Good morning everyone. These are clearly the people who went to bed early last night, so thanks for joining us this morning. We're very pleased to have Lincoln Electric here, and very pleased to welcome Steve Hedlund, who is CEO of Lincoln Electric. As with all these presentations, I'm going to present three bear cases. Steve's gonna tell me why I'm an idiot, then I'm gonna present three bull cases. Steve's gonna tell me why I'm a genius. As with all of these, we don't use valuation as either a bull or a bear case, so on to the first one. Alternative methods of joining metals, including laser welding, are becoming more cost competitive with traditional arc welding and will gain share in the future, potentially shrinking the addressable market for traditional welding. Okay, great. Good morning, mate. So, it's important to understand that Lincoln Electric currently participates in a wide range of joining technologies in our business today, including, arc welding, brazing. We do a lot of laser welding. We, we do a lot of combining those technologies to give the customer the best solution to their problems. For example, we have a laser hybrid solution, which uses, arc welding equipment and a laser power source to, be able to weld thin-gauge, tight-tolerance aluminum, and used in things like EV battery trays, that, we have the market-leading solution for that. We're also, we believe, one of the largest integrators of laser welding today through our automation business, so we have a lot of experience and expertise, in these. We are also continuing to innovate our legacy welding business, so we've introduced processes like HyperFill, that allow customers to arc weld with much higher deposition rates. So I, I think of, technology development really as expanding the total addressable market, not shrinking it for us. Do you see competitive threats from different kinds of joining of metals? I mean, you obviously mentioned there that, you know, and I've seen plenty of laser welding machines at Lincoln. Yep, yep. That you participate in those markets. Is it, is it a bit more of, if the market went that way, you would go there with it, or? There are cases where we're leading the market because we believe the breakthrough that the technology allows changes the trade-off curve for the customer in a better way. There are also places where we're a little skeptical about the value proposition or the safety involved in things like handheld lasers, so we would play more of a fast follower role in those sort of environments. Are there particular markets where something like laser welding makes more sense than traditional welding methods, like where you have high tolerances or where you have expensive metals that you're welding together? Laser welding in particular, very useful for extremely thin-gauge materials, so it tends to replace spot welding, which is not a big part of our business, and TIG welding, which is also not a big part of our business. But again, it has its applications. It's not gonna become the universal catch-all that, you know, 10 years from now, no one's doing arc welding anymore, or they're all doing laser welding. Each technology has its pros and cons and has its application space. The reason it's not gonna replace traditional arc welding is just cost? I think it's the cost and the performance, right? So, I mean, to be able to weld very thick materials, the power of the laser goes up, I think, almost exponentially, and then the cost of the laser goes way up. Your carbon emissions. Your carbon emissions and. In these. Safety requirements and everything else. Okay, I'll go on to the next one. The welding industry has put through a lot of price over the last two plus years, probably three years now. Mm-hmm. As growth in the economy slows and commodity inputs see deflationary pressures, Lincoln and the industry are going to have to give back price, which will likely lead to earnings dilution. Yeah, I think, particularly for this, bear case, it's important to distinguish between supply-demand imbalance driven true inflation versus the impact of a dollar devaluation. And I think a lot of what you're seeing in our input costs and our pricing is the impact of the U.S. dollar not being worth as much as it used to be. I haven't done the math myself, maybe you have somebody at Stifel that can do this, but if you look at welding consumable prices in terms of gold or Bitcoin or some other marker of value, I don't think you'd see the huge run-up in prices that you've seen in U.S. dollars. So we don't expect there to be huge devaluation in the slower part of the cycle. We do have a very good track record of managing through economic cycles and being able to maintain our pricing posture. As we look forward to 2024 and 2025, we don't expect to see price be a major driver of profitability, either up or down. Lincoln has disclosed price for a long time, and so we have records of Lincoln's pricing through inflationary, deflationary. Mm. Strong growth periods, recessionary periods. Yep. It's been pretty remarkable that pricing has held in. It's very infrequently been negative pricing in the model. Can you talk about what enables that and what enables Lincoln? I guess it's an industry-wide kind of phenomenon as well to hold onto prices when you're perhaps seeing weaker demand or you're, you know, cyclically down, or commodities are deflating. Yeah, I think it's important to realize that for, you know, a lot of the end users, the cost of welding is a relatively small part of their overall cost structure of making excavators or bridges or automotive vehicles that we were talking about earlier. So I think at the end of the day, the customer is looking for the best overall total cost solution for them. And Lincoln, in particular, and some of the other leaders in the industry, are really driving productivity