Morning. Welcome to the second session of the day. I'm Andrew Obin, BofA 's multi-industrial analyst. With us, we have Dover CFO, Christopher Woenker. Rich Tobin had a last-minute emergency and was unable to attend, so we learned about it over the weekend. He sends his apologies. We also have Jack Dickens, Senior Director of Investor Relations for the company. I think what's going to happen, Christopher is going to give us a short presentation, and then we're going to go into fireside chat style Q&A. Thanks so much for being here.
All right. Thanks, everyone. 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 acquisition of SIKORA, which we announced last week. We'll spend just a couple of minutes here, and then we can kind of commence with the normal agenda. I'll talk a little more about the business specificity in the following slides. We did announce the signing of the SIKORA, the acquisition of SIKORA, which is a global leader of precision measurement solutions headquartered in Germany. The purchase, 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 segment that this is in, which is pumps and process solutions, and a fairly exciting growth profile, both historical and go forward. Talk a little bit more about the business. We like the complementary nature of this business to our polymer processing platform in our pumps and process solution segment. We like the business model. We think it's consistent with what we like in Dover: good technology, strong recurring revenue opportunity. We like the end market exposure that we have through the business, both in kind of our core polymer and plastics business, as well as some other adjacent markets, which we'll talk a little bit about. We obviously like the financial profile and then the opportunity for synergy value on the cost side.
I'll take just a couple of minutes and talk about our polymer processing platform. Over the last decade plus, we've deployed, inclusive of SIKORA, over $1 billion of capital investing behind what we believe to be a leading product and technology platform in the polymer processing space, really starting back with the acquisition of Maag back in 2012. This is a business that we believe helps continue a world-class product offering in this space.
A little bit more about SIKORA itself. As I mentioned, this is a global leader in equipment for measurement, inspection, and control technologies in the manufacturing of wire, cable, hose, tube, and sheet, and polymer and plastics equipment. This is a fairly natural overlap with our business. We know SIKORA. We sell to common customers. It's a blue-chip customer base. It's not overly concentrated.
You can see the end markets over on the right. We obviously play in those end markets with those customers. There is a lot of opportunity that we have from a cross-selling perspective on the revenue side to kind of further penetrate into 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 infrastructure investments that are being made around the world. Also, just to touch quickly, we will see this on the following slide, but a pretty strong value proposition for the customer base. Again, the customers of SIKORA are making kind of high mission-critical, high cost-of-failure components. These kind of measurement and control technologies that SIKORA provides are critical for quality assurance, cost and efficiency, and then product compliance as well.
This is just an example of some of the technologies you'll see. They have laser, X-ray, ultrasound, among others. You can see on the right there, these are some of the errors in the manufacturing process that SIKORA's products are intended to detect: concentric issues, non-uniformity, contamination, et cetera. These are technologies that we're excited about. We can apply them even within our kind of existing product portfolio. Again, why is this a good fit? It's a Dover-like business model in a priority space that we've invested behind. It's a solid standalone financial profile with good potential synergy upside. It gives us an opportunity to kind of continue to leverage the central capabilities that we've built up in Dover through the integration.
Okay. Fabulous. Thanks so much. Jack was kind enough to set up a visit for me last summer with Maag. You guys definitely being consistent in terms of Maag having done a good job on capital allocation. We've written about it. That certainly has been a theme. I can testify that SIKORA is very much consistent with your messaging. You have $1.8 billion in cash on the balance sheet. SIKORA only uses a third of that. How would you judge this prospect for further M&A? As I said, Maag, clearly you've identified it as a platform before. What other platforms inside Dover should we be thinking about?
Yeah. As I think about kind of capital allocation strategy as well, we're obviously focused not just on the M&A side, but also on the organic opportunities we have within the business that we've typically been fairly successful on generating good returns on. You saw Rich talked about these a little bit in the earnings call a few weeks ago. We've got a number of capacity investments, productivity and automation investments in 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 interesting conversations on a variety of different businesses. There's always kind of the pipeline of kind of small tuck-in bolt-in type of opportunities that are out there. We continue to be engaged in interesting discussions.
Probably there's nothing imminent of size, but there's opportunities out there that we continue to talk about, particularly in our growth spaces.
