I'll just say a couple words and introduce you, and then I, I'll get out of the way.
Yeah, now we have six grandkids, right? So when we get them all together.
Yeah.
And when they end up ever go back after the holiday, it's just like.
Yeah, yeah, yeah.
Oh, my.
How many are there?
Six.
Six grandkids?
Four boys and.
Yeah.
T wo girls.
Yeah.
Yeah. Our two girls are actually in Chicago.
Okay.
My son had two girls, and each of my two daughters had two boys.
Oh, got it.
Kinda fun.
Oh, I know. I remember your phone was starting to chime at the, on April 9th or after that.
Yeah, that was like we were saying your birthday.
Yeah.
Yeah.
All right, we'll get started.
Let's start.
Okay, we'll go ahead and get started. I'm Brian Drab, the William Blair Industrial Technology Analyst, covering Donaldson. Before we do get into the presentation, I need to, of course, remind you, you can find a full list of disclosures on our website, williamblair.com. Today, we're very happy to have with us CEO Tod Carpenter, CFO Scott Robinson, and Sarika Dhadwal, who heads up Investor Relations. Thank you all for being here. Donaldson, as many of you know, is a leader in industrial filtration. The company makes filters for all sorts of applications: on-road, off-road vehicles, industrial factory applications. Lately, the so-called third leg to the stool and potential significant growth driver is bioprocessing. Tod will tell you how the company has made a few acquisitions in that space, and they're really gaining some great traction there.
I'm gonna get out of the way and turn it over to Tod. Thanks again for being here.
Thanks, Brian. Thanks, everyone, for being here and your interest in our company. This week, we have an unusual moment where we actually get to talk about our most recent release, which was Tuesday. So, we don't have to give a whole lot of warnings. A couple of important statements that I want you to walk away with about our company. So five key messages. First, Donaldson Company is a leader in filtration. We solve very complex customer problems. In short, we're kind of a bunch of filter geeks, and that gives us a leg up against all of our competition. We are a technology-led company. Next, we are best-in-class technology.
We have a strategic redesign of the corporation, where we focused geographically in the past, and now we are vertically oriented with all of our three reporting segments in order to go faster as a corporation with all of our opportunities. Third, we solve a lot of customer complex problems and help them achieve their sustainability targets, enabling the green economy. Fourth, we have a very balanced strategic focus, organic and inorganic. We invent cool things. I often say I should be wearing black turtlenecks, but that gig has been taken, but we invent cool things all the time. And fifth, we are pressing into a new vertical within our company. It's a Life Sciences segment.
We'll talk a little bit further about that in later slides. Donaldson Company is 108 years old. We have roughly over 14,000 employees. If you take a look at the bottom right, our revenues are $3.4 billion, will be over $3.5 billion. We are in our fourth quarter now of this fiscal year. Our fiscal quarter is August 1st to July 31st. So we'll be over $3.5 billion. And what you're seeing there is EPS records, revenue records. In the last quarter, we had record EPS, record operating margin, and record revenues. As you look at the model of the corporation, we sell proprietary razors to sell razor blades.
We're roughly 65%, replacement parts or razor blade business, 35% of what we call first- fit or new product based introduction across our three verticals. Our three verticals are shown there. Being a technology-led filtration company, our Investor Day of April 2019 to April 2023, on average, somewhere in the world, Donaldson released a new patent every day. We have released over 2,700 patents in that time. We are serious about technology. We really do invent cool things. When you look at who, where we are across the world, 43% is the US and Canada, 29%, roughly 30% in Europe, 10% LATAM, and 20% in APAC. Our markets are shown across the bottom.
We have a physical sales presence. We are everywhere where the customer wants us to be, in 80% of those geographies where the customer wants us to have presence. We have long, for decades, had a region to support region-based strategy. So 75% of our volume within those regions that you see, we build within that region, and as we continue to build critical mass for our products within the region, we will regionalize that. So, you can see a lot of this conversation that people talk about supply chain concerns, we just don't have that. Our model naturally offsets itself as we get closer to the customers.