solutions for those customers. The places where you tend to see more pricing pressure. Right. Are markets like Europe, where labor acts as a fixed cost, because of the labor regulations, and you have more small private competitors that tend to try and chase volume through pricing. So we see a different dynamic by geographic markets and by application segments, and so we tend to respond to those on a very case-by-case basis as opposed to a broad pricing strategy. I had one of your competitors in here yesterday, who said they are seeing some negative price in Europe. They're seeing more deflation in input costs in Europe, and so they were still talking about being positive net price, but seeing gross price declines in Europe. Is that something you're seeing as well? Well, again, we manage pricing very carefully, and have a long track record of maintaining our margin percentage as we're managing pricing. And so we just try to stay very focused on executing that strategy. So even if there was a headwind to revenue from price, there'd be a tailwind to margins and neutral to positive to earnings? That's probably a good characterization of it. Yeah. Okay, I'll go on to the next one. A number of economic drivers, including reshoring, energy, infrastructure, and productivity, are peaking and could be rolling over, as evidenced by Lincoln's recent guidance cut. Yeah. I think it's important to recommend, to remind yourselves that we're not completely immune to short-term economic cycles. You see that in our first quarter results and in our recent guidance. But the long-term secular drivers of the business remain intact. The world needs more energy. You see a tremendous increase in defense spending with all of the conflicts in the world today. Labor remains a key input that's in shortage for most of our customers, both the availability of labor and the quality of labor they can get. And also, infrastructure continues to age and need to be replaced. So we're focusing on executing our long-term strategy. We're very fortunate we have a very strong balance sheet and very strong cash flow that enables us to do that, and we just continue to focus on controlling the controllables of our business. Understandable. But maybe we could dig a little bit into the pieces of the guidance cut and what's changed in the market, as investors are gonna be interested to hear what you're seeing in the market in a number, number. Yeah. Of different end markets that you cover. Yeah. So maybe you could talk about, I mean, the guidance cut for the year was. Mm-hmm. Revenue from kind of low single-digit growth down to mid-single-digit decline. Mm-hmm. Maybe you could just to break that down a bit for us into, you know, what kind of end markets you're seeing. Sure. Deteriorate in the short term, and what you think the drivers are of those market deteriorations in the short term. Right. So we started the year in the first quarter with a 6% organic sales decline over the prior year. At the end of the first quarter, on our earnings call, what we tried to communicate was we had set an operating assumption for the full year. We were obviously behind that in terms of sales, but ahead of that in terms of earnings, and we saw a lot of choppiness in the order patterns, so we didn't have enough conviction to either reaffirm the guidance, take it up, or take it down at that point in time. We said we were monitoring conditions very closely. What we saw in the three or four weeks after that was significant production cuts in ag and construction and mining equipment from Deere and others, that were a little deeper and more prolonged than we'd expected. So that impacted what we call the heavy industry segment of our business. We saw a weakening in the macroeconomic indicators for the U.S. around PMI, which impacts our general fabrication or general industry segment. And then finally, we saw a slowing automotive production, and there's some choppiness in the market around the ICE to EV transition. So we saw, in particular, some of the large, automotive OEMs start to delay expected EV projects and ramp back up ICE projects. And that was impacting our automation business in terms of just the amount of time it takes for a customer to go from quotation to order acceptance to start of the project. So we saw a little bit of an air pocket, if you will, in the automation business as we work through that transition in terms of what projects the OEMs are gonna execute. I think adding to that. So thanks for the explanation. Sure. On the top line. The margin guidance, you changed the way you did the margin guidance from low 20s incrementals to, I say, about a 17.5% margin. Mm-hmm. But the about 17.5% margin didn't really change much from where the math would bring you out on the previous guidance, despite you taking down your revenue guidance by 5%+. So maybe you can talk about the initiatives that Lincoln is taking to manage costs and maybe also the structural way the business works. Mm-hmm. In Cleveland. I know there are, there are automatic flexes in some of the, the comp that goes on there. Right. Just to help people understand, you know, how you can have a revenue that much lower without really losing any margin. Yeah. So, let me start with the last one. We have a very long-standing and fairly unique compensation structure in our Cleveland operations. It's been the subject of several Harvard Business School cases and articles. Largely, our factories operate on piecework, not an hourly wage, so as we're producing less products, the employees are getting paid less, even if they might be there for the same number of hours. We have the ability to flex the scheduling with our factory workers so we can take production levels down to a schedule that would equate to about 32 hours a week. And we have a large portion of the compensation for the Cleveland