Is there more urgency among sort of private equity sort of just looking for exits for some of the portfolio companies? Is it notable, or is it just very glacial change?
I would put it more on the latter. Right now, in terms of the inbound deal flow from brokered processes, it's relatively slow. As you know, we tend to, or we like to buy out of auction organically, I mean, SIKORA being one example. I think just the broader uncertainty in the macro right now is leading many private equity firms to be slow to bring their businesses to market.
Gotcha. Thank you. We do have two conference-wide questions that I'm going to ask and get those out of the way. I know Rich and the company is a believer, sort of one of the more U.S.-focused companies. Do you expect to shift incrementally more of your own production or supply chain to the U.S.? Also, do you expect your customers to source more from the U.S.?
Yeah. I know Rich spent some time talking specifically about the example that we have an engineered product in the first quarter call. There is some activity. I would say that was actually underway even before kind of the acceleration of some of the tariff conversation over the last several months. We are already fairly geographically organized in our supply chain. We tend to be shorter. We tend to be flexible with those. As far as what we are seeing from a customer perspective, I think there is some of that out there, but I think there are a lot of people in a little bit of a wait-and-see mode on that as well.
Yeah. I mean, China right now appears to be in the crosshairs, at least it was at the start of the week. I think our revenue base in China is 5% of total, and it's 6% of our cost base. So we're not overly exposed there to begin with, outside of a handful of product lines like the one that Chris mentioned in engineered products that we're working to reshore by the end of the year.
Customers, as you said, wait and see.
Yeah. I mean, I think we're seeing some customers that are talking about things, but it's kind of a mixed bag. We obviously have distinct supply chains for our distinct businesses. It's kind of a mixed bag.
Gotcha. As long as I'm asking, I think another question we sort of had, I'll just move it up front. Are you perhaps seeing that some of the customers are 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 my view is 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 our ability to kind of service customers wherever they need to be. That is part of our strategy around having a supply base that is a little more flexible and localized.
Gotcha. Maybe the tax bill, I think we finally got the full text of it this morning. It is expected to include bonus depreciation, domestic manufacturing incentives. Will any of these are important for you and why?
Yeah. I mean, and admittedly, I haven't had time to kind of digest the full.
I don't think anybody, I think maybe like releasing in dribs and drabs.
Yeah. Yeah. I think we kind of have done the modeling on term 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 at this point.
Gotcha. Thank you. Maybe some high-level questions. On the earnings call, you said, "We're going to see if we can plow through negative 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 into the quarter. I think we kind of feel good about where we are, fairly in line with what we expect.
Have you seen anything better than expected, anything weaker than expected, if you care to comment?
I think it's honestly been fairly consistent. I mean, we remain focused not only on kind of managing the near term, but also keeping an eye to the second half. I think there's nothing we're seeing at this point in time that's concerning beyond what we kind of talked about at the end of the first quarter. I think we're still monitoring very closely the near term and kind of the later second half term. There's nothing that's kind of surprised us at this point.
We're in the middle of May and no air pocket as far as you can tell.
We're not allowed to use that term.
Sorry.
No, I mean, look, in terms of project delays, I mean, that's something that I think we hear about, but we're not seeing it, I guess, just more anecdotally in our own businesses. That's not something that we're experiencing at this time, but it's something obviously we're tracking.
You guys have not changed your CapEx. You own CapEx, right?
No. We remain, yeah, committed to our guide and the projects that we're undertaking.
You are strategically advantaged with your largely North American manufacturing footprint. What has been the most challenging part of responding to tariffs within your own supply chain?
Yeah. I mean, I think from a kind of cost and P&L management perspective, we feel pretty good about our response. We are in a situation where our supply chains are manageable. We have a competitive position that gives us an opportunity to kind of make sure we can kind of manage things. I think, quite frankly, the biggest open question is outside the supply chain is really just the impact on the demand function. That is the piece that we continue to kind of monitor. I would say that obviously we have seen changes this way. We have seen changes that way. We have been able to be flexible because of the structure of our supply chain, because of our management teams being adept at managing their supply chains. It is really the demand function questions that are more difficult.
Yep. No, this is good. One of the earnings slides was a chart of where you are investing. There is some capacity expansion on some segments, some site consolidation in others. I think what struck us is how every segment was getting capital and budget for automation projects. Are you disclosing more, or is 2025 an above average year of automation at Dover?
