Next up, we have Graco. Graco manufactures highly engineered fluid handling equipment that measures, mixes, controls, dispenses, and sprays fluids for construction and industrial markets worldwide. Joining us today from Graco's Director of Treasury and Investor Relations, Chris Knutson. Chris joined Graco in 2008 and has held various financial positions, including Regional Controller for Asia Pacific and Director of Treasury and Regional Controller for South and Central America. Graco has about 170 million shares outstanding. Stock trades around $70 per share for $11.9 billion market cap, a little over $400 million in net cash for $11.5 billion total enterprise value. Chris, thank you for joining us today, and I will turn it over to you for some introductory remarks. Thank you for having me today. I'm looking forward to the conversation. Graco, as you gave the introduction, is a global company that is off to a good start to the year. We ended 2021 at our highest growth in all of our key segments, including worldwide. We did, like everybody else, have issues related to product costs and availability and shortages, but we were able to overcome that and have a very successful year. Looking forward to a great 2022. Great. We'll hop into some discussion questions. So, Chris, you've been in the investor relations leadership role for, I guess, almost five years, and you've probably seen a lot of changes at Graco during your time. Perhaps just take a step back and discuss some of the changes you've observed at Graco during your tenure and some elements of the strategic direction for Graco going forward that you'd like to highlight. No problem, so I've been in this role for about two years. I've been with Graco for just over 12 now. I've seen a lot of different industries, a lot of different markets that we've played in, as well as a lot of our different divisions. We've recently had a strategic change at our CEO level. Mark Sheahan has taken over for Pat McHale, who retired in June of this year, and what we've seen with that is we've seen that there has not been a real change in our strategic initiatives. Mark and Pat have been on the executive team for many years and have worked together, and they were instrumental in putting those strategic initiatives in place, so what we've seen with Mark coming in as the new CEO is a different focus. One focus that Mark's going to have is to kind of put the pedal down on organic growth. We've had a pretty good track record of about 5.5% compound annual growth for revenue over the last 20 years. We'd like to get that a little bit higher to that 7% range. So he's focusing on areas where we put our investment to grow the quickest, whether that be looking at components where we have less growth. Maybe you look at the liquid finishing portion of our business. That liquid finishing is being replaced a little bit by a little bit more environmentally friendly powder coating. We have our lubrication, our legacy lubrication business. Where do we put our money? Do we put that towards electronics, battery, alternative energy, which are high growth markets for us at this point, as well as automotive? Do we move our money around, and how do we do that to kind of increase that growth rate up to that 7% level that we're looking for? Number two is expense management, looking into where we could take some of our costs out, whether that be just looking for redundancies that we may have, and one thing that we've identified is when you look at the resegmentation that we've had, moving our HPCF business into our contractor business, that'll allow us to take out areas that we've been having the same product lines, product categories, engineers, salespeople, and have a more fluid and cohesive construction and construction market team initiative. Third, his focus has been on M&A. As you've seen recently, we've hired Inge Grasdal as the Executive Vice President of Business Development here at Graco, with the sole focus on building out our processes and procedures in the M&A market. We believe that when Mark inherited Graco from Pat, that he has a Ferrari. He's got a well-oiled machine when it comes to engineering and operations. One thing, and it's evident in our track record, is that we don't do as well in mergers and acquisitions. Our growth rate from that has been about 1% of our revenue, whereas we want that to be about 3%-4% per year. So we brought in Inga to build out that competency at Graco to allow us to focus more on M&A, put processes, procedures in place, build out to make sure that we are a world-class acquisition company to go with our world-class engineering and operation competencies. So that's something that we've focused on, and that's something I think you'll see Mark putting a little bit more effort towards and making it more something that fits within our culture, meaning that we talk about it at every operations review, meaning that that becomes a higher focus and a higher point of attention for our business leaders as well as our corporate team. And finally, we have a great company culture here. We're labeled as one of the great places to work by this last year just to maintain that. Pat McHale was a good steward of our employees. We just want to make sure that with that, him leaving, that some of our company culture does not go along with him. So a big focus is maintaining that and continuing to grow that competency as well. Those are the key things that are coming with Mark as a change. Other than that, there hasn't been a tremendous amount of change in our strategy over the last 10 years that I've been with the company. Thank you, Chris, for that overview. If anyone on the Zoom has questions, please feel free to submit them. Maybe I'll dig a little bit deeper into the M&A topic. Is M&A something that Graco envisions picking up this year, have valuations reset meaningfully enough, or is this something that you want to build the capability for to execute more in future years? And what areas are of interest to