks Jes, appreciate it. Thank you.

Regina - Operator - (00:21:11)

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

Julian Mitchell - Equity Analyst - (00:21:17)

Hi, good morning. Maybe I just wanted to understand. So the, I suppose the guide midpoints this year, you know, suggests that you're running at kind of incremental sort of EBITDA margins. You know total, total company is sort of in the mid teens this year. Terms of the kind of drop through from 5% sales growth into EBITDA that's clearly well below what you should be doing. So maybe just parse out for us the main headwinds. Within that there's maybe an M and A headwind. The Price, cost aspect, maybe something in mix. And when we're looking at next year, should we assume that EBITDA margins remain muted in the first half, kind of flat or down year on year as you try to work through the tariff headwind? Yeah, let me, let me start with the first part of that. You know, in terms of kind of the margin profile you've seen and kind of, as you said, the incrementals and things of that nature, I think there's probably two kind of, probably what I say, large drivers of that or three drivers of that here in 2025. First, clearly the biggest driver is just the impact of tariffs that you've seen in the course of the year. Clearly that's been probably the single biggest, what I would say drag on, on, on the, on the margin profile and obviously subduing what are, you know, typical incrementals. But that being said, as Vicente just mentioned, gross margins have effectively been flat, you know, you know, across the board, which I think does speak to the proactive measures that the teams have taken, you know, with regards to, you know, pricing actions as well as kind of the general productivity equation. The other piece, Julian, there is what I would say, I wouldn't necessarily describe it as mix, but I would say it's probably the deleverage you're seeing on the organic volume drop, which is pretty, which is, you know, being offset by what I would say, M and A and fx. But clearly those come in at slightly different margin profiles, particularly on the M and A as we kind of bring it in in first year. Clearly that comes in at a lower margin profile than the overall segment or the overall company, but one that we bring to generally fleet average by year three, if not sooner. So those are probably the biggest drivers as well as what Vicente just said on the ongoing commercial invest. This is something we've been hyper focused on across the businesses as well as areas like demand generation to continue to drive ongoing organic growth. And then the second part of your question. Yes, I think I'll go back to what Vicente just said. You know, more muted impact as we move through the first half of the year, digest the comps on tariffs and things like that. And then, you know, a little bit better coming out of that to the back half of the year. That's helpful. Thank you, Vic. And then just my follow up would be, you know, you called out price and the sort of lag on that working through on slide 9. Just wondered if you could maybe kind of quantify for us that split of price versus volume in the third quarter and how we should think about the pace of price ramping up in the next sort of couple of quarters.

Vicente - (00:24:33)

Julian, in Q3, you know, from an organic growth price was roughly 3%, 2.7 to be exact, for the total company. And as you think about the change in the fourth quarter guidelines is largely driven by two factors. I mean two third is the change driven by the incremental effect of the recently enacted tariffs that we just talked about. And the remaining 1/3 is a change driven by what we saw in Q3, which is a delayed realization of the in year pricing due to the backlog growth.

Vic - (00:25:05)

And maybe Joe, just add another point to that. I think in Q4 you should expect to see pricing from a percentage perspective be relatively consistent to what you saw there in Q3. The number of ascent I just mentioned. That's great, thank you.

Regina - Operator - (00:25:20)

Our next question, Jeff Sprague with Vertical Research, please go ahead.

Jeff Sprague - Equity Analyst - (00:25:26)

Hey, thank you. Good morning everyone. Hey, maybe just come back to tariffs. Just simple question. Can you just tell us what the gross headwind is and what the incremental impact of the 232s in August were? Yeah, Jeff, I'll take that one. So I think as you remember in our, in our last call, we said approximately $80 million in year. What we'll say here is that, you know, that number is slightly in excess of $100 million at this point in time. And clearly, you know, as Vicente mentioned in the prepared comments, we've taken the requisite price actions. It's just a matter of timing and we expect that to kind of catch up as we move into 2026. Yeah, and then I understand the comment about, you know, kind of backlog and taking a little while to come through and maybe that impact on the first half. But also you do have a lot of shorter cycle business where arguably the price should be, you know, coming through, you know, as soon as, maybe even the fourth quarter, but certainly the first half. I mean, correct me if I'm wrong, or there's some other kind of short cycle versus long cycle backlog conversion dynamic that we should be thinking about. No, Jeff, I think the way, the way you're thinking about it is correct. I mean, remember, we've taken pricing actions. It's not just been one pricing action over the course of the year. It's been a multitude of pricing actions just in relation to the tariffs and kind of how we operate as a global business. To your point, the short cycle business does exist. It's. But still it, you know, there's typical cadence and lead time on those orders. So I think the way you framed it up is, is correct that you know, with backlog having grown, we do expect that pricing to come through. It's just going to come through a little bit later than expected. And that's why we say this will catch up here as we move into 2026. Great. I'll leave it there. Thanks guys. Thank you.