Yeah. I think this is a continuation of work that we've done over the last several years. I think we talked probably publicly around a fairly large automation project we did in the climate and sustainability technology segment several years back that we've continued to see benefits from. This has been kind of a multi-year effort to focus on kind of manufacturing automation across our portfolio. The opportunities that we see aren't isolated to one business or one segment. It's, I think, a more broad opportunity that we're looking to leverage across our businesses. We've got some central capability around that that we're leveraging at the Dover level to help drive that. That's 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.
It has been a focus for us really over the last couple of years.
I would just add, I mean, the cap goods pieces of the portfolio have been the biggest beneficiaries of the automation investments and the value that's been created there, whether it's the food retail business, the automation line in Richmond on the doorcase side. That's probably the biggest single CapEx project we've had in the last 5-10 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. That's part of why they were able to literally double their EBITDA in the three years before we sold it. The value creation off those investments can be pretty big.
Thank you. Maybe biopharma. I don't know if you've got any questions on it recently. Can you describe and size your biopharma and medical businesses?
Because you do have sort of palm sensors and connectors.
Yeah. Yeah. I think in 2024 it was about mid-200s in terms of revenue. Obviously, I think we commented on our first quarter growth rate on bio, or we commented on kind of our growth rate on bio in the past. We expect that we've kind of ridden the wave. We saw the COVID ride up, and then we saw the destocking coming out of COVID. I think we're kind of settling in, hopefully, to a more normal demand pattern. We expect that to be a double-digit growth business for us going forward into the future, multi-years into the future. Definitely a positive first quarter. We expect it to be a tailwind this year, and we expect kind of that double-digit growth profile to continue.
As I said, you did have your reference double-digit revenue growth in biopharma in the first quarter. Can you tell how much of this is functional of just sort of comps versus comps destock? I know some of the inventory has sort of literally expired versus just actually maybe underlying end market demand getting better.
Yeah. You know, I would probably say it's less of a comp issue. We saw growth in biopharma in 2024 last year. If you recall, even in the destocking period, we started to see those impacts before some of the other market participants that are on kind of the skid, making the larger systems, because we are more of kind of an upstream component, single-use component into that product. We really started to see some of this recovery last year. 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 end demand, and there's probably some level of restocking going on coming out of the trough. That's a little bit more difficult to unpack.
We think what we're seeing now is less of a comp issue and more of kind of fundamental demand. I would just add, I mean, we have to defer to what the larger biopharma manufacturers out there are saying. They just have more exposure with the end customer than we do. You read what they're saying publicly. It appears it's blue skies from here in terms of their recovery in 2025. If you parse out what they're saying, it's specifically on the single-use pieces, which is entirely what we produce. That's leading the charge for them coming out of the last, say, two years that have been pretty difficult.
What's interesting for our business, despite the roller coaster of up during the pandemic and then down in 2022 and 2023, if you look at the five-year CAGR from 2019 to 2024, so through that whole cycle, we actually did grow at a double-digit CAGR, right in line with the long-term trajectory that you'd expect. Again, it was just quite a roller coaster to get there.
Excellent. Just maybe margins. Biopharma was a COVID beneficiary. I think in 2021, broader pumps and process solution segment had 36% EBITDA margin. As biopharma continues to grow, has anything changed structurally that would hinder the segment from returning to those margin levels?
Listen, I think we've talked about it. Biopharma's good margin. As it grows, it's going to help segment margins from a mix-up perspective. We've got other growth businesses in there that are, we love the margin profile. It's accretive to Dover. It's lower than that. I think the 2021 comparison gets a little bit tricky because the mix was very, it was fairly anomalous. You had the kind of stocking impact of bio probably being in our product being invested in ahead of kind of fundamental demand. You also saw some of our other businesses in the portfolio have a more muted demand profile. Listen, as bio grows, it's going to be a contributor of margin expansion to the segment.
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.
Fundamentally, as you model it, if you model the mix correctly, so like-for-like mix, right, structurally businesses have not changed much on a like-for-like basis.
No, not on a structure, yeah. It's purely kind of a mix. It's purely a mix thing, right.