you geographically or application-wise? So when we look at our M&A strategy, valuations are going to be something that are going to dictate really how we're going to move forward. We're building out the process as of now. Will that indicate that we're going to have a lot more activity this year? Depends on what happens with the overall market. It could, but at the same time, it could be something that will take a couple of years to develop and have some of those valuations reset. We're still seeing valuations in our primary markets pretty high. So it's something that we want to make sure that we give to our shareholders, that 10% or better return. So at this point, we haven't pulled any trigger on any acquisitions, but we are out there looking. As far as what markets that we are focusing on, we typically like the pump space. We are looking at anything that can be accretive to Graco, but at the same time, value some of our key competencies, whether that is our focus on engineering, the ability to get price where we can leverage our channel, leverage our operation capabilities. Those are the markets that we look for. I don't think we're looking for any specific product line, product category, just something that fits within our core strategies that allows us to continue and be accretive to Graco. Great. As the M&A strategy develops, do you expect it to, I guess, develop more along the lines of a series of bolt-on deals, or what circumstances would Graco consider larger opportunities? We would consider larger opportunities. I think we've said publicly that we'd be willing to go up to that 2x-3x EBITDA in order to get a deal done. But with the way the market's currently looking, it's likely that we'll probably focus more towards the bolt-ons in order to meet our investment goals of 3%-4%. We'd only have to add $60 million-$80 million in revenue. So that's likely going to come from a series of bolt-ons unless we see some good value in a market that we haven't already penetrated or give us a good competency in a product category or a product technology that we have not developed, which would shorten that time to market and that cycle time from our internal creation. Great. I'll shift to the organic growth in the enterprise. Both industrial and process segments rebounded very strongly for Graco last year. What markets are driving the strength in the top line outlook this year, and where are you more concerned about economic activity slowing down or decelerating? So we've seen some pretty broad-based growth in both our industrial and our process segments. Things that we've called out as areas of strength in the past have been. Automotive for us has been really good. We come off of 2019. 2019 was probably a low in production of cars worldwide. That hurt our business, and we saw that with our Asia Pacific business at the latter half of 2019. 2020 was a pretty slow year with the global pandemic. 2021 becomes a story of parts and availability and component availability. But this year, we're starting to see with the model changeovers happening, more investment in CapEx within the plants. We're starting to see some good growth out of the automotive, and a changeover to the EV battery and the EV market is also helping us. We have a line of products that does serve the EV and the battery markets, and we have been able to put resources towards those. We have relationships with the largest EV battery manufacturers, and we've put engineering locations that are co-located with some of our facilities in Southern China as well as in Germany to capture those opportunities. So that's a market that we're really strong on: alternative energy, wind, solar, or a couple of other areas that have been good for us, as well as agriculture. We continue to see the broad markets strengthening within our industrial group. So we don't have any area of concern at this point. We don't know what's going to happen with the current environment, with what's happening overseas, as well as what's happening with potential rate hikes. But right now, we're very confident in our markets. As we go into the process, strength continues to be in our lubrication business, our process pump business, which is a pretty commoditized pump, very common pump in the marketplace, as well as semiconductor with the electronic shortages that we've seen throughout the world. Those markets are strong. They look to continue to be able to flourish going forward and into this year. We don't really have any area within our process group where we're seeing significant decline or areas of concern. If I may ask a question, when looking at your contractor segment, could you touch about the backlog for coating sprayers and other corrosion control pieces of equipment, which would give us an idea as to the potential of growth for both paint companies as well as construction? Our contractor backlog is up considerably from where it was a year ago. That's one of our areas that I think I'm trying to look and see if I can remember the exact number from what we had before, but our contractor group is up. The backlog is up $64 million, which is up $38 million from the prior year. That is pretty broad-based along our product categories, and it's not something that we normally see. A lot of stuff within our contractor group is very short cycle, very quick to book. Previously, before we got into the shortage of raw materials as well as logistics and any labor components, we were able to ship out most product within that product category. About 99% were within a day or 48 hours of order being placed that they've been shipped. We have not really carried a significant amount of backlog in any one year. We saw a big pickup at the end of 2020. That was just basically related to the amount of volume that came in as a result of the pandemic and the work-from-home, work-on-your-home relationship that we saw. But for the most part, we try to get our product out very quickly, as quick as we can. And we're starting to see a little bit in