Good morning. Welcome to the second session of the day. I'm the industrial analyst. With us, we have Dover's CFO, Christopher Woenker. He had a last-minute emergency and was unable to attend, so we learned about it over the weekend, so he sends his apologies. Jack Dickens, Senior Director of Investor Relations for the company, and I think what's going to happen, Christopher, is going to give a short presentation, and then we're going to go into fireside chat here.
Yeah, we wanted to take a couple of minutes. We wouldn't present slides. We wanted to take a couple of minutes just to talk about the announcement last week. So we'll spend just a couple of minutes here, and then we can commence with the normal agenda. I'll talk a little more about the business specificity in the following slides. Sikora, which is a global leader of precision measurement solutions headquartered in Germany. The enterprise value of the business is about EUR 550 million. We expect revenues to be over EUR 100 million this year, with a margin profile that is kind of consistent with the process solutions and a fairly exciting growth profile, both historical and. Talk a little bit more about the business. We like the complementary nature of this business to our polymer processing and process solutions segment. We like the business model.
It's consistent with what we like: strong, recurring revenue opportunity. And we like the end market exposure that we had in kind of our core polymer and plastics business, as well as some other. And we obviously like the financial profile and then the value side and the cost side. So I'll take just a couple of minutes and talk about our polymer processing. Over the last kind of decade-plus, we've deployed inclusive of Sikora over $1 billion capital investing behind what we believe to be kind of a leading product and technology polymer processing space, really starting back with the acquisition of Maag back in 2012. So this is a business that we believe helps kind of continue a world-class product offering. A little bit more about Sikora itself.
So, as I mentioned, this is an equipment for measurement, inspection, and control technologies in the manufacturing of hose, tube, and sheet and polymer and plastics equipment. So this is a fairly natural. No, Sikora. We sell to common customers. It's not overly concentrated. And you can see the end markets over on the right. We obviously play in those, but there's a lot of opportunity that we have from a cross-selling perspective on the revenue side. Certain end markets and applications, particularly on the wire and cable end market, where Sikora is strong. This is an end market that is kind of positively impacted by the electrification investments that are being made around the world. And also, just to touch quickly, we'll see the value proposition for the customer base. Again, the customers of Sikora are mission-critical, high-cost-of-failure components.
And so these kind of measurement and control technologies are critical for quality assurance, cost and efficiency, and then product compliance as well. The technologies you'll see, they have laser, X-ray, ultrasound, among others. These are some of the errors in the manufacturing process that Sikora's products are intended: concentric issues, non-uniformity, contamination, etc. So these are technologies that we're excited about. We can apply even within our kind of existing product portfolio. So again, it's a Dover-like business model, planned. It's a solid standalone financial profile with good potential. It's an opportunity to kind of continue to leverage the central capabilities that we've built up in Dover through the end.
Okay. Fabulous. Well, thanks so much. Well, Jack was kind enough to set up a visit for me last summer with Maag.
That's right.
In terms of Maag having done a good job on capital allocation. And we've written about it, so I can testify that Sikora is very much consistent with the plan. So with that, you have $1.8. So Sikora only uses a third of that. So how would you judge this prospect for? As I said, Maag, clearly you've identified it as a platform before. What other platforms inside Dover should we be thinking about?
Yeah, and as I think about kind of capital allocation strategy as well, we're on the M&A side, but also on the organic opportunities we have within the business that we typically get good returns on. So you saw Rich talked about these a little bit in the earnings call: capacity investments, productivity and automation investments, and places that we're investing behind the business. I would say on the M&A side, we're kind of always engaged. We're engaged in some variety of different businesses. There's always kind of the pipeline of kind of small tuck-in bolt-in type of opportunities. But we continue to be engaged in interesting discussions of larger size, but there's opportunities out there that we continue to talk about, particularly in our growth spaces.
Private equity is sort of just looking for exits for some of the portfolio companies. Is it notable, or is it just?
I would put it more in the latter. Right now, in terms of the inbound, it's relatively slow. As you know, we tend to, or we'd like to buy out of auction organically. I mean, Sikora being one example. So I think just the broader uncertainty in the equity firms to be slow to bring their businesses to market.
Gotcha. Thank you. Conference-wide questions that I'm going to ask and get those out of the way. And I know Rich and the company is a believer sort of more. But do you expect to shift incrementally more of your own production or supply to source more from the U.S.?
Yeah. I know Rich spent some time talking product in the first quarter call. So there's some activity. I would say that was the acceleration of some of the tariff conversation over the last several months. But early, we're already fairly geographically organized in our supply chain. We tend to be shorter. We tend to be flexible with those. And as far as what we're seeing from a customer perspective, I think there's a lot of people in a little bit of a wait-and-see mode on that, so.
