Dover Q4 2024 Earnings Report

Synex Renewable Energy EPS Results

• Actual EPS: C$2.20
• Consensus EPS: C$2.20
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Synex Renewable Energy Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.95 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Synex Renewable Energy Announcement Details

• Quarter: Q4 2024
• Date: 1/30/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, January 30, 2025
• Conference Call Time: 9:00AM ET

Synex Renewable Energy (TSE:SXI), through its subsidiaries, develops, owns, and operates electric power generation facilities. It provides engineering services for the control and use of water, primarily the design of hydroelectric and other power generation facilities, hydrology studies, river engineering, and related environmental services. The company also engages in the development, ownership, management, and operation of electrical power producing facilities. In addition, it acts as an independent power producer, which owns 12 megawatts of hydroelectric capacity in British Columbia, primarily on Vancouver Island. Further, it involved in the electrical distribution service; consulting engineering and environmental services; and civil engineering services. The company was formerly known as Synex International Inc. and changed its name to Synex Renewable Energy Corporation in January 2022. Synex Renewable Energy Corporation was incorporated in 1982 and is headquartered in Niagara Falls, Canada.

Dover Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to Dover's 4th Quarter and Full Year 2024 Earnings Conference Call. Speaking today are Richard Tobin, President and Chief Executive Officer Brad Serapak, Senior Vice President and Chief Financial Officer and Jack Dickens, Vice President, Investor Relations. Also present today is Chris Winker, Dover's segment Chief Financial Officer, who will succeed Mr. Cera Pack upon his retirement at the end of the month. After the speakers' remarks, there will be a question and answer period.

[Operator]

As a reminder, ladies and gentlemen, this conference call is being recorded Thank you. I'd now like to turn the call over to Mr. Jack Dickens. Please go ahead, sir.

[Jack Dickens, Senior Director of Investor Relations at Dover]

Thank you, Margo. Good morning, everyone, and thank you for joining our call. An audio version of this call will be available on our website through February 20, and a replay link of the webcast will be archived for 90 days. Our comments today will include forward looking statements based on current expectations. Actual results and events could differ from those statements due to a number of risks and uncertainties, which are discussed in our SEC filings.

[Jack Dickens, Senior Director of Investor Relations at Dover]

We assume no obligation to update our forward looking statements. With that, I will turn the call over to Rich.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Thanks, Jack. Good morning, everyone. Let's start on page 3. Overall, we are encouraged by the 4th quarter. Top line performance was broad based with 4 out of 5 segments posting positive organic growth and solid underlying demand across the portfolio.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Bookings were up 7% organically in the quarter, driven by robust order rates in our secular growth exposed markets as well as positive inflection and several end markets that had tough comps during the year. Our booking strength validates our previous demand outlook for 2025. Segment margin performance for the quarter was solid at 22.2%, up 60 basis points over the prior year. We are quite encouraged by the product mix impact and prior period fixed cost restructuring on segment margins during the quarter. We expect this to be a precursor of the strong incremental margin performance that we expect in 2025.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Excluding the $0.25 of tax reorganization benefit to our effective tax rate in the Q4 of the prior year, Q4 adjusted EPS grew 14% in the quarter and was up 8% for the full year. Our operational results were complemented by our ongoing portfolio actions. We recently closed 2 bolt on acquisitions within our high priority pumps and process solutions segment and our acquisition pipeline remains robust. We ended the year with a significant gas position that provides us flexibility as we pursue value creating capital deployment to further expand our businesses in high growth, high margin priority platforms through organic investment and acquisitions. We are optimistic about 2025.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Underlying demand strength has continued across the portfolio into January. We have significant runway for margin improvement through organic growth, positive mix benefits and numerous cost and performance levers. We have high confidence in Dover's attractive end market exposures, flexible business model and proven execution playbook. With this backdrop, we are poised to deliver double digit EPS growth in 2025 through a combination of accretive top line growth, margin improvement and value creating capital allocation. Let's hit to Slide 5.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Engineered products was up 2% organically in the quarter on volume growth in vehicle service and fluid dispensing. Aerospace and Defense was lower in the period due to shipment timing, but still posted a record year on growing global demand for signal intelligence and electronic warfare solutions. Clean energy and fueling was up 8% organically in the quarter, led by robust order rates and shipments within cryogenic and clean energy components as well as solid volume growth in retail fueling equipment. Our North American above ground fueling business is methodically building back to volumes from peak EMV cycle from several years ago. Importantly, there was notable growth inflection in mix accretive vehicle wash and below ground retail fueling in the quarter, which had faced tough market conditions over the last 2 years.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Margin was up 200 basis points in the quarter on positive volume leverage, attractive mix and operational execution. We expect these trends to continue to drive margins higher in 2025. Imaging and identification post another solid quarter with growth in core market in coating printers, consumable services and aftermarket parts. Margin performance was robust as management actions on cost to serve and structural cost controls continued to drive incremental margins higher. Pumps and Process Solutions is up 3% organically on robust shipments in single use biopharma components and thermal connectors, both of which posted year over year bookings growth in excess of 100% in the quarter.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Precision Components and Industrial Pumps had solid results as well as forecasted the long cycle polymer processing equipment was down year over year in the period, but was flat sequentially. Segment revenue mix drove 230 basis points of margin improvement on excellent production performance on volume growth in biopharma and thermal and margin mix benefits from the F. W. Murphy acquisition. Revenue was down in the quarter in climate sustainability technologies and expected declines in European heat exchanges and beverage making can making equipment, which more than offset the record quarterly volume in U.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