certain areas, some relief from the supply chain, but we'd like to equate it to a game almost of whack-a-mole where one product is solved and others come up and others have to be resolved. So it is something that we are continuing to work on. And how fast that backlog will get pushed through is a very good question. It all depends on how fast the market's open or the product availability comes back. Do you have a feel as to how your contractors are feeling about the market? Are they kind of saying, "Well, this is our order for now, but we don't know what will happen if some projects will be delayed or if actually you see an acceleration of old projects that were delayed"? So just when we talk with some of the end users and some of the professional painters, you're starting to see that they have very high backlogs. So as long as we're seeing that they have orders that are booking, and I've heard some orders that are booking, people are starting to schedule for the end of this next of 2022 or Q3, Q4 of 2022 on a lot of their or on some of their painting jobs. So as long as they have backlog, they're going to continue to buy sprayers to service those backlogs. And what we see from a macroeconomic standpoint still remains strong. We still see very favorable new housing starts. We consider it to be a pretty strong economy when there's 1.5 million starts projected for the year, which is where we're at, and we were actually seeing above that. We're starting to see renovation growth projected for 2022, as well as a slight recovery and some growth in commercial construction. All of those combined along with a well-publicized underbuilt housing economy that came from the U.S. government of about 4.5 million units gives us good thoughts that the recovery and the continued construction markets will continue into 2022 and maybe even beyond that. Thank you. Maybe thinking about the recently passed Infrastructure and Jobs Act, where in Graco's portfolio does it expect to see benefits from that bill, whether line striping, road marking equipment, the contractor segment, or other products in other segments of the business? With our resegmentation, I think it's going to be pretty much housed within that construction and start within our contractor group. You're going to see some availability or some opportunity within road striping, like you said, but you're also going to see some protective coatings type of materials that you're going to be able to use, and those protective coatings type of areas are going to be on any metal that's available for bridges, anything that they're going to do with water towers. We have a line of products that are involved in that. We could have some ancillary business within some of our industrial as well as process groups for stuff that is used between them or that are used with our contractor segment, but for the most part, it's going to be housed within that contractor group. How much it's going to be is really unknown at this point. It will benefit us. We'll get more business, but being able to quantify that is still pretty hard for us to do. Okay. One other big picture trend I want to ask about, which is the gradual trend towards reshoring or nearshoring of manufacturing footprints. Is that something that Graco is seeing in its customer base, and is that a tailwind to the business that's noticeable over the next couple of years? So it's something that we are aware of and looking at, but for the most part, we're not seeing a tremendous amount of activity towards the reshoring and any onshoring that we could see. But if it does start happening and we do start seeing it, it is great for our business. For the most part, when you think about factories moving around and factories opening up, they typically don't take old equipment and bring it back from one facility to another. Typically, it's a new installation. And when you think about the spend that goes through a factory, Graco's components are really a small portion of that spend. So it's likely that it will be all new equipment with all new technology and all new lines would be put in. We're not seeing it, but if it does happen, it's something that would benefit us. Okay. I think I'll ask a few questions on the supply chain backdrop since that's been a common theme today. I guess starting with the contractor business and working through some of the electronic shortages plaguing the industry, how is that affecting Graco's ability to deliver on demand and maybe particularly in your smart and connected products within that business? It has impacted us just like everyone else. It's not only impacting our contractor group. We do have smart and connected devices within some of our industrial as well. It's been a challenge. It's been a challenge all year. What we do is we've been working heavily with the material manufacturers or the manufacturers as well as our component suppliers to make sure that we are up to date with what's happening. We're pre-ordering as much as we can. We're looking for what the bottlenecks are to see if we can't figure out alternatives. We've hired some people or put people in roles from an electrical side to kind of go through what components are being impacted and where we can find something that would be an alternative resource, something that could be an alternative product to replace it. That's something that we've been doing all year. We've been trying to do the best we can using our co-located engineering resources to either find new materials, qualify new components, qualify new suppliers, or find alternative sources. It's something that we're used to doing, and it's something that we're doing to alleviate any stress that we have from the electronic shortage. But it's something that is impactful to us. And basically, we talked about on calls before, it becomes the golden screw. We are highly engineered products, and we can't ship out any of our product unless we have all of the components. So if we're short on electronics, we have a line of