All right, great. Well, good morning, everybody. Thank you all for coming to day one of the Goldman Sachs Industrials and Materials Conference. My name is Joe Ritchie. I co-head up the Industrials and Materials team at Goldman, also cover the multi-industry sector. Before we get going with our first presentation, I'm required to make certain disclosures in public appearances about Goldman Sachs's relationships with companies that we discuss. The disclosures relate to investment banking relationships, compensation received, or 1% or more ownership. We're prepared to read aloud disclosures for any issuer upon request. However, these disclosures are available in our most recent reports available to you as clients on our firm's portals. Also, the views stated by non-Goldman Sachs personnel do not necessarily reflect those of Goldman Sachs. With that, really excited to kick off the conference with Rich Tobin, President and CEO of Dover. Rich, thanks so much for being with us today. Thanks, Joe. All right, Rich. You just had an Investor Day not too long ago. I know we're not gonna start with mega trends. I know you love that topic. There was a lot of discussion about how compelling your portfolio is over a cycle, mid-single digit type growth. For those that maybe missed the Investor Day, talk about what you think about your portfolio, where it's gonna grow from here, and we'll start there. Sure. Well, I would call anybody's attention to the presentation. I think it's like 60 slides or so. It's on our website if you wanna refer to that. At the end of the day, you know, the presentation was twofold. It was one, a little bit of a scorecard of where we stood about the goals that we put out there in 2018. Then we set new goals through 2025 in terms of revenue and margin by segment, which I think makes us kind of unique. You know, we like to take our internal goals and make them external goals, and then everybody's rowing in the same direction. I think those of you that followed Dover, we've been banging the drum a little bit about that for some reason, the inherent growth of the portfolio is misunderstood. I think that we've shown over the previous five years that we've grown on average 5% year-over-year, or CAGR year-over-year, and expanded margins materially during that time period. Basically, what we did is reset ourselves, starting in 2023, and talk about where we think that we can take the portfolio from a growth vector point of view, and then what that means in terms of margin. Very much the previous kind of path that we were on was a significant amount of cost takeout, as you would expect when you change CEOs. From here, it's more of where we're driving our investment. Margin mix becomes more important going from 2023 to 2025. We went through a variety of different vectors that we're investing behind, both organically and inorganically, to give us some exposures to new, vectors of growth that hadn't been in the legacy portfolio. Rich, let's use that as a jump-off point, right? There's roughly, I think, 15% of your portfolio that you talked about being, you know, double-digit growth going forward. Walk us through your, you know, where the opportunities you're most excited about, you know, your position in those markets and why you expect to win in those markets? Well, the ones that we highlighted was biopharma. Despite the, you know, this year being a little bit of a down year in biopharma, we just think over cycle that we've built a very compelling position in the biopharma space, both organically and inorganically. Part of the reason that we had the conference at our biopharma connector facility was to kind of highlight the technology that we've developed over the years. We think that there's plenty of space there to continue to grow organically and inorganically again, so it's just a question of winning the spec from here, right? This is a specified, very highly regulated business. To the extent that you can win the spec, your life of the production of a particular drug, you're on the spec. It's got recurring revenue associated with that. We highlighted CO2 systems. That's in our refrigeration business. We'll be completing a brand-new production facility in Georgia on the back of a change in regulation in the United States of moving from legacy refrigerants to CO2. We are the leader in Europe, so we're basically bringing the technology that we've had in Europe for the last nine years or so, and we're bringing it to the U.S. We think that we've got a unique position from both an IP point of view and from an installed base point of view. The other one that we highlighted was in cryogenic gases. If you think everything around the hydrogen complex, we made some acquisitions at the end of 2021 that have been quite successful so far from a growth and a margin point of view, and we think that there's additional space for us to continue to build out that position, both organically and inorganically. Great. We talked about the really good parts of your portfolio that are growing double digits. There's parts of your portfolio, about a little over half of your portfolio that you discussed, it's more like a GDP type grower. Those businesses tend to have