S. CO2 refrigeration systems and growth in heat exchangers in the U. S. And Asia. Our shipments of heat exchangers for heat pumps in Europe did improve sequentially in the quarter, a trend we expect to accelerate in the back half of twenty twenty five as the end market recovers.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Organic bookings were up 16% in the quarter with positive booking momentum across each operating business with particular strength in CO2 systems. I'll pass it to Brad here.

[Brad Cerepak, Senior VP & CFO at Dover]

Thanks, Rich. Good morning, everyone. Let's go to our cash flow statement on Slide 6. Adjusting for taxes paid on the gains on dispositions, which are non operational in nature, our free cash flow was $429,000,000 in the quarter or 22 percent of revenue. Our Q4 was our highest cash flow quarter of the year in line with historical trends.

[Brad Cerepak, Senior VP & CFO at Dover]

We are pleased with our full year adjusted free cash flow generation, which came in at 13.5 percent of revenue, within our guidance range despite carrying large accounts receivable balances at the year end. That will be a credit to early 2025 cash generation. Our guidance for 2025 free cash flow is 14% to 16% of revenue on strong conversion of operating cash flow. We are forecasting slightly higher CapEx in 2025 on several growth investments. With that, I'll turn it back to Rich.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Thanks. I'm on slide 7. Here we provide a little more detail on the bookings momentum in the Q4. Q4 marked our 5th consecutive quarter of positive year over year bookings growth, posting a book to bill above 1. As shown in the segment detail on the right, the bookings rates were broad based with particular strength in our secular growth exposed markets providing a strong foundation as we move into 2025.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Slide 8 highlights several end markets that were driving our consolidated organic growth forecast. Between end market data, our customer forecasts and our own booking rates, we are encouraged with the outlook in the broader industrial gas complex within clean energy and precision components, single use biopharma components, CO2 refrigeration systems and inputs into liquid cooling applications of data centers, which include our connectors as well as heat exchangers. We have made significant organic and inorganic investment behind these end markets, which we'll continue to prioritize into 2025. In aggregate, these markets now account for 20% of our portfolio and drive attractive margin accretion on expected double digit growth rates. Moving to slide 9.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

We expect Engineered Products to grow low single digits organically on sustained strong orders and shipments within Aerospace and Defense, which should be levered to the second half of the year due to the timing of government programs. With the divestitures of Distaco and Environmental Services Solutions Group in 2024, our Engineered Products segment now accounts for roughly 15% of our total portfolio, down from 25% in the prior year. We are optimistic about the growth outlook in clean energy and fueling, which should return to positive volume growth due to strength in clean energy components, fluid transport and above ground fueling. We expect this segment to be among the leaders in margin accretion in 2025 on volume leverage, positive mix from below ground fueling. Additionally, we can expect additional carryover of multiyear restructuring actions and acquisition integration benefits, which will primarily accrue in the second half of the year.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