Again, our strategy has been and remains, we are where the customer wants us to be, to build and take care of their, take care of their products. Looking at our historical financials, we did just release on Tuesday. Our latest guides shows record sales, of over $3.5 billion, pretty close to $3.6 billion this year. In the last three years, you can see we've had a CAGR of 10%. All three segments showed growth within our particular model. And our operating margin, we expanded our operating margin, and we just told everyone that, we will guide to record operating margin, for this year. In the 15s, keeping in mind our investor day target was 16, so we're well on pace, to achieve that.
So that's the highest operating margin in the history of the company, and therefore, having a strong EPS. I also wanna call out that we did return $256 million last year to shareholders in the form of dividends. We are a member of the Dividend Aristocrats fund. We continue to stay in there. It's very important to us. We'll talk a little bit more about capital deployment in future slides. Our competitive advantages. We are a 108-year-old filtration company. We have long-standing technology leadership. We continue to reinvest back into R&D every single year. We have increased our budgets double digits every year since I have been the CEO of this company. We have a stable of strong technologies, and I'm very serious when we say we invent cool things.
Last month, we talked in Boston about a new solution within our life sciences. Our customer actually presented it in PolyPeptide Group, where we have solvent reclamation, helping the overall chromatography industries take acetonitrile and be able to reuse that rather than just incinerate it. It's just as what we do. No one in the world has been able to reclaim it past 85% purity, and we are now at 99%, and we hold all the patents for that, and we'll continue to press that type of an opportunity. It's, I bring that up just to show one of the straightforward technologies for us as a filtration company that we now introduce into the marketplace. We have deep customer relationships because we are where the customer wants us to be.
We take great pride in the customer relationships. They are at the center of our universe. As I said, we do enable a greener, more modern economy by helping our customers meet their sustainability targets. In that example that I just talked to you about, that is typically incinerated. Acetonitrile is brought in from either China or Europe, and then incinerated in another country, not the United States. Now, you can reuse it. It is a huge sustainable benefit for our customer base and for the world, and that is the type of product dimensions that we bring forward these days. Diversified businesses across our three verticals. We are in very niche-based businesses. For example, we build filters for ostomy bags, hearing aids, and such, all the way to diesel engines.
The commonality between that and some of the industrial-based applications that we have is the foundational principles of technology. We know fibers, we know them very well. We control our media-based solutions. We patent them. We really go all the way down to the raw materials, and anything that you could use to make filters. That is our competitive advantage. We have a high aftermarket retention. As I said, our model is 65% replacement parts, and we have best-in-class operations all around the world, in the neighborhood of about 60 manufacturing plants across the world. This is the three reporting segments that we just stood up about a year and a half ago. All three of these segments have opportunity for growth. Within Mobile Solutions, alternative powers are really a focus.
We currently are number one in the world for internal combustion engines, diesel engines, but I do want to make sure everyone understands that we play in construction, mining, agriculture, and long-haul trucks. When it comes to internal combustion engines on passenger cars, we have zero revenue. We do not play in that market. It's a conscientious choice, which means everything that you hear about alternative powers in our markets is about energy density and what will win and what will be the solution. So will it be hydrogen into the combustion engine or the fuel cell, or will it be some other form, such as a hybrid of the internal combustion engine in conjunction with batteries? We believe the answer will be, over time, a combination of outcomes.
There's not a single winner, obviously, about that. We have been talking about that for eight years. Now, the world actually has kinda come to what our belief is, that it's gonna be a little bit of a slower adoption on that. We see that today because you when you think about when you have a technological breakthrough, which is needed in the world for this to happen across our end markets, yet it does not exist today. When it happens, millions and millions of vehicles all have to have a failure event and get replaced before we start to feel headwinds in our aftermarket model. Therefore, we have comfort saying at Donaldson Company, as we did eight years ago, we don't feel headwinds as a result of what's taking place in the world at a minimum for a decade.