margins below the portfolio average. I'm just curious, like, how do you think about the portfolio more broadly? Are Are there opportunities for maybe some addition by subtraction? We are a return on invested capital company. I get it that everybody likes to see margins go up over time. But margin is one reflection of returns as opposed to return on invested capital. There's portions of the portfolio that we've done a very good job of let's call it the legacy portion of the portfolio, moving the margins up quite a bit. We've invested some capital over the last cycle that we don't believe is reoccurring. If we can get those kinds of returns without a lot of capital consumption, and we can be really focused on working capital returns, the returns that we get out of what are the GDP portion of the portfolio are quite high. We use the totality of those cash flows to invest in some of the higher growth areas. That's a little bit kind of how we run it. We'll be opportunistic, I think, on both in and out in terms of whether we wanna call it portfolio pruning or not. Some of those investments, just to, just follow up on that, on that question. Some of those investments that you're talking about, you know, immediately what came to mind for me was DESTACO and the investments that you made in automation, in the, you know, food equipment segment, refrigeration segment. Is that what you're talking about? Like, there are investments that you still can harness where you should see much better margin improvement over time because of the investments that you made. Well, I think you're already beginning to see that to a certain extent in terms of what we're able to do from a pure productivity point of view. If you think about it a little bit, there's, you know, if you go back and look at capital allocation, CapEx now, we've actually been investing equally in the GDP portions of the portfolio that is solely on productivity projects to move margins forward. The balance of the CapEx that we've put in have been behind organic growth. I mean, we've, you know, one of the pieces that we didn't touch on was our heat exchanger business. As an example, we're doubling our capacity in that. We'll be complete with that project by the end of this year. Yeah. Great. You touched on margins a little bit, in your, in your comments. Last few years have been pretty tremendous, right? I think you've expanded your margins about 100 basis points a year for the last four years. Know that you're now targeting, 25%-35% incremental, so targeting the high end. Mm-hmm. Maybe just kinda talk about some of the initiatives that are gonna get you to the high end and how confident you feel in that number going forward? Yeah. The last cycle we did 39, so I mean, we got a little bit of stick about how come the margin accretion is not what it was in the past. One has to understand that we're predicting mix of margin going forward, so we need a little bit of headroom to deal with all the pieces of the portfolio don't grow at the same speed in any given year. Having said that, what you need to understand is that we lost a couple years in terms of fixed cost takeout because of COVID, right? If you go back and look what we were doing in 2018 and 2019, we were doing a lot of fixed cost reductions. We're talking about combining footprint to extract synergy value. We lost a couple years because of the fact, one, COVID, you couldn't get around to do it, we had this big explosion of demand in a very short period of time. Not really the best time to be taking fixed cost out. What you saw at the end of last year, though, was us to get back onto that path, I would expect that you're gonna see more of that in the second half of this year and through 2024, 2025. We've got a lot of the footprint actions again that we're gonna see that coming from there. Between the 25 and 35, it just becomes a matter of mix, right? Depending on what portion of the portfolio is growing in any given year, it's going to accrete based on the margin of that particular segment. We'll get into mix in a little bit and talk about the different segments, but, you know, Rich, you've had a great pulse on what's gonna happen in the economy, what's gonna happen to backlog and order trends, and, you know, you've been front-footed about all this. I'd just love to hear your view on how you see things playing out over the course of the rest of the year and into 2024. Yeah. It's a little bit of a mixed bag. There are some underlying avenues of growth, whether they are regulatory driven, a lot of which are regulatory driven. We talked about CO2, we talked about heat exchangers to a certain degree, the cryogenic components and those things. Those, our expectation are just gonna push through no matter what the economic environment is. I think we need to be careful with anything that's got consumer exposure, and we need to be careful with anything that's got credit exposure. We're taking a close look at portions of the portfolio that we have that may have some exposure there because quite frankly, you know, credit tightening is a thing, and it's gonna happen in a real way over the balance of this year until we settle out. That's when we look at the