We expect Imaging ID to continue its long term steady growth trajectory given its significant reoccurring revenue base and solid demand profile across all geographies. Management has done yeoman's work to improve the margin here through productivity and structural cost controls and we believe there are multiple years ahead of continued margin accretion. Underlying demand trends across pumps and process solutions remain solid. Shipments of single use biopharma components should continue their double digit growth rate driven by production growth in blockbuster drugs and the emergence of novel technologies such as cell and gene therapies and the continued secular shift towards stage and use manufacturing. The outlook for thermal connectors for liquid cooling data centers is robust.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Our preemptive capacity expansion has allowed us to maintain industry best lead times in what has turned out to be a short cycle business. Our precision components business is directly levered to energy complex investments, so we are quite interested to see how that plays out in 2025. Finally, climate and sustainability technology should recover well as difficult comps roll off and heat exchangers and beverage can making with the recent launch of our high capacity platform and CO2 refrigeration systems, we have the broadest product offering in the industry. We are currently taking orders well into the second half of twenty twenty five and should continue to grow at double digit rate due to the broad based adoption among national retailers. Heat exchanger expected to grow as European heat pump channel inventories have been largely depleted.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

We are forecasting sustained growth in North American heat exchangers. We have completed a capacity expansion for large format production driven in part by liquid cooling applications in data centers. Our guide let me finish up on Slide 10. Our guidance this year is a bit unique since we provided preliminary outlook for 2025 during last quarter's earnings release, which we felt was necessary given the significant portfolio moves completed in Q4. Our 2025 guidance is in line.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

That preliminary outlook from a quarter ago in terms of organic revenue and EPS growth with the underlying building blocks intact. There has only been one noteworthy change from last quarter, which is heightened foreign exchange translation headwind from the strengthening U. S. Dollar. While this incremental headwind, which is by no means unique to Dover, we are confident in holding our full year guide due to the positive and broad based bookings momentum we had during the year.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

So pretty much we're going to eat everything that we saw when we ran from October to January in terms of FX, which is not a little bit. We enter 2025 in advantaged cash position. Our preference is to deploy capital towards organic growth investments and our inorganic growth pipeline, which has improved in both quantity and quality of opportunities over the last several months. Rest assured, we will proceed with the capital discipline that we have demonstrated in the past. Finally, before we move to Q and A, I'd like to take a moment to recognize and congratulate Brad on his retirement.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Since joining Dover over 15 years ago, he has been instrumental, strategic and financial leader who has helped transform Dover to our current operating structure today. I'm sure Brad couldn't think of a better send off than spend his last days preparing for this earnings call. On behalf of all of us, thank you and we wish you all the best.

[Brad Cerepak, Senior VP & CFO at Dover]

Thank you for that, Rich. Much appreciated. It's been absolutely a pleasure to work with you, the entire Dover team, our Board and of course the finance organization for so many years. Chris Winker will take it from here and I wish him the very best. Okay.

[Brad Cerepak, Senior VP & CFO at Dover]

I think we can go to Q and A here, Jack.

[Operator]

Thank you. And we'll now take our first question from Steve Tusa with JPMorgan. Please go ahead.

[Steve Tusa, Managing Director at JP Morgan]

Hey, good morning.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Hi, good morning.

[Steve Tusa, Managing Director at JP Morgan]

Brad, congrats and thanks for all the help over the years. You've definitely seen a lot there, a lot of change. So congrats on the run. The slide last quarter talked about 40% conversion and $25,000,000 of restructuring benefits. This slide says 40% plus.