Regina - Operator - (00:27:21)

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

Andy Kaplowitz - Equity Analyst - (00:27:27)

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

Vicente - (00:27:55)

Yeah, Andy, as I mentioned on the call, it was definitely a drag. As you think about the its particularly in the America or call it North America, I'll say Q3 was from a revenue perspective the one that we now comped that out. When you look at the orders in reality the ITS Americas, North America particularly was up mid single digits from an organic perspective orders. So that actually as you can see shows very well from that perspective that despite that industrial market, the Americas team delivering positive organic orders and in addition to that compressors being up on a high single digit basis too as well from orders. So I'll say that some of the tough comes on clean energy are kind of gone. I think clean energy as we said before, continues to be a good end market. When you think about countries like Brazil or even some countries in Europe and even India that India is now pushing, the government is pushing for some major investments in biogas. So it's all still a good end market. I think the large tougher comp that we saw due to the acceleration of Iraq back last year that did not continue to happen this year is gone at this point in time.

Andy Kaplowitz - Equity Analyst - (00:29:20)

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

Vicente - (00:29:40)

Yeah, and you know, I'll say it was a good combination of all the different businesses within the PST playing fairly well. I mean obviously some better than others, but clearly the life science platform, which includes the legacy current Denver Medical performed very well. But even also on some of the other kind of short cycle industrial businesses, we saw some good momentum too as well. So I say very evenly, good performance.

Andy Kaplowitz - Equity Analyst - (00:30:09)

Across the entire segment. Thanks for that.

Regina - Operator - (00:30:15)

Our next question will come from the line of Nigel Koh with Wolf Research. Please go ahead.

Nigel Koh - (00:30:20)

Oh, thanks. Good morning everyone. I just, I don't know if you. Want to touch this third rail or anything, but, you know, any initial thoughts on 2026 based on, you know, what you've seen in the backlog, customer conversations, you know, MQL momentum? I think if I just unpick what you kind of talked about in response to another question, gross margins, I think you said flattish in 26 that imply overall margins flat in 26. But any color would be helpful.

Vicente - (00:30:52)

Yeah, Nigel, I'll say. You know, as I said kind of as we kind of look into 2025 again, first of all, we're positive, enthusiastic about continued momentum on the organic orders and particularly here in the third quarter where we saw organic orders really across all regions, all businesses except with one and we call it out as that to be basically a timing perspective. And so as we move into 2026. Yes, I mean we're very pleased with how backlog continues to progress and build. We were expecting that full year book to Bill is going to finish slightly above 1, which again that implies very good momentum here still in the second half, which typically book to build is less than 1 in the second half. But we're seeing we expect that to be slightly different here in 2025. And so I think, you know, at this point in time, too early to call it out. We're going to provide you clearly more detailed commentary as we go into our next call. But so far it seems to be more positive. Okay, that's great. And Vic, you sold $100 million of.

Vic - (00:32:08)