employees. It's a profit-sharing bonus. That's a percentage of the EBIT that we generate in that business, and so that automatically scales up or down as the business slows. So, that, that's a very powerful tool we have in our arsenal, and one that has been in place for decades and is known and trusted by the employees that work there. I would say also, we're working very hard on improving the productivity in the business. You've seen two recent organizational announcements. One, we hired a Chief Procurement Officer, and we've globalized the purchasing function to try to capture more of the economies of scale and scope that we have in our business. And then we appointed Michele Kuhrt as our Chief Transformation Officer, and she's really working on business process simplification, standardization, and automation of core business processes, so we can become more efficient and also more effective at serving our customers. And so I think those things are helping us maintain the profitability of the business, even as we see some challenging top line. It's definitely an interesting comp structure, and I'm sure those employees have been fairly happy with that arrangement, at least over the last few years. Yes. Yes. Yep. As Lincoln's been growing its earnings extremely quickly, and they get to participate in that. They do. All right, so I'm gonna move on to the bull cases. Thanks for answering those questions. Sure. Lincoln's investments in automation over the last several years have created a highly differentiated portfolio that should continue to gain share in a market where labor scarcity and customer productivity initiatives should drive above-market growth. Yeah, we're very excited about the automation strategy that we've been executing. We believe we have a first-mover advantage in our portion of the industry. 'Cause the dynamic you have to understand in automation is when you solve a customer's problem, they tend to present more problems with you, to give you more opportunities to expand the work that you do with that customer, so it's really a follow-the-customer strategy. And the need for automation continues to grow. Customers continue to struggle with labor availability. They need productivity. They need quality improvements. The drive towards trying to shorten supply chains to de-risk them as people onshoring or nearshoring, there's a real challenge for them to be able to do that at a fairly cost-neutral standpoint, and one way to offset the labor differential is through automation. So we continue to see a lot of demand for automation solutions. We're also using technology to broaden the solution set and to be able to automate things that, in the past, were much more difficult to do, by improving our ability to path plan the robot through software, vision systems, and other things, to do things that are easy for a human, but hard for a robot to do. So we see both us gaining share in the market and the total addressable market growing at the same time. There's been a lot of additions in material handling. Mm-hmm. And I guess part of the overall automation chain. Yep. Not just the automation of the welding piece of it. Yep. Where do you think the portfolio is from a completeness perspective? Should we continue to expect more M&A done in the automation business? Yeah, automation will continue to be a focus for us on our M&A strategy. We believe that there are additional technologies and capabilities we'd like to add to the portfolio. There's some geographic expansion that we would like to facilitate, again, under the follow-the-customer sort of approach. It might be unusual for people to see us getting into things like material handling, but that's really just in response to the customer saying, "Okay, I got the parts into the cell. You welded them for me. Now, how do I get them out of the cell and into the next phase of my operation?" A lot of times, these are either large, unbalanced, bulky parts that are hard to transport, or they're things that have a cosmetic appearance to them that you can't damage in the process of transporting them. So again, we're just following the customer as they point to different things in the factories they'd like us to help them solve, and then looking for technology additions to the portfolio to help us broaden the solution set. I think it's clearly going to be a faster-growing segment of the market over time. Mm-hmm. But one of the things that we hear from investors is that it creates more lumpiness in the business. 'Cause you do have large projects here. It probably creates some more cyclicality as well, 'cause it's more CapEx than OpEx. Mm-hmm. So just how you think about balancing that lumpiness and cyclicality, extra lumpiness and cyclicality in the business versus the long-term growth potential? Yeah, historically, the automation business has been a little bit more procyclical than the welding business. A great example is a business we bought in the Quad Cities in Iowa that started off initially serving only Deere and then expanded to Cat and Deere, but they tend to be very focused on an industry segment. And so when that segment is booming, they're struggling with capacity and overtime, and how do I meet project demands? And when that industry is soft, then they're struggling with, "What do I do with all my people?" 