However, we continue to be focused and winning in alternative solutions. We have won fuel cell-based programs because of the first-rate opportunities that we have, and this shows how we believe in technology. In our disk drive business, we're number one in chemical absorption, because you have to protect the data on the disk drive. You bring that now over into hydrogen for fuel cells, because not all fuel cells are created equal. Sometimes you need to take out sulfur dioxide, other times you need to take out some other type of a gas. We have that capability within our company. It shows the strength of our technology portfolio and the broad reach across all of our portfolio of businesses, and we apply them in that fashion. That's the reason why we have confidence that we will grow within the mobile solutions segment.
In industrial, our focus and our strategy is, first, create the particular solution. Next, connect it. Third, replacement parts. Fourth, service. So when you do that, you get a deeper customer relationship, you complete the full circle. And when we connect dust collectors today, it's a bit like your OnStar in your car. We actually ship all dust collectors. When they plug it in, it lights up, and we send to the maintenance person all the operational characteristics of that dust collector, because they don't really wanna deal with that. They wanna make widgets or whatever their product is, and so they'll focus on that part to keep their production line going while ours runs very well.
By connecting particular dust collectors, for example, we have seen an increase in our aftermarket of connected dust collectors of double digits on replacement parts versus the prior model. So we are really gaining share and really sophisticating that market. And if you think about it, 'cause we have thousands of these already connected, we will be better then at the applications of the next particular customer need coming down, because we'll know those particulates. We'll have all the data, and so slowly, we are turning the world into our laboratory digitally, and that gives us a leg up long term. Within the life sciences side, we have a number of disruptive technologies that we have acquired, as well as some that we have invented.
I talked to the one about acetonitrile reclamation, but we have acquisitions which help people grow cell and gene therapies that can be disruptive to the market, and that's the way we look at this particular opportunity for growth. And so as we continue to put our puzzle together, we just wanna help our customers have better outcomes and drive more product creation throughout the processing activities that they supply. Those are our three reporting segments. All three have growth opportunities. Through our life sciences segment, you can see four of the last four acquisitions, for example, which expanded the company's addressable market by $21 billion. We have now announced another acquisition. It is called Medica.
What Medica brings to Donaldson Company is, hollow fiber membranes, so think of straws. Your hair is about 10 microns in diameter. If you're gonna go into bioprocessing, you're gonna want the walls of those straws to be 0.2 microns, again, your hair is 10, consistently, and this company can do that. We did not have that in Donaldson's stable to be a full-service provider of our, of the bioprocessing applications. We wanted to add that, so we're very proud to team with Medica. We do have some work to do to be able to close the transaction. It will close some quarters ahead of us. But you can see how we're focused on life sciences. We have organic opportunities, we have acquisition opportunities, and across all of, all of the segments.
Just picking a little bit on life sciences, our food and beverage business is really nice. We have been growing that quite wonderfully. Now, the acquisition of Solaris, which builds bioreactors, so that allows us to actually grow cultivated meats. We are in partnership with a company in California, called Wildtype, where we are helping them grow salmon for human consumption. I have consumed it. It's not approved for consumption from the FDA, but cultivated chicken is approved by the FDA. Salmon, we hope to see being next. That will be made in all the Donaldson bioreactors. And what they do is, out of one fish, they actually don't grow salmon fish, they grow the protein.
It's pure. It doesn't have any plastic. It doesn't have all of the other issues relative to the food supply, and so that's the way we think about partnering with that particular customer, and it's a really exciting opportunity. Within alternative proteins, that's where we talk about that cultivated meat opportunity. Bioprocessing, I've talked about already, but I also want to get into medical devices. So people don't quite understand that technology that we have across our company. We apply it pretty nichey, too. So we are the number one manufacturer of ostomy bag filters. We also do hearing aids. It's similar technology. We do have programs in flight for implantables within body that we continue to work on.