In year tariff inflation. Again, how does that look for 2026 when we just annualize and all the inventory turn stuff. So the full kind of the full sort of impact in 2026 and is it just price and surcharge actions you're taking here or are you adjusting supply chains to mitigate some of these 232 tariffs? Yeah, Nigel, so I will start with the kind of second part of that question first. Clearly a combination of both. I think as we talked about earlier in the year, we kind of took a dual approach, surcharges and kind of more or less price actions. I would say that's kind of more Fading off to now more, you know, everything kind of converting to normal course list prices, kind of, which is what we've indicated kind of originally. Absolutely. We are working on what I will call operational tariff mitigation efforts. And it takes on kind of all the forms you would expect in terms of whether it be resourcing, you know, things around, you know, small, you know, supply chain from intercompany perspective, things like that. And so, you know, right now we expect that to probably have a little bit more of a meaningful impact into 2026 just because it takes time. For. Those to realize and for inventories to bleed down and for those changes to happen. And clearly there's been a lot of change over the course of the year as far as the 2026 impact. You know, I'll just say clearly numbers are changing quite considerably. So, you know, we're not going to get into trying to size, quite frankly the GROSS Impact into 2026 at this point in time, just because even frankly as of yesterday, things have continued to change. But I think we feel quite comfortable that with the pricing and the operational mitigation actions we kind of have in place that, you know, we are, we have those covered. I will also go back to kind of what Vicente mentioned during the prepared comments that, you know, the way we framed up Q4 and kind of the tariff numbers that have been embedded, we do view, as I'll call it, a bit of a worst case kind of view at the point in time and one that will obviously continue to monitor, particularly as the macro environment continues to change quite considerably.

Nigel Koh - (00:34:15)

Okay, thanks, Vic.

Regina - Operator - (00:34:18)

Our next question will come from the line of Joe Richie with Goldman Sachs. Please go ahead.

Joe Richie - Equity Analyst - (00:34:24)

Thanks. Good morning, guys.

UNKNOWN - (00:34:26)

Morning, Joe.

Vic - (00:34:27)

Hey, I want to maybe pull on the thread that Jeff started earlier on how pricing kind of builds and how your backlog builds typically through a year. And so typically the way I think about it is like you've got your backlog built and the first half, then you shift the backlog in the second half and this like interplay between, you know, tariffs and pricing and being able to kind of offset the increased tariffs. And just is it because like in the first half as you're building your backlog, you're not contemplating the type of cost environment that has, has played out now through the second half of the year. And so you're offside to some degree. I just want to make sure that I understand that correctly. Yeah, Joe. So I think a couple things to think about. I think the way you're framing it out is the Right way to think about it as just kind of a reminder, you know the book to Bill typically you typically see above one in the first half. You typically say below one in the second half. That kind of gets to a rough average of one for the year. And I think as Vicente mentioned here, what, what is kind of the change at this point in time is we are definitely seeing book to Bill kind of steady around that one times number here in the back half of the year. So what's happening here is, you know, the typical, you know, backlog burn that you see in the back half of the year is not as, as, as, you know, as, as, as big as it typically is. And so you know what's happening here is we've done pricing increases over the course of the year. I'd say more of those orders with recent price increases are going into backlog, whereas we would typically have seen those flush through the second half. And then clearly with the, I'd say the section 232 tariffs and quite frankly all the other tariff related actions that happened at that same time with India and Brazil and some of the other kind of components that happened in late August. So you know, Ascente mentioned as we've now taken the measures to counteract those with the normal notifications to customers and then the typical, you know, order to revenue conversion that's just now pending now into 2026. The good news is obviously we feel like we've taken those actions. We see those actions coming through when we look at bookings and things of that nature. So we feel, you know, pretty confident moving into 2026 that, that you know, that equation will kind of get, I'd say back more than normal. Got it. That's, that's helpful Vicki. I guess maybe just send it corollary to this. So what happens in an environment where tariffs go away? Like do we, do we see like will we see a meaningful expansion in your profitability and your margins? I know you're using both pricing and surcharges, but in an environment where you have materially lower tariffs going forward, does that impact your business?

Vicente - (00:37:11)

Well, so pricing will be sticky. So pricing will not. We have never done price reductions based on this and as we said before, I mean these all any surcharges have been translating to price. So the pricing will definitely stay. You know what we have always said is that all these kind of tariff pricing that we have been doing is being based on a one to one ratio. So to just primarily cover the cost. So maybe as tares will go away there could be a benefit.

Joe Richie - Equity Analyst - (00:37:46)

Okay, great. Thank you guys.

Regina - Operator - (00:37:49)

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

Chris Snyder - Equity Analyst - (00:37:56)

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

Vicente - (00:38:12)

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

Chris Snyder - Equity Analyst - (00:39:01)

Thank you, I appreciate that. And then maybe just to follow up. On some of the tariff price cost commentary from earlier. You know, I guess it seems like if the tariff headwind this year is going from 80 to something over 100. Million, it seems like there is very significant wrap on that into next year if we isolate that 2025 million incremental into just Q4. So I guess is the tariff headwind bigger next year than it is this. Year and then just kind of related. To that like this 232 does feel very incremental. Is there any reason why the company. Is deciding to not use surcharges or just kind of quicker price action this time around relative to what we saw in the spring? Thank you.