'Cause it's. Yep. At the end of the day, a very people-based business. We've spent the last several years really focusing on making our operations much more fungible, so we can take work from one customer, divide it up across multiple sites, reduce our lead time to offer them a better value proposition, and do more load balancing of the work across our network. So we're very hopeful that that will help us weather any short-term downturns in the industry better than your typical integrator would. So you're taking a bunch of very cyclical pieces, kind of adding them together, which can smooth things out by the way you manage them? Yep. The profitability of the automation business has been. Mm. Improving over time. Yep. I can still remember not that long ago, when the target was just to get it to double-digit margins. Yeah. And, and now we're well in excess of that. Maybe talk about where you think they can get to long term, where they are today? Yeah, so, the automation business profitability has been improving over time as we execute what we call the Lincoln Business System for automation. It's really around getting extremely good at three parts of the business. One is quoting projects accurately, and it's important for investors to understand, we don't have customers come to us with a set of blueprints that we bid on. They come to us with an operating problem. I need to make 400,000 seat frames. I need one to spit out of the line every 23 seconds. Here's the bin of parts that I'm starting with. Help me figure this out. And so we concept the solution design, we give them a fixed price bid, and then if it turns out we need another robot 'cause we have to flip the part over to weld it, we eat that additional cost. So getting extremely good at the conceptual design and quoting, extremely important. The second is project management. A lot of these customers have a specific window that you need to hit, whether it's a model year changeover or a summer shutdown, a factory retooling, you've got to be able to deliver on time and on budget, so project management becomes extremely critical. And then the third is engineering changes. I haven't seen a project yet where the ultimate final solution was the same as what we started with. Every time the customer makes a change, you have to charge them for that. And it's really hard to do that if you're behind schedule on the project. So it comes back to you've got to quote it well, you've got to manage the project well, and then you've got to execute the management of the customer extremely well. And it's through doing that, that we're seeing the profitability of the business improve. We've just now started to tackle the purchasing side of the business, 'cause, remember, the automation business for us is a portfolio of acquisitions we made that have all done purchasing completely independently. So I think there's more to run there. Our goal is to get this up to the corporate average margin over time. Is it structurally difficult to do that because there's a bunch of pass-through costs going in that, right? I mean, you're buying a robot that then you use as part of the sale, that you then sell to the client, but the robot itself, you're not adding value to, right? You're adding welding machines to it and, and. Right. Adding value that way, but there's some pass-through cost, and I would imagine that's a fairly large part of the overall cost of the system. Does that mean, does that kind of limit the where you can get the margins to for that business? I don't think there's any near-term limit on us, as we look out over, say, the next five years, that's inherent to that part of the business. There is pass-through content, robots and PLCs and other things. There's also a lot of content that we make ourselves, so the handling equipment, the positioning equipment, the software that runs the whole system. And again, we're providing an overall fixed price to solve a problem. We're not going in and quoting every little piece part with a markup associated with that. So it's really just continuing to execute our strategy. The purchasing leverage opportunity, I think, is significant. It's also hard to get at because you've got dozens of different portfolio companies on different engineering systems, different. Yeah. PLM systems, different nomenclature and classification systems. So it's harmonizing all that, so we can actually understand what we're spending today, and then go to the suppliers and demand better pricing. Okay, okay, I'll go on to the next one, and see how many answers I can get on this one. Okay. Probably not many. EV charging stations provide a 100% incremental and large opportunity for Lincoln to grow revenue. Lincoln has the capacity to deliver 500 units a month, which represents $600 million a year. And just delivering a quality, reliable product is differentiated in that market. Yeah, so EV charging is something we're very excited about. It's a great example of us using our core competencies and our core technologies to enter into a new market. For those who aren't familiar with it, the internal architecture of an EV charger is incredibly similar to a high-definition plasma cutting machine that we already make. We saw a tremendous amount of scalability in taking the capabilities we've got and applying them to this new market. We believe we have a very strong value proposition that resonates with the customers that we're talking to. The market is extremely dynamic slash even chaotic. There have been a couple of companies that were early leaders in the field that have gone bankrupt. I live in fear, quite candidly, of waking up every morning to see what Elon Musk is gonna tweet this day, 'cause he seems to be a little bit mercurial in terms of his approach towards some of his businesses. So it's really hard for us to predict how fast this is going to ramp, but we're committed to winning in the long term. We're blessed with the financial capability to play the game for the long term, so we've encouraged everyone to put zero in your model for now until we have greater clarity. And the $600 million was really just to help try and calibrate what the maximum potential size of this business might be over some reasonable time frame. So we have an analyst at Stifel that covers the EV market, and talking to him, most of the EV charging units that are out there in the market