And the whole common theme across that particular spectrum is polytetrafluoroethylene. You'll know it as Teflon, but we expand Teflon as at a world-class rate. And that really allows us technologically to go into those end markets and take care of those customers' key challenges. So we're excited about the opportunities that we have within life sciences, and across the bottom we show you where the acquisitions we have made really help us focus. Turning to capital allocation over the last three years, you could see our capital allocation. Our strategy for capital allocation usage has not changed. First, priority, organic, invest back into the company where we see opportunities to press those. Second, buy companies, execute on our M&A strategy, and you see us doing that. Third, dividends.
We last week increased our dividend by 8%. We are a member of the Dividend Aristocrats fund. We are 27 or 28 years in a row of increasing our dividend. That's important to us. We continue to focus on that as a usage of cash, and then as far as share repurchases, we are a consistent story on that. We look to offset dilution at a minimum of 1% annually. Recently, we've been doing 2%, so it'd be a net minus one on an annual basis. But you can see that is a pretty consistent message, hasn't changed for at least 10 years on how we look to perform with capital allocation.
When we look at our free cash flow, longer term, our net debt to EBITDA ratio is really strong right now. We look at it as though 1x is a very comfortable area. Last week, we reported it currently sits at 0.5 x. So clearly, we have dry powder to take additional actions in the company. We're running a little above where we normally would because we have taken inventory as supply chains have corrected out of our system, so our free cash flow is $100 million, and we're comfortable with $85 million-$90 million is about where we are on a normal run rate.
So we're doing very well there, and you can see we have plenty of dry powder in order to do acquisitions. All of this gives a backdrop for Donaldson Company to say, we are an acquirer, acquirer of choice. We stick to our strategy, we execute our strategy. We look to acquire into the life sciences space. We look to acquire into the industrial, whereby it would help us accelerate the particular model, completing the customer depth of all the way to services. And in the mobile solutions space, we would acquire, should there be an alternative energy type of technology that would help us to continue to press into that market and win, of course, we would buy that.
So our long-term financial goals, we introduced these at our Investors Day conference, just last April, or actually about a year and a half ago, April. And you can see all three segments, mobile solutions to grow 4%, industrial solutions to grow in the mid, about 6%, and life sciences to grow on average, 20%. Life sciences will be a little bit lumpy as we continue to press forward and commercialize the breakthrough technologies that we have within that market. It just comes with being a little bit smaller. $250 million is a bit of a smaller business, and so we'll continue to press that forward.
So, it certainly, none of these will certainly be linear, but over the cycle, this is what we would expect. We expect our operating margin to go to 16%, at present, as I stand here, Mobile Solutions is above the operating target. Industrial Solutions is above the operating margin target, and Life Sciences is below. So two out of three are performing above. We're certainly on a good path. We'll come out, and we'll talk about that here. When we close out the fiscal year, we'll take a good look, and if necessary, we'll set new targets. We certainly do not expect those to go down. Over the cycle then, with incremental margin, it would be in the low 20s.
As you can see, Donaldson has a very strong story to tell. We are executing to our chosen strategy quite proudly. Our company has grown nicely throughout this fiscal year. We would expect that to continue, and we believe we will continue to take care of the shareholders quite well.
Okay, thank you. Thanks. Thanks very much, Tod. Here we go.
There you go.
Thanks, Tod. Can we talk? We have six minutes for Q&A. I'll ask the first couple questions, but can we talk a little bit more about the life sciences business and, y ou know, if you think out, you know, farther, you know, maybe five years plus, you know, what, you know, how big can this business be for Donaldson in, you know, in bioprocessing? This is brand new, right? And I think investors have a lot of questions around, you know, you clearly, you have an enormous expertise in filtration, but a lot of what you're doing in bioprocessing is new to Donaldson. The competitive landscape is different. The sales channels are different. You know, how do you build that business over the next five years, and how, really, how big can that be?