Vic - (00:39:49)

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

Regina - Operator - (00:41:09)

Our next question will come from the line of Stephen Volkman with Jefferies. Please go ahead.

Stephen Volkman - Equity Analyst - (00:41:15)

Hi, good morning, guys. I hope you don't mind, I'm not going to ask you anything about tariffs.

UNKNOWN - (00:41:22)

Feel free.

Vic - (00:41:23)

Just quickly, Vic, I think you mentioned in your comments some additional cost actions and I just wanted to make sure. Is there something else going on with, you know, footprint or headcount or anything? Or is it kind of what you've already outlined? Yeah, Steve, so I would say, you know, we, if you, if you see the financials, we obviously did record, you know, a specific charge with regards to restructuring actions. I think it speaks to, you know, in the prepared comments we spoke about what I would call some proactive cost measures that we're taking as a result, kind of of the environment and what you would expect. So, you know, I think the simple way to say it here is, you know, we are, we have taken actions. I would call them somewhat normal course in the context of, you know, prudent cost measures in this environment. I would call them largely headcount oriented as opposed to footprint or anything else like that. And, you know, the impact of that is, I would say, more pronounced into 2026 just based on the timing of when we have taken said actions. And I'd say the normal course in terms of how kind of some of those restructuring actions typically play themselves out.

Stephen Volkman - Equity Analyst - (00:42:34)

Great. Okay, thanks. And then maybe, Vicente, how should we think about, you know, we've seen some very big announcements relative to pharma and some of the life sciences sort of reshoring that may be happening here. I'm just curious, are you seeing sort of quoting activity? Have you had any kind of orders that you might ascribe to that trend and maybe also just comment on kind of, you know, your fair share of that kind of end market?

Vicente - (00:43:06)

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

Stephen Volkman - Equity Analyst - (00:44:19)

Thank you.

Regina - Operator - (00:44:21)

Our next question will come from the line of Joe o' Day with Wells Fargo. Please go ahead.

Joe o' Day - (00:44:27)

Good morning. Thanks for taking my questions. Wanted to start on PST and it looks like over time the sort of coincident correlation of kind of orders and revenue has gone up, meaning a little bit more book and ship within the quarter. And so if in fact that is happening within the business and anything about mix that would be driving that and then tying that into the comment about some delayed realization of price because of backlog growth, you could just expand on that if that's sort of certain mix within the portfolio that's seeing that. Sure, Joe. So I think your comment around the kind of PST composition and things of that nature, I think is a fair statement. You know, this business, not too dissimilar to its, has a, has a distinct component that's short, kind of short to medium cycle and then there, you know, projects that are typically longer cycle in nature. So I think that's a fair statement. I think particularly in some of the, you know, the PST or some of the life sciences businesses that tends to be a, you know, a touch more, you know, book and ship or shorter cycle, comparatively speaking. So I think that's kind of a fair statement. Now as far as the kind of backlog dynamics and pricing that we've mentioned, I would say there's a multitude of factors driving this, but I think without question it's probably a little bit more pronounced on the ITS side, comparatively speaking to pst. I think that's clearly a fair statement in the context of where you're seeing that pricing delay in terms of the realization. So you know, as far as PST though, I think the business as we mentioned has continued to Perform quite well. I think Vicente obviously made some remarks about the organic order of momentum, but clearly this is a business that's continued to see good, healthy both year over year and sequential margin expansion. 80 basis points year over year, 130 basis points sequentially. It's playing close to now about 31% EBITDA margins. We would expect Q4 to be in a similar zone and obviously the year over year will look quite healthy given where Q4 PST margins were last year. So we feel continued, you know, I think optimism on where PST is trending and I'd say they're doing, you know, their requisite work on the, on the tariffs and mitigation as well. That's great color. And I guess it means this isn't necessarily a persistent shift. It's just a matter of as projects come back, you know, then, then you could see a little bit more of a return to, you know, maybe one quarter lag. It's just lower project activity right now would be a factor.

Vic - (00:47:07)

Yeah, for sure.