portfolio, we try to look at end market exposure and then adapt ourselves to that. You know, as I mentioned on the last call, portions of the portfolio we're stepping on the gas. Despite kind of a concerning general macro, we are still investing heavily in capacity expansion because we believe we can just ride it out because we know that the demand, the fundamental demand is there on a multi-year basis. Other portions of the portfolio, we're taking a real close look at our cost structure because we think that maybe some of those end markets may slow just because of credit availability. It's interesting. Is it too early at this point to tell how much slowdown you're gonna see or whether you're starting to see some of the slowdown because you take a look at your April orders? I'll tell you, they surprised me positively. Taking out the cancellation, I think you were, you know, down 3%. Are you seeing it in any parts of your portfolio today? No. I mean, I think that we're the only industrial company that gives, you know, orders and back to our detriment sometimes, orders and backlog and every piece of data there. You see what we see. I think that we're just trying to look over the ridgeline to a certain extent, as I said, try to be thoughtful about what could happen with pieces of the portfolio. Like I said, at the end of the day, we don't manage this business for Q2 or Q3 or Q4. We can, right? I think that we've proven during the COVID times when we need to put the brakes on, we can protect margins as good as anybody in the industry. It's a little bit of we don't treat all portions of the portfolio equally. It's depending on trying to be thoughtful about what could happen in certain pieces. As you think about the portfolio then today and what could be potentially, you know, sensitive to a slowdown in credit, you know, what portion of the portfolio are you taking actions on today? Well, I mean, we have been in the back half of last year and in the front half of this year, been taking action on Fueling Solutions. That was more because of we need to pivot that business because of the roll-off of EMV and everything that we've talked about. You saw Stick, you know, made some significant cost reductions there because we just need to run that business a little bit differently than we have in the past because of the flattening of demand. The rest of it, I think that you wouldn't really see it. I mean, you're gonna see some footprint actions, but that's broad-based across the portfolio because that's a little bit more complicated when you're combining plants. I think the rest of it is just gonna be on the SG&A front. We're just gonna have to, you know, run things tighter, depending on what our view of the, of the near-term demand may be for the balance. Got it. I mentioned the backlog cancellation. Just quickly, do you wanna touch on that? It was roughly, you know, $90 million. Your expectation on that coming back later this year or filling that capacity with additional orders, how do you think about that? We won't fill it for Q2, but in terms of the overall backlog, we'll fill it progressively over the balance. Did the cancellation itself surprise you? No, not really. I mean, I think, again, back to what you and I have been going back and forth about, we had been in discussions. I'm not gonna name who the customer is, but that particular customer that was looking at their business strategically. We've been having discussions about how we are gonna handle that mutually. The customer is a core customer of ours. I think it's just a timing issue. Got it. One of the key, you know, takeaways, I guess, that we've seen out of earnings is this whole price cost tailwind. Mm-hmm. ... that you're starting to see, you know, many companies realize. Talk through in that 3%-5% organic number, you know, how much pricing do you have coming through there? Maybe some color around like commodities as well and how that's impacting your business. I mean, the top line in aggregate is very much driven by price this year, right? The vast majority of it from a revenue increase is pricing. We've got portions of our portfolio that are organically growing. We've got certain portions of portfolio that are slowing some because of a variety of different reasons. You know, we did a really good job in terms of managing price. I think as you know, if you go back and take a look at last year, we were basically saying, "We're gonna call up this portion of the portfolio in the first half, but don't worry about the second half because of the industrial portion of the portfolio is gonna rally in the second half." I think that we're up 400 basis points in margin, and that's the timing difference between commodity exposure and working capital turns. You're seeing that roll forward again. What we have in our pocket is some of the more lucrative portions of our portfolio that had cycled down in 23, we believe is a real opportunity when that cycles back up, that is gonna be highly accretive. It's always with, you know, Dover, we've got a lot of different exposures to a lot of different marketplaces. They don't move in sync. I think that investors should be not overly concerned with the one piece of