products that are sitting waiting for those. We'll do as much as we can to build to get to where we need and wait for that supply to come in. We're doing everything we can to try to alleviate that pressure. There's a question from the Zoom, which we're going to switch to. Yeah. One of the questions is, how much business do you have in Ukraine? What about sanctions on Russia? How much impact to Graco from that? So we've looked at quantifying that. And Ukraine, the business isn't as much as the business that we would have within Russia. We are a global company, so we are impacted by it. It's going to depend on what happens with the sanctions. I don't believe that they've rolled out exactly what's coming from it. They were talking about limiting banking and doing some sanctions on banks. We'll have to see what happens. It's probably about maybe 1% of our business goes into Russia, so it's not something that is a very high number, but it is something that will be impacting us and something that we'll be looking at. Okay. Maybe on the price-cost dynamic, you highlight in your opening remarks how Graco's products are high value-add and command high price. And it looks like Graco is set up for another good year with positive price-cost overall and positive or neutral price-cost on a segment basis, which if that's on a percentage basis, it looks even better on a dollar basis. Help me understand the organizational competencies in terms of driving price in this inflationary environment, not just in 2021, but looking into 2022 and beyond? So price is something that's been a large conversation for us over the last couple of years. I've been with Graco 12 years. Mark has been with Graco around 27 years, and David Lowe, our CFO, has been around Graco for 27 years. In each of those years, Graco has implemented price increases. It's something that we do on an annual basis in all of our different product categories and product lines. So it's not something we're not accustomed to, and it's something that we have done. Our process for price increases has been that we put them in each year, and we typically realize 1.5%-2%. Pretty standard what we've indicated to a lot of the markets over the last, I don't know how many years that I've been doing this. We only implement pricing once a year, which is different than a lot of different companies, and the reason for that is strategic on our part. A lot of our businesses, a lot of our distributors are smaller distributors and have no pricing power, so them having quotes out to some large companies and large OEMs makes it difficult for them to pass that price on to them, so what we've done is we put our price increase in at the beginning of 2021, and we didn't adjust our prices throughout the year, which put pressure on our earnings as a result of the rising inflation and product cost availability, so we've seen that. We understand that, but commercially for us, it was a strategic decision that we've made that we will not raise prices mid-year. What we'll do is we'll assess the market at the end of each year and come back in with a higher than normal price increase. That's what we stated that we were going to do this year. We came in and we pushed our prices out higher than normal. Our hope is from a dollar basis that we'll be able to cover our additional cost increase that we saw in 2021 as well as any cost inflation that pushes through in 2022. We're looking at it from a dollar for dollar basis rather than on a percentage basis. I don't anticipate that our pricing strategy will change throughout 2022, and we'll assess at the end of the year. We'll do another price increase going forward and every year thereafter. And what the beauty of our strategy is that when we do increase our prices and we make our price change, it builds into the base. So we're not surcharging. We'll not reverse price increases, and we'll build on it in future years. And it's the same thing that we did when tariffs were an issue back in 2018. We didn't take mid-year price increases, but we were able to add additional price increases at the end of the year to overcome it. And then it's been built on ever since. And that's our strategy going forward with what's happening this year. Great. Lastly, on the organic growth front, you highlighted the company's long track record of very solid organic growth. What areas are you looking at over the next couple of years in terms of new product development or product launches or capacity expansion to serve growing demand in the portfolio? So typically what we would look at, and something that's a very hot topic right now, is electrification of our product. We start to see that, especially in our contractor group, where it's beneficial. And that not only is just with a plug-in type of electronics, but it's also with mobile and portable electronics. You think of a paint sprayer. Typically, it's plugged into the wall, and you'll be able to paint the room that you're in. The problem that you're on, especially in a new housing build, is that there's very limited electrical for all of the trades. So we've come out with. We got product lines that use batteries that can be moved around and will be able to run all day on one charge. That creates a significant win for our contractors who then don't have to fight for that electrical space within a job site. So it creates a product differentiation for us. So we're focusing on electrical. And again, we continue to focus on where we can provide and take manual processes out. I can't give you exact projects that we're working on right now, but it's stuff that we want to make sure to take manual labor out as well as take out product usage and product costs so that we can overall be the lowest cost of ownership for the end user. Great. That's a good way to wrap up. Chris, thank you so much for joining us today, for your time. And with that, we'll move on to the next presenter, Landis+Gyr. Thank you again, Chris. All right. Thank you. Thank you very much. Appreciate the time.