Okay. Yeah. I mean, China right now, start of the week, I think our revenue base in China is 5% of total, and it's 6% of our costs in with, outside of a handful of product lines like the one that Chris mentioned in engineered products that we're. And customers, as you said, wait and see.
Yeah. I mean, I think we're seeing things, but it's kind of a mixed bag. And we obviously have distinct supply chains for our distinct businesses. So it's kind of a mixed bag.
Gotcha. And as long as I'm not questioning we sort of had, I'll just move it up front. Are you perhaps seeing that looking for more U.S.-based suppliers, or do you think a lot of it has been taken care of by sort of Trump 1.0?
Yeah. I think there's a shift in that direction. I'm not sure how much of an acceleration this has provided. I mean, what we focus on is domestic manufacturing incentives. Will any of these are important for you and why? We had a time to kind of digest the full.
I don't think anybody has been releasing a grim sigh.
Yeah. Yeah. I think there we kind of have done the modeling on terms of what we believe some of the impacts will be. I'm not sure that it's going to be from a cost perspective. I think it's all very, very manageable.
Sure. Thank you. So maybe some high-level questions. On the earnings call, you said our sentiment over the next 65 days. We're still plowing through.
Yeah. I mean, I think I would say kind of so far, so good. I think we're, what, 40-some days.
You seeing anything better than expected, anything weaker than expected, and if you care to comment?
I think it's honestly been fairly consistent. I mean, we remain focused not only on kind of the back half. I think there's nothing we're seeing at this point in time that's different from what we kind of talked about at the end of the first quarter. So I think we're still monitoring very much the second half, but there's nothing that's kind of surprised us at this point.
So we're in the middle of May, no air pocket as far as you can tell.
Yeah. We're not allowed to use that term, but sorry. No, I mean, look, in terms of project delays, we hear about, but we're not seeing it, I guess, just more anecdotally in our own businesses. But it's something obviously we're tracking.
You guys have not changed your CapEx. You don't CapEx, right?
No. No. We remain undertaken.
You are strategically advantaged with your largely North American manufacturing footprint. What's been the most challenging part of responding to tariffs within your own?
I mean, I think from a kind of cost and P&L management perspective, I feel pretty good about our response. We are in a situation where our supply is a competitive position that gives us an opportunity to kind of make sure we can kind of manage things. Open question is outside the supply chain is really just the impact on the demand function. And that's the piece that we I would say that obviously we've seen changes this way. We've seen changes that way. We've been able to be flexible because of the structure of our supply chain, because of our management teams being adapted. Or more?
Yeah. No, this is good. So one of the earnings slides was a chart of where there's some capacity expansion in some segments, some site consolidation in others. But I think every segment was getting capital and budget for automation projects. Or is 2025 an above average year of automation at Dover?
Yeah. I think this is a continuation. I think we talked probably publicly around a fairly large automation project we did in the ESG segment several years back that we continued to see benefits from. But this has been your effort to focus on kind of manufacturing automation kind of across our portfolio and isolated to one business or one segment. It's, I think, a more broad opportunity that we're leveraging across our businesses. We've got some central capability around that that we're leveraging an opportunity. I think we're probably being maybe a little more transparent with it in the slide that we showed in the first quarter, but it's kind of over the last couple of years.
Excellent.
I would just add, I mean, the capital goods pieces of the portfolio have been the, whether it's the food retail business, the automation line in Richmond on the door case side. That's probably the biggest single-years. The waste business, right, which we sold in October of last year, had a very significant productivity and automation investment in the years preceding that, and that's part of their EBITDA on the three years before we sold it. So the value creation off those investments can be pretty big.
Thank you. So maybe biopharma. I don't know if you've got anything. Can you describe and size your biopharma and medical businesses, because you do have sort of pumps?
Yeah. Yeah. I think in 2024 it was about mid-200s in terms of revenue. Obviously, I think we commented on our first bio, or we commented on kind of our growth rate on bio in the past. We saw. We saw the COVID ride up, and then we saw the destocking coming out of COVID. I think we're kind of more normal demand pattern. We expect that to be a double-digit growth business for us going forward into the future. Definitely a positive first quarter. We expect it to be a tailwind this year, and we expect that double-digit growth profile to continue.
As I said, you did have. Can you tell how much of this is a function of just sort of comps versus the comps have sort of literally expired versus just actually maybe underlying end market?