the portfolio that may be cycling down. If you go back and look over the previous five years, despite all the consternation about EMV and a variety of different things, we grew at 5% a year because the accordion effect of the portfolio has served us well. Yeah. We'll get to the biopharma consternation in a second. The one thing I did want to, since you touched on it, and you were, you were talking about last year's, you know, margin cadence. Mm-hmm. It seems like this year, your second half margins are expected to be, call it 100- 150 basis points better than your first half margins. You know, recognize that volumes will be better, but how are you thinking about why the second half is much better than the first half? Maybe some commentary on that. Well, I'm not gonna comment on your spreadsheet. Yeah. I mean, you've literally got to go back and look how the portfolio developed over time. We have, you know, we put out our guidance for this year. We said it was a slower first half and accelerates in the back half of the year. That is mostly margin mix, right? You had the end of EMV deliveries and basically the end of the shipment into biopharma. Now we've flipped the script a little bit. The first half of this year looks like the back half of last year. The industrial portion of the portfolio is outperforming right now, just in terms of demand and margin. We'd expect that to continue, and then we would expect the headwinds that we had from a comp point of view for that to dissipate in the second half. We'll see on biopharma. We feel good that, you know, we were talking about an inventory drawdown in biopharma a year before anybody else was. Arguably, we've had a little bit of a head start here. We'll see how much that picks up, but we would expect that to sequentially increase, with hopefully a, you know, a really good 2024, coming our way. Yeah. Look, biopharma's been a great story for you guys. Mm-hmm. I know that on the way down, there's been a lot of discussion around that. I would imagine that as you think about the margin profile in the second half, biopharma getting better is, you know, mix accretive for you guys, right? I guess, the question I have is, I guess, how much confidence do you have on the inflection, and how much visibility do you have? We talk to our customers every day, right? We just think that Q2 will be the bottom of biopharma. When we say bottom, it's the end of the COVID delivery. The core biopharma business is actually growing in the 20% range, right? When we eliminate that effect, it's just purely a question of inventory drawdown. Remember, we're not a systems provider. We're a provider of single-use components. We don't need more systems to be sold. We just need the systems that are out there to continue to run because they're constantly consuming the components that we supply. I guess we'll see. I'm sure we'll be giving color on it every quarter for the balance of the year. I think that when we get clearly into 2024, you could go back and take a look at the margin accretion that we got in that particular sector when that market's chugging along. I can tell you that despite having a, the revenue going down, that our margin has remained constant despite the fact that the revenue. That's helpful. I'll ask one more question. We'll turn it over to the audience in case the audience has any questions as well. Yeah. Let's just stay with biopharma for a second because you're coming off of a bottom in margins. If I remember the quarter correctly, it was, like, a little bit sub 28%. Ooh. you peaked at 33, right? Right. It's, like, really good. Yeah. I guess as you kinda think about the trajectory from here into 2024, I know you've talked about being above 30. You know, Do you think it's sustainable? We're gonna be sustainably above 30. Like, what's kind of like the right- Yeah. Look, we don't give out operating company by operating company margins, but we have been north of 30. During that time period, we were saying that the on the run margin of the segment is 30. I think if you take a look at what we put out there for, margin expectation through 2025, it's north of 30. You know, it's an incredibly lucrative portion of the portfolio. If you look what we're doing from an inorganic point of view, that's where the preponderance of inorganic activity has been also. Great. Maybe I'll turn it over to the audience. Any questions from the audience? Right up here in front. Yeah. Hi. You said the credit situation is a thing. Is that a response to the events of the last six weeks or a response to the raising of rates from summer of last year? Is that a new point you're making or is that a broader point? I think it's a broader point. I mean, overall. I mean, we've been quite critical about how the Fed has handled this process. It clearly that credit availability is going to be constrained over the balance of the year until the banking sector gets stabilized. The businesses that we would have exposure to that requires credit, which is, quite frankly, I'm making a macro comment. There's not a lot of our portfolio at the end of the day. I mean, it's very small pieces. Like you think about car wash, for example, right? Those are generally