It could be big. Really big. We gave out a three-year target of $450 million from $240 million. While it's not gonna be linear to get there, the stable that we have of products that we're pressing forward, there are many hockey stick opportunities within that stable. If I take a look at Purilogics, for example, one of the acquisitions, although, yes, some of that customer base is new to Donaldson Company, Purilogics is a media-based solution, which plays to our, our strength, where they have to actually put it in a cassette form, so mechanical-based applications, our strength again, in order to commercialize it to bring it forward. What does it do?
It takes chromatography, which is, if you, if you think about chromatography, it's about, call it, say, two feet in diameter, five feet tall, and it's full of a solution. You typically have one protein of choice you want to get out of there, so you pack it with resin beads. Resin beads look like those marbles when we were kids that had kind of the cracks in them, right? But there's, but there's hundreds of cracks, and it absorbs the protein of choice, and it takes a long time. What Purilogics does, you don't need any of the resin beads. Throw it all away. You take the solution, you take it through a cassette, and it actually absorbs or, or holds onto the protein of choice at a higher rate than the old processes, as much as 10 times higher than anything prior, and it's 10 times faster.
And so when you look at what that means to our customer base, if you take a salt shaker, just say, a small salt shaker, you fill it full of what the customer is trying to obtain or create within that particular process, whichever one it is. Half of a liquid full, let's say, of that particular salt shaker is worth about $6 million to the customer. If we can help that particular efficiency, which Purilogics can, Isolere Bio can, the other acquisitions, we can be disruptive to the market and help our customer base make better vaccines much more quicker. And so it plays to Donaldson's strength, taking and commercializing Purilogics. So how quick will Purilogics then scale up?
It does take time because we had the media-based solution, and we had to be able to create cassettes, things like that, so it's a couple-year process. And then you connect with the particular customers. But in the past quarter, so end of Q2 to end of Q3, when you take a look at all of our opportunities, what's important is that we're planting seeds for future growth with the therapy, therapies that the customers are developing. Two quarters ago, we were at about 100, and now we're at 140. And so you can see that people are really having good receptivity to the technologies that we're bringing forward to them. And we look forward to continuing to press those here over time.
Some of these products that you're bringing to market, you just highlighted the significant value that you're creating for the customer. When I was in Minnesota recently, you held up a filter, that long, thin filter, and said.
Yeah.
That this thing, you know, is gonna be priced at some, you know, extremely high. It was something over $1,000 just for this tiny filter.
Yeah.
So these applications are.
$1,200. So if you think.
Yeah.
It's about the size of a McDonald's straw, okay? And that filter within bioprocessing sells for about $1,200. Because of that whole porosity issue and the technological advancements that you need to have to be able to bring forward, versus, say, something like a typical kidney dialysis filter, which is about $15, okay? And so you take some of the technologies that we're bringing forward, you apply that across our entire product portfolio, acquisitions through organic, and that really gives us a solid opportunity to be able to have some of these offshoots go hockey stick. Some of them will be a little bit more crawling forward.
But over time, we really have high confidence within all the product suites, or the product suite that we have and the products within our life sciences business.
Mm.
It'll be, it's gonna be a whole lot of fun.
My question related to that, too, is that you have a low-20s operating margin target for the life sciences segment, but a lot of the life sciences segment is not exactly the type of product that we're talking about right now. And over time, I think that this is a very healthy margin opportunity for you. These high-price products, high-value products, I would think, have to be earning longer-term margins higher than that level.
They certainly, over time, longer term, mix the company up. We're at a, you know, we're targeting right now a 16% operating margin. Longer term, it'll be higher. The whole life sciences business will mix the company up, for sure, as we continue to grow it. There's no question about that.
We have time for if anyone has one burning question. Otherwise, we're gonna wrap up. Let's wrap up, and we'll continue in the breakout session. Thanks very much, Tod.
Thanks for your interest.