Joe o' Day - (00:47:10)

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

Vicente - (00:47:38)

Yeah, I think right now we continue to be very laser focused on the bolt ons. You saw how many we have done so far this year. We continue to have nine under loi and we're finding the investment to be excellent. I mean pre synergy multiple of average nine and a half times that we know can deliver meetings ROIC by year three and all these Boltons. So I think that for right now, as we always said, you know, every three to five years we might do a larger and then we do more bolt ons. That's exactly what we're doing here with we did one like ILC last year and now we're doing Bolton now where we have done now three bolt ons.

Joe o' Day - (00:48:19)

Into a, into that platform. Thank you. Thank you.

Nathan Jones - Equity Analyst - (00:48:26)

Our next question will come from the line of Nathan Jones with Stifel. Please go ahead. Good morning everyone. I guess first question you guys had talked over this year and probably late last year as well about elongating quote to order times. Can you talk about any changes that you've seen there, you know, in aggregate for the business or any pieces of the Business where you may have seen that either, you know, getting worse or getting better as a, you know, a leading indicator for more customer confidence as we head into next year.

Vicente - (00:49:01)

Yeah, Nathan, it is definitely not getting worse. And I think maybe I will call it out to be more like stable, a little bit of few pockets of getting better. But. But right now, no incremental change that we are seeing. Yeah. Good news again is that what we have in the funnel is not getting.

Nathan Jones - Equity Analyst - (00:49:28)

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

Vicente - (00:49:32)

Yeah, that's correct.

Nathan Jones - Equity Analyst - (00:49:34)

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

Vicente - (00:50:06)

I would say nothing has alleviated. But keep in mind that some of these engineering firms, they tend to also work on a lot of the hyperscaler investments that are happening. And so it goes through the same in some cases areas, but it's not as what we might have seen before. I'll say it's slightly better. Awesome.

Nathan Jones - Equity Analyst - (00:50:29)

Thanks for taking the questions. Thank you.

Regina - Operator - (00:50:33)

Our next question will come from the line of Nicole Deblaze with Deutsche Bank. Please go ahead. Yeah, thanks. Good morning, guys.

Nicole Deblaze - Equity Analyst - (00:50:41)

Good morning. Just a couple of tie ups. We've obviously gotten through a lot here. I guess maybe piggybacking on to Steve's. Question about. The actions that you're taking with respect to costs, anything on sizing that Vic, the impact as we kind of roll into 2026, is it like one for one versus spent? Just kind of get a sense of that.

Vic - (00:51:07)

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

Nicole Deblaze - Equity Analyst - (00:51:33)

Okay, perfect, thank you. And then with respect to buybacks, I. Know if we go back to the. Second quarter call, you talked about doing up to 250 million additional buybacks in the back half. We're now at 193 million of that as of 3Q. So any thoughts on appetite for continued buybacks during the fourth quarter?

Vicente - (00:51:51)

Thank you, Nicole. We definitely have this strengthen the balance sheet to be able to do more. So as we continue to see more continue dislocation. Yes, I mean we, we will, we will be doing more in addition to continue to do the M and A. I mean so we, we believe we can continue to do both.

Nicole Deblaze - Equity Analyst - (00:52:14)

Thank you. I'll pass it on.

Regina - Operator - (00:52:18)

Our next question will come from the line of David Razzo with Evercore isi. Please go ahead.

David Razzo - Equity Analyst - (00:52:23)

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

Vicente - (00:52:46)

Yeah, David, great question. I mean if you were to look at the details of the 232 that happened here in August, it was basically removing any of all the exclusions that were on air and gas compressors. So that puts a strain not only on some of our components, but also a lot of the competitors that kind of have to import product from other countries. So with our in region for region, I mean, that kind of offers eventually a bit of a better competitive advantage for us. And you know, it's still too early to see how these will play out, but obviously we're taking these as a great opportunity for us to, you know, accelerate our market share and penetration.

David Razzo - Equity Analyst - (00:53:26)

And when it comes to the backlog, I appreciate it's not easy to do with customers, but is there any opportunity to reprice some of the longer data backlog.

Vicente - (00:53:37)

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

David Razzo - Equity Analyst - (00:54:25)

All right. I appreciate the caller. Thank you.

Regina - Operator - (00:54:30)

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

Vicente - (00:54:37)

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

Regina - Operator - (00:55:12)

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

Sam - (00:55:36)

Thank you.