Excellent. Thank you. Maybe we can talk about CO2 systems. Can you explain Dover's positioning 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. We got into the business in Europe. The investment by the retails in CO2 obviously happened in Europe first. I think we got into the business over a decade ago. As that market in Europe has matured, 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 North America now goes through the transition to CO2. It's a regulatory-driven transition, but it is also, I think a lot of the retailers are finding it's an economic-driven transition as well. There's a benefit for them to execute that transition on their own business models. We've been able to leverage kind of the technology that we had in Europe to build our position in the U.S.
This is obviously a business that is growing at a double-digit clip and has a margin profile that is accretive not just to 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-$200 millions. Yeah. It is probably north of $250 million. And the U.S., I think, eclipsed $100 million last year. Growing well in the double digits. Yeah. The growth profile in the U.S. is obviously, Europe is a more mature market. The growth profile is obviously skewed toward the U.S.
Right. You are currently in the middle of rollout with a large retailer. A, how is that going? 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 no good deed goes unpunished, right?
Yeah. I mean, I think we believe this to have some runway. I mean, I think the transition is going to take place over time. We've talked about one large retailer, but quite frankly, we've done pilots and we've done story models and refurbs with multiple customers. I would say it extends beyond one or two customers. I mean, we're starting to get it out into the market with multiple customers. 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.
Right. Gotcha. What about the current level of profitability? Are CO2 systems accretive to overall Dover margins?
Yep.
That's a good answer. Maybe we can talk about clean energy. You have made a string of acquisitions in the clean energy space, LNG in particular. What makes this an attractive end market in your view? Is the Trump administration energy agenda a positive or negative for your business?
Yeah. We believe in kind of the long-term outlooks for the energy transition with LNG. I think that it's a place we started the investment cycling back in 2021. We remain, I think, convicted in our belief that that's a space that is a positive for us from a market tailwind perspective. We've got good technology. Again, it's. We talked about this a little bit with SIKORA. 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. I think we expect to retain a fairly strong position and grow a fairly strong position in the future, not just on the back of good market growth, but also our kind of technology position in that market.
How much, I'll ask about sort of the margin 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? Because we hosted a dinner recently, and I think there's some debate about what constitutes LNG visibility. How do you guys get comfortable with visibility on the LNG side?
Yeah. We have got multiple product ranges. I mean, we have got different lead times and backlog lengths. I mean, the visibility is in the discussions with the customer base and understanding their investment timing. I mean, I think there is.
Who is your customer in this? When you sell these LNG systems, who would you sell them to?
The large national gas majors. On the precision component side, now you're talking more the midstream infrastructure providers, the actual turbine makers, things like that. Some of these turbines are sold out for several years now. The visibility is quite good.
You have signaled clean energy, as you said. You have just referenced above-average revenue and above-average margin expansion. Any sense what the margins were last year and how do you see the margin trajectory?
Yeah. The margin trajectory, I think, 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 opportunity for integration, the opportunity for kind of cost synergy extraction is what's driving those margins. I think the margins last year were probably mid- or upper- teen.
Yeah, in line with the segment.
In line with the segment. We have expectations to get those, I would say, well above 20%. Yeah. I think the long-term goal for both that segment and the clean energy portfolio overall is 25% margin.
Gotcha. As long as we're sort of in that zip code, can we talk about retail fueling? Sort of we've come down, not as much in the news. Has this bottom sort of above ground to low ground? Can you just comment as to where we are in that cycle?
Yeah. I mean, we've seen 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, I would say, a better even than internal expectation start to the year. That's been a business that's struggled the last couple of years from a demand perspective. I think we've kind of gotten past some of the destocking and other things that we've talked about over the last couple of years. Listen, we've gotten off to a strong start on below ground. I think our above ground business remains steady. We've got a fairly positive outlook, I would say, for that part of the business for this year.
Does this administration have any impact, do you think, on CapEx decisions for above ground, or it's its own CapEx cycle and people just don't really think about it that way?
Yeah. I mean, it's a fairly standard kind of replacement investment cycle on both above and below ground side. I think we don't see a reason that that's going to change materially with this administration.
Gotcha. 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, the replacement cycle extends, right? It's not just a, it extends over time. The whole on the above ground side, the whole EMV impact that we saw four and five years ago, we think there was probably some pull forward of demand based on that. I think we should be getting into, by this point, I would say, a more normal replacement pattern in that business.