independent entrepreneurs that get local bank financing to buy the piece of property and everything else. We would expect that portion of the portfolio as a watch item. We'll, you know, so we can't ignore it. When we pick apart the pieces of the portfolio, we say, "Okay, who could be exposed either to consumer," which again, for us is relatively benign, and/or credit that is a watch item for us. I don't think. To me, it's just been, "This is what's coming." Now we've seen some, you know, some cracks in the banking system, so I don't think that's overtly helpful. I'm of the view now barring event risk, that the capital markets are calling it correctly in terms of interest rates, what's going to happen to interest rates. Just one more. Can you just talk about RegO and Acme in terms of current performance, how they're doing since? Yeah. We're really pleased, on both. We like the amount of announced capital going to that particular sector. Now it's gonna take... You know, we gotta read through the headlines of the billions of dollars of capital. If you look at kind of like the Airgas and the Air Liquide of the world and everybody else, it's fantastic. It's a little bit of a slow roll there, but, you know, we're very pleased in terms of the pivot that we made into that particular sector. We think it's very fragmented, which is good for us. We think that it's very regulatory driven, which is the kind of businesses that we- Somebody else have a question? Right there in the middle. I was wondering if you could just speak to what you're most concerned about at this moment, whether it's demand or sustainability of pricing or on the cost side, like, labor, supply chain? Well, we're concerned about them all, generally speaking. You know, at any given moment when you're running an industrial company, all those balls are up in the air. We were more concerned with labor costs a year and a half ago. We are less concerned with labor costs today. We were more concerned about supply chain a year and a half or a year ago. Far less concerned with supply chain now. You know, when we talk about this notion of backlogs and everything else, I mean, there was a lot of distortions that were going out in the marketplace because of the, of a significant increase of labor to attract it back. Running these businesses with supply chains that basically, you know, we made choices during that period of, from a working capital point of view, we're long working capital, and that's why our goals this year for free cash flow are pretty high because the working capital that we carried because of inavailability of components due to supply chain, we believe we're gonna liquidate that over the balance of the year. I think that supply chain and labor costs are in the rear view mirror now. It's purely the concern is now is the macro and how that feeds through in demand. In pricing, I think we've done a good job. I think if we look at it over, it's almost two and a half years, you know, we were negative at the beginning because you can't reprice backlogs. You've seen from a margin point of view, a big inflection of margin because you go positive on price cost. If you look at that over an 18-month or 24-month period, I'd say we're accretive because of price cost, but it's not some crazy amount. Am I concerned about headwinds in terms of pricing in the marketplace? Not currently, no. Right. We didn't. We, you know, you see companies out there with 14%, 15% price increase. We never did that, right. We were just basically matching input costs to protect on-the-run margins. We'll see where it goes from here, right. You know, I get a lot of pushback because I think we did a conference a year ago and said, you know, you just can't, you can't stand up here and say pricing's never gonna go down, right? Pricing is gonna be a reflection of the supply-demand imbalances in terms of capacity and demand. We're watchful of it, but I don't think that it's, for us in particular, I don't think it's an issue that we can't deal with in terms of if there are pressures on pricing in the market. Audience questions. Mr. Pasquale. You singled me out by name. Thanks, Joe. I couldn't see Suzy before. Rich, you mentioned earlier that you're gonna, you know, focus on liquidating your inventory that you carried because of unavailability. How much of a risk do you see it that the entire industrial complex, including your customers, are thinking the same way, and so they're gonna liquidate all of their Dover products that they've been holding? Well, everybody's doing it, right? We've got, you know, don't hold me to this, but let's just say that we're 50% OEM and 50% distributor, right? Everybody's in the same shape, right? Demand was just so large that everybody was chasing it simultaneously, and you saw a lot of backlogs and everything else. It's not, we're not talking out of school. What I said before about revenue growth, if you go back and look last year and you look this year and you pull apart pricing, what you don't see is unit demand. We would argue that unit demand was flat last year and in just in aggregate and slightly down this year, but what's buffering it is all this price out there. There has been a