today are junk. Yes, they are. His view is it will be relatively easy for Lincoln to capture market share if Lincoln can produce a unit that is reliable in the field. Mm-hmm. To which my response is, Lincoln won't produce a unit unless it's gonna be reliable in the field. I wouldn't think you would put the brand at risk by doing something like that. No, we would not. So maybe you can talk about where you are in the evolution of testing that unit and making sure that it's going to be ready to go into the market with the quality that, you know, your customers have come to expect from Lincoln. Yeah, we've spent a lot of time going through the initial design validation, then what we call Alpha build, which is taking the first designs and making prototype units and testing those. We're now into the Beta production, which is actual production units with the final design in more limited quantities. We're sending those out to customers for testing and validation, and we're really just waiting for the feedback and greater clarity on what the customer's investment plans are and how they're responding to some of the dynamic market conditions. And what kind of resources, I mean, I know it was, it was a relatively, it was like $15 million of capital that you had to put in to get production to 500 units a month, or production capacity to 500 units a month. What other expenses do you need to add as that market ramps up for you? Is it something that you could produce kind of where you're already sitting, so it would be relatively inexpensive to add that capacity to get up to that kind of run rate? Yeah, so the $15 million was an investment in what we call our electronics factory, which is where we make the power electronics sections for both the welding machines and the EV charging units. And we made that investment because we didn't ever wanna be put in a position of having to choose between making an EV charger or making a welder. Uh. And that capacity we thought was very fungible, so if the entire ICE to EV transition reverses itself and no one wants EV chargers anymore, we'll go back to using that capacity to make welding machines. So we're very comfortable that was a fairly low investment and a very low-risk investment for us. We've added a few people to the engineering staff, specifically to work on the EV charging project. We've hired some salespeople from the industry. I'd be happy to hire your analyst if he's that excited about our prospects. But it, the total investment for us has been very modest relative to the potential upside. We have the infrastructure to manufacture the product, without more significant investment, and we have a service network that we're leveraging. Both our own employees and our welding business has what we call Lincoln-authorized service facilities that are being trained on how to service and support EV chargers in the field. So we believe that when the business starts to ramp, it'll ramp very nicely. Having that service network, I think, is differentiated in the market. Agree. From a lot of the other suppliers as well. Yeah. So a very pretty small investment, pretty low risk, with a pretty high potential payoff. Correct. Okay, I'll go on to the last one. Innovation and capital deployment are targeted to provide 500 basis points of market outgrowth and combined with automation and market growth, pushing total growth to double-digit levels across the cycle. Yeah, so I've been very impressed in my tenure with the company at the creativity of our people to be able to solve problems for customers and to leverage our capabilities and technology to do that. We've got a lot of great ideas in our internal development hopper that we're working on to bring innovation to the market, and we continue to have a very robust M&A pipeline. And as I mentioned before, you know, we've been blessed with the financial strength to be able to execute that strategy, the talent to be able to execute that strategy. So we look as part of our strategic planning process, at trying to grow faster than the market through innovation, automation, and M&A. The other thing to keep in mind is that we continue to look at opportunities to expand margins as well. I referenced earlier the transformation work we're doing around core business processes, the purchasing leverage. Yes. As we look out to the future, we're very excited that we'll be able to grow EPS at a fairly rapid clip through both top-line growth and margin expansion. As we're completing our Higher Standard 2025 strategy, we'll look to provide updated targets for investors for the 2030 timeframe, sometime probably in the next year. Right. I guess we're nearly getting to 2025 now. We're getting close, yes. Maybe, just in the last couple of minutes that we've got left here, we could add on to that question, and talk a little bit about the margin expansion initiatives. Mm-hmm. Within the company. What are the primary buckets? I think you've touched on them a little bit. Maybe we can go into a little bit more detail on the primary buckets and primary initiatives that you're targeting for margin expansion. Yeah, so we talked about purchasing, we talked about core business processes. The other main lever for us is factory productivity. It's a little bit interesting. It's this Physician, heal thyself. We spend all of our time and energy going out into customer factories to help them be more productive, and it's taking that same passion and energy and turning it inward to look at our own factories, at ways that we can make them more productive, to reduce scrap, to reduce variances, reduce waste, and just generally be able to produce more product with the same people. All right. Cool. Well, I think that's it for me. So, thanks very much for joining us this early in the morning. And thanks, Steve, for being here. Great. Thanks for having me. Cheers.