We actually, I would probably say it's less of a comp issue. We saw growth in four last year. If you recall, even in the destocking period, we see four. Some of the other market participants that are on kind of the skid make these larger systems, upstream component, single-use component into that product. So last year. So I would say it's probably less of a comp issue for us. I think we're starting to see the demand. I mean, certainly trying to bifurcate between income going on, coming out of the trough, that's a little bit more difficult to unpack. But all is less of a comp issue and more of kind of fundamental demand. I would just add, I mean, we pharma manufacturers out there are saying they just have more exposure with the end customer than we do.
You read what they're saying publicly from here in terms of their recovery in 2025. If you parse out what they're saying, that's leading the charge for them coming out of the last, say, two years that have been pretty difficult. The roller coaster of up during the pandemic and then down in 2022 and 2023, 2015 to 2024. Through that whole cycle, we actually did grow at a double-digit CAGR, right in line with the coaster to get there.
Excellent. And just maybe margins. Biopharma was a COVID bright spot. Broader Pumps and Process Solutions segment had 36% EBITDA margin, but it continues to grow. Has anything changed structurally that would bring to those margin levels?
Listen, I think as it grows, it's going to help segment margins from a mix perspective. We've got other growth business margin profiles relative to Dover is lower than that. I think the 2021 comparison, the mix was fairly anomalous. You had the kind of stocking impact of bio probably being invested in ahead of other businesses in the portfolio have a more muted demand profile. So listen, as bio grows, it's going to be a contributor of margin expansion in the segment. But I think that data point, particularly in 2021, is a little bit anomalous just because of the skewing of the mix toward bio and some of the other businesses maybe being a little more muted from.
But fundamentally, as you model it, if you model a like-for-like mix, right, not structurally like basis.
No, not on a structural. Yeah. It's purely kind of a mix. It's purely a mixed thing. Right.
Excellent. About CO2 systems. Can you explain Dover's position in both Europe and the U.S. for CO2 systems? How did you get into the business, and what was the size in 2024?
Yeah. So we got into the business in Europe, and the investment by the retailers in CO2 was over a decade ago. And then as that, we've been able to kind of leverage the technology investment that that business made to help build what we believe to be the leading position in North America as the U.S. now. And it's a regulatory-driven transition, but it is also, I think a lot of the retailers are fit for them to execute that transition on their own business models. So we've been able to leverage kind of the technology that we had in Europe to build our position in the U.S. and now a business that is growing at a double-digit clip in the segment, but to Dover as well.
I'm sorry. Did you say how big it was in 2024?
Yeah. 2024, the total business across the globe was probably mid-$200s. Yeah. It's probably north of $250. It's $100 million last year. So going well in the double digits. Yeah. And the growth profile in the market, the growth profile is obviously skewed toward the U.S.
Right, and so you're currently in the middle of rollout with a large. How is that going? And B, what about the visibility and durability of growth beyond that one customer? Are we going to have a cliff? How many pilots do you have? Because.
Yeah. I mean, I think we believe this to have some runway. I mean, I think the transition is going to take place. We've talked about one large retailer, but quite frankly, we've done pilots and store models and refurbs with multiple customers. So I would say it extends beyond one or two customers and markets with multiple customers. So we think this has got a growth trajectory for a number of years because, again, I think it's not just regulatory-driven, but there's benefits outside of that as well.
What about the current level of profitability? Are CO2 systems equated to overall Dover margins?
Yep.
Maybe we can talk about clean energy. So you've made a string of acquisitions in the clean LNG in particular. What makes this an attractive end market in your view? And is the Trump administration energy agenda a positive business?
Yeah. We believe in kind of the long-term outlooks for. I think that it's a place we started in 2021. We remain, I think, convicted in our belief that that's a space that is us from a market tailwind perspective. We've got good technology. Again, it's a we talked about the businesses that we have in that space are good Dover businesses. The products that they sell are kind of high-value mission-critical type of projects and to retain a fairly strong position and grow a fairly strong position in the future, and also our kind of technology position in that market.
And how much? I'll ask a mix, but how much visibility, how much of a funnel do you have in this business? Do you have three months visibility, six months visibility, two-year funnel, four-year funnel? What metrics? And I think there's some debate about what constitutes LNG visibility. How do you side?
Yeah, and we've got multiple product ranges, so I mean, we've got different lead times and backlog lengths, but I mean, it's the visibility is in the investment, their investment timing. I mean, I think there's.
Who's your customer in this business? When you said.
The large national gas majors on the precision component. It's like midstream infrastructure providers, the actual turbine makers, things like that. Years now. So the visibility is quite good.
You've signaled difference above average revenue and above average margin expansion. Any sense what the margin trajectory?
Yeah, and the margin trajectory is driven not just by the revenue growth that we expect in that business, but we're also, as we've done, I mean, a handful of acquisitions really over the last few years. The need for clean energy extraction is what's driving those margins. I think the margins last year upper teens.