drawdown. You had this big influx of pushing product into the system. We're in year two of it, like a balloon slowly deflating. What everybody's afraid about is if the macro gets bad, does everybody pull the brakes on it, right? Right now, everybody is doing the same thing. You know, so far so good, it's been reasonably orderly in terms of how it's deflated over time. Because a lot of, you know, there's a lot of good markets that are out there still that never really overinflated because the demand is, it's just churning. You've got pockets of it for a variety of different reasons. Right now it's been an orderly deflation between supplier, distributor, and end user. Until I see something that says this is a problem, right? We run scenarios, you know, if you think about it, we've got all these operating group presidents that all are touching different marketplaces. They all think that they can win in that space. They all believe that they've got a plan to do it. What we do is sit on top of it and say, "Show me the data. Show me plan. If demand goes down, what are you gonna do for your cost base and how quickly you can do it? And if demand remains stable, how are you gonna run it? And if you think demand's going up, really think about something." You know, I mentioned before about heat exchangers. It's all hands on deck. We believe that this is a multi-year demand. If it slows in the fourth quarter of this year, who cares, right? Because we think we can manage it over a multi-year period. There's really no, you know... When we talk to the management internally, I mean, you know, we're not a paperclip company, right? We don't make the same thing everywhere with the same end market. But I think over time, we've proven we've got enough flexibility in the portfolio when we're pressing into growth, we can make up where we're pulling the brakes on other portions. That's really where we are right now. Hey, Rich, I wanna end on portfolio. Mm-hmm. We, we talked about DCFC earlier. The margin turnaround there has been tremendous. You sold Unified at the end of 2021. At the Investor Day, it sounded like you wanted to grow the rest of this business. I mean, are we done with portfolio reshaping there? That particular portion of the portfolio got all the attention because it was the lowest margin piece of the portfolio. I get it, right? We said years ago that this is where we think that we could get it in terms of margin, and we reached those goals. CO2, which is in that business, is a brand-new vector in terms of growth, and I can tell you it's accretive to margins to that particular segment of the business. We believe that we've sized, let's just call it the legacy refrigeration business appropriately, that we can extract good margins. As I mentioned before earlier, if it's not consuming capital, its return on invested capital is actually quite good because of the velocity of the, of the working capital turns in it. When you look at it, you're saying, "Hey, wait a minute. Why is a bunch of CapEx going in here?" Well, the CapEx that's going in there from a segment point of view is the doubling of the capacity in heat exchangers. I take that back. Repurposing an existing factory that we had in Georgia for CO2 systems. We'll be done with that in Q4-ish. Let's just say that we're pretty positive in terms of what that means in terms of demand and margin accretion as we move into 2024. You have a decent sense at this point on how much of that capacity is already filled? We're just putting the production lines in now, essentially it's filled. I mean, when you start bringing line rates up and everything else, you know, we believe that kinda like heat exchangers, I think that we made the move in terms of capacity expansion before this, everybody discovered the heat pump world. I think that we're positioned appropriately for what we think is the demand that's gonna come there. It's the same thing on the CO2 systems, right? We're on the front foot. It's a very small market right now because the only state in the country that's got it legislated is California, but we'd expect multi-states to adopt that regulatory regime over time. We've got a very large install base in Europe, so I think that we've got credibility in terms of the supply there. I'm answering your question in a roundabout way. We look at the portfolio objectively all the time. We have a very clear process of what's a keeper and what's not. We look at it. It's not just, well, hive off the low margin stuff and keep the. You know, we look at it more strategically in terms of what's happening with the competition, what's happening with the end user base. I wouldn't be shocked if we turned around and sold something that had kind of accretive margins to the broader portfolio because we're making a judgment on our ability to compete over time. We may monetize pieces of portfolio just because strategically we think it's the right thing to do as opposed to, let's move our margins up by hiving off pieces of the portfolio. I mean, we're a return on invested capital company, as I mentioned before. Makes a lot of sense. Rich, we're out of time. Thanks so much for kicking off the conference. Great to see you. Thanks, Joe.