[Steve Tusa, Managing Director at JP Morgan]

Are you still assuming the $25,000,000 of restructuring benefits? And I don't know, there's a lot of like up arrows on that margin slide. So just maybe help calibrate us a bit on the margin drivers and price costs?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Sure. Like the restructuring benefit hasn't changed. As I mentioned last quarter, we'll we've got some more in the pipe and when we do it, we'll give you the roll forward benefit of it, which is not embedded into our forecast presently. The balance of it is mix. So if you look at the margin accretion that we saw in Q4, I think it's a pretty good precursor of what we can expect.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

And then we'll see from there. Then it's just a question of kind of the volume that we see. So right now, we're going to stick to the 40%. I think I don't see that going up in a percentage basis. It will be more tied to are we underestimating the revenue growth potential into 2025.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Bookings look great, but let's see. Let's get through a quarter or 2.

[Steve Tusa, Managing Director at JP Morgan]

Got it. And price cost, what do you guys assume for price on the year and will that spread be positive?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

It will be positive, not a lot either way in terms of benefit, maybe a point, point and a half. We'll see. It depends on the mix that we get, but it will be positive.

[Steve Tusa, Managing Director at JP Morgan]

Okay, great. Thanks a lot. Thanks again, Brad. Congrats.

[Operator]

Thank you. And next we'll take a question from Nigel Coe with Wolfe Research. Please go ahead.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Thanks. Good morning. Brad, I'm sure you're going to get a lot of congratulations and all that. But you've been at Dover for a long time. You've been the one sort of constant for the last like 15 years.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

So it's quite a moment here. So congratulations.

[Brad Cerepak, Senior VP & CFO at Dover]

Thank you. Thank you so much.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

No, no. So Rich, you mentioned January and whenever you mentioned sort of within the current period, it always sparks a bit of potential. I'm just curious if you think that tariffs or the potential tariffs is causing any sort of unusual behavior around the supply chain that you touch?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

No, we don't see it. I mean, we're generally speaking a proximity manufacturer. So our backlogs are more influenced on the lead times of the individual products, which are kind of all over the place between the short cycle and the long cycle. But yes, I don't we don't see any let's get in front of this because we think that there's going to be tariffs. We have a few businesses that are global in nature, but the vast majority of it is proximity.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Okay. Okay. And then just a quick question on the margin outlook. You mentioned CEF is going to be the margin leader. I'm just curious if we could just maybe just if I could just ask if the 20% plus handle would be reasonable there just based on what we saw this quarter?

[Nigel Coe, Managing Director at Wolfe Research, LLC]

And then similar vein with DPPS just given the exit rate, would a 30 handle be reasonable for this year?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Look, I think that the absolute change in margin we would expect in DCEF, okay? We are driving at the segment level in excess of 20, all right? You may not get it every quarter depending on the cyclicality of it, but clearly at an exit rate in excess of 2020. On DPPS, it's all about the mix. So if we're under calling biopharma and we get better results there, then clearly they will mix up.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

But if Precision Components does better, it's a little bit dilutive, but it's still at 25% margin, so we'll take it all day long. So it's more a question of what we get in terms of mix going from here.

[Nigel Coe, Managing Director at Wolfe Research, LLC]

Okay. Fair enough. Thanks, Rich.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Thanks.

[Operator]

Thank you. We'll next go to Andy Kaplowitz with Citigroup. Please go ahead.

[Andy Kaplowitz, Analyst at Citigroup]

Good morning, everyone. Hi, Andy. Brad, thanks for all your help. Congrats.

[Brad Cerepak, Senior VP & CFO at Dover]

Thank you.

[Andy Kaplowitz, Analyst at Citigroup]

Rich, book to bill over 1 again in Q4, are you thinking 'twenty five is another year where all or most of your quarters could achieve book to bill out or over 1? And I know you're expecting an inflection in CO2 orders. It looks like you've got that and you mentioned the double digit expected growth in that business is expected to continue. But given recovery in other DCST businesses, at least in terms of orders, it seems like you expect DCST bookings momentum to continue. Maybe you can comment on that specifically?