Yeah. In line with the segment.
In line with the segment. And we have expectations above 20%. Yeah. I think the long-term goal for both that segment and the clean energy portfolio overall is 25% margin.
Gotcha. And as long as this sort of fueling, sort of we've come down not as much as this bottom, sort of above ground to below ground. Can you just comment as to where we are in that cycle?
Kind of an encouraging start to the year from a demand function perspective in the below ground, and this is the business that we have that competes to some degree with Franklin. We've seen a better even than internal expectation start to the year. That's been a business that's been over the last couple of years from a demand perspective. So I think we've kind of gotten past some of the things that we've talked about over the last couple of years. So we've gotten off to a strong start on below ground. I think our above ground business remains steady. Fairly positive outlook, I would say, for that part of the business for this year.
Does this administration have mixed decisions for above ground, or it's its own CapEx cycle and don't really think about it that way?
Yeah. I mean, it's a fairly standard kind of on both above and below ground side. So I think we don't see a reason that that's going to change administration.
Gotcha. But what would the catalyst be for the cycle takeoff? Because we should be getting now to the beginning of the replacement cycle. It's been so long for the previous cycle.
I mean, right? It's not just. It extends over time. The whole on-the-ground impact that we saw four and five years ago, we think there was probably some based on that. And I think we should be getting into by this point, I would say, in that business.
All right. So you do have sort of get something more exciting. You do have an area growth, and that's thermal connectors, liquid cooling at data centers. It would be a $30 million opportunity in 2024. So what did we finish the year, and what do we expect for.
I mean, we finished above the $30 million number in 2024. So I think we saw strong growth last year. The triple-digit growth number that we referenced in the phasing element of that, if you look at that business in 2024, we really saw that business quarter into the second half. So the triple-digit growth rate that we saw in the first quarter, we're not saying that's a full year number. But the growth prospects are good, and it's going to be a growth year in thermal connectors the rest of the year. And we remain excited about the demand in that business and what we're seeing and hearing from our customers.
Is it a function of electricity consumption? What's sort of the underlying thesis that drives sort of when you model this business internally, are you looking at backlog? What's the one metrics that we should be looking to try to understand how fast this business should grow?
I mean, it's correlating to kind of the build. I mean, right now, it's obviously correlates. It's skewed heavily to correlating the build-out of data centers and high-performance computing. So how that kind of evolves in the long term kind of is maybe that curve. That's something we're going to spend more time on. Right now, it's all project-driven as we get these things.
But I think 3-nm chip as you have Rubin chip probably being rolled out over the next. Much more energy intensive, much higher liquid cooling requirements. So I would imagine this continues to drive the business. And I would imagine you have plenty of visibility for design evolution, right?
Transition to higher energy or higher electricity requirements has obviously driven the shift from kind of air to liquid cooling that's been. The interesting thing is, despite I think the visibility and the build-out of the data centers, this has turned into a very short. Yeah, and so what we do, obviously, is ensure that we have adequate capacity and adequate inventory to make sure we have the channel to serve the customers and win share.
And who is your customer in that business? Is it related? You ship to Dover? And I'm not asking you to name the customers, but just who you ship to.
Yeah. I mean, it's somewhat like bio. We're fairly early on in the supply chain. And I think we have different kind of routes to market at the end. So we're cooling system manufacturers. There's some that goes through. Of a mix.
So you would ship to somebody who builds a subcomponent for the cooling system. I guess not a CDU.
A CDU.
Yeah. Yeah. Direct CDU.
That would be SWEP. That would be not to change something, but yeah. The rack cooling.
Right. So inside the rack. So would you ship to Hewlett Packard, or would you ship to somebody like Hewlett Packard?
I mean, I would say it's more the latter.
Gotcha. Thank you. Yeah. And let's talk remaining heat exchangers. SWEP heat exchanger. I think it's the second most expensive part with cooling unit, right, other than the pump. One of the most important part inside. We've seen sequential growth in shipments and double-digit growth in orders. So how excited should we finally be about this business in 2025?
Yeah. Well, I think we are seeing some. We've obviously talked specifically to the European heat pump market. There appears to be, and we kind of saw this, I would say, this quarter and certainly in the first quarter, some parting of the clouds with respect to demand, as that channel works through what's been a fairly sizable amount of inventory both on the component side. So I think we're feeling positive. I think it's been as expected internally. So I think we're feeling positive about the. There's questions on the trajectory of the recovery in that business and everything else. But I think, obviously, the opportunity on the CDU side of data center cooling continues to be a potential driver of growth in that business, as well. It's not just other district energy and HVAC and other markets that are driving that business.
We are out of time. Thanks so much.
Thank you.