All right. You do have that sort of get something more exciting. You do have an area of triple-digit growth, and that's thermal connectors for liquid cooling at data centers. A year ago, you thought it could be a $30 million opportunity in 2024. What did we finish the year and what do we expect for 2025 and what are you seeing?
Yeah. I mean, we finished above the $30 million number in 2024. I think we saw strong growth last year. The triple-digit growth number that we referenced in the first quarter, there's a phasing element of that. If you look at that business in 2024, we really saw that business start to ramp in the second quarter and into the second half. 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 strong double-digit growth year in thermal connectors the rest of the year. We remain excited about the demand in that business and what we're seeing and hearing from our customers.
Is the demand driven, is it a function of MW, is it a function of electricity consumption? What's sort of the underlying metric that drives that we should sort of, when you model this business internally, are you looking at rack density? Are you looking at chip shipments? What's the one metric that we should be looking to try to understand how fast this business should grow?
Yeah. I mean, it's correlating to kind of the build. I mean, right now, it's obviously skewed heavily to correlating the build-out of data centers and high-performance computing. How that kind of evolves in the long term, kind of as maybe that curve on build-up flattens, that's something we're going to spend more time on. Right now, it's all project-driven as we get these things.
I think as sort of NVIDIA transitions to GB300 chip, as you have Rubin chip probably being rolled out over the next 12 months, clearly much more energy intensive, much higher liquid cooling requirements. I would imagine this continues to drive the business. I would imagine you have plenty of visibility for design evolution, right?
Right. The transition to higher energy or higher electricity requirements has obviously driven the shift from kind of air to liquid cooling. That has been an accelerant of demand.
The interesting thing is, despite I think the visibility and the build-out of the data centers, this has turned into a very short cycle business for us.
Interesting.
Yeah. What we do, obviously, is ensure that we have adequate capacity and adequate inventory to make sure we have the shortest lead times in the industry so we can continue to serve the customers and win share.
Who is your customer in that business? Is it, do you ship to Amphenol? Do you ship to NVIDIA? Do you ship to Vertiv? I'm not asking you to name the customers, but just where are you in the supply chain? Who do you ship to?
Yeah. I mean, it's somewhat like bio. We're fairly early in the—we're fairly early on in the supply chain. And I think there's different—we have different kind of routes to market to where it ultimately ends up at the end. So we're cooling system manufacturers. There's some—it goes through distribution. So it's a little bit of a mixed system.
You would ship to somebody who builds a subcomponent for the cooling system. Somebody makes a CDU, I guess, not a CDU.
Not a CDU.
Yeah, yeah. Direct to chip.
That would be a sweet notion. Not to change the subject, but yeah. The rack cooling.
Right. So inside the rack. Would you ship to like Hewlett- Packard or would you ship to somebody who supplies to somebody like Hewlett- Packard?
I mean, I would say it's more the latter than the front line, I would say.
Gotcha. Thank you. Yeah. Let's talk remaining heat exchangers, swap heat exchangers. I think it's the second most expensive part of a liquid cooling unit, right, other than the pump. One of the most important parts inside a heat pump. You have seen sequential growth in shipments and double-digit growth in orders. How excited should we finally be about this business in 2025?
Yeah. I think there's some, I think we are seeing some, we've obviously talked a lot in this business about specifically the European heat pump market. There appears to be, and we kind of saw this, I would say, maybe toward the tail end of the fourth quarter and certainly in the first quarter, some parting of the clouds with respect to demand in European heat pumps, just as that channel works through what's been a fairly sizable amount of inventory, both on the finished heat pump unit side and component side. I think we're feeling positive. I think we had a better quarter even than we expected internally. I think we're feeling positive about the trends on European heat pumps. Obviously, there's questions on the trajectory of the recovery in that business and everything else.
I think that's a positive in that business. Obviously, the opportunity on the CDU side of data center cooling continues to be a potential driver of growth in that business, as well as it's not just data centers and heat pumps. There is other district energy and HVAC and other markets that we expect to continue to drive positive growth in that business.
We are out of time. Thanks so much.
Thank you.
You, Andrew.