[Andy Kaplowitz, Analyst at Citigroup]

Yes.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

I mean, I would expect based on our growth rate we'll hover around 1. I mean I don't think we get all excited if it's 0.98 1 quarter. But we should hover around 1 for the year and then we'll make a call on Q4 as we exit. Yes, I mean we did get some bookings in Q4 in CO2 systems. We've got a lot coming our way.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

So I would expect bookings to look good there coupled with the fact maybe not in Q1, but as we go into Q2, we'll inflect positive bookings in heat exchangers. So that will help in terms of the

[Andy Kaplowitz, Analyst at Citigroup]

Got it.

[Andy Kaplowitz, Analyst at Citigroup]

And then

[Andy Kaplowitz, Analyst at Citigroup]

can you give us a little more color into how you think about earnings cadence through the year? It seems like we start out pretty slowly in terms of organic growth in Q1, given DCST and DP could start slowly in terms of growth, but more color on Q1 and the trajectory for the rest of

[Andy Kaplowitz, Analyst at Citigroup]

the year would be helpful.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Yes. I mean, I'll go back to now that we're beyond kind of all the COVID stuff, we'll go back to we'll start off a little slowly. We'll probably build a bunch of inventory in Q1 that will recognize those revenues in Q2 and Q3. And then Q4, like every other year, we'll decide on the outlook of 2025 how we run production, but we'll make those decisions in the August, September timeframe.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

So yes, I mean, I think that quarter to quarter will look okay, but I mean, it will be a ramp into Q2 and Q3.

[Andy Kaplowitz, Analyst at Citigroup]

Appreciate the color.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Thanks.

[Operator]

You. And we're next going to take our next question from Joe Ritchie with Goldman Sachs. Please go ahead.

[Joe Ritchie, Managing Director at Goldman Sachs]

Hey, guys. Good morning. And Brad, thanks so much. Wish you nothing but the best.

[Brad Cerepak, Senior VP & CFO at Dover]

Thank you.

[Joe Ritchie, Managing Director at Goldman Sachs]

Maybe let's just I'll just hone my questions in on DCST. Rich, maybe talk a little bit about like what you're seeing in that European heat pump market now expecting growth in 2025. I think you may be mentioned inventories have also stabilized there. Just give us some color on what you're seeing there.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Well, I mean the margin performance that you see for us in Q4 is us basically under producing severely. So it was a willful attempt to force inventory clearing out of the channel. But having said that, orders inflected positively, let's not get excited off of some pretty low levels. So I would say that we did our part to allow inventory to clear and just sequentially orders are coming up. It's probably still got a bad comp in Q1.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

But then from there, we would expect to ramp over the balance of the year. What that ramp looks like, we're taking our best estimates right now. As you know, getting good data out of our own customers has been quite difficult, but we would expect I think that we've got a prudent outlook for it. And hopefully, it gets sequentially better over the year. But what we're confident about is, we took some direct action to allow inventory to clear in the back half of the year.

[Joe Ritchie, Managing Director at Goldman Sachs]

Got it. That makes a lot of sense. So as you think about then kind of like the right starting point for margins for that segment, given that you put that big hit in the Q4, like how do you think about then the margin trajectory in 2025? It would seem like you should get some pretty good margin expansion in that business.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Yes. I mean once we lap Q1, Q1 is always a little bit messy because in traditional refrigeration equipment, it's not a heavy shipment month. We tend to build inventory there as opposed to shipping it. And as I said, SWEP on heat exchangers has probably got a tough comp there. Having said all that, that we were very pleased with the margin that we got, the exit margin that we got at refrigeration.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

So that's what we're booking in for the balance of the year. And to the extent we under produce so severely in heat exchangers, we have like negative fixed cost absorption there. In Q4, we'd expect that to get better over time. So net net, if you just look through the downturn in heat exchangers, with all the progress that we made on refrigeration, we would expect that we would be maybe not at record margins because I'd have to kind of triangulate for Belvac a little bit, but some very good margins in that segment if we were to benchmark it historically.

[Joe Ritchie, Managing Director at Goldman Sachs]

Great to hear. Thanks, guys. Thanks.

[Operator]

Thank you. Our next question will come from Brett Linzey with Mizuho. Please go ahead.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

Thanks. Good morning and best of luck to Brad.

[Brad Cerepak, Senior VP & CFO at Dover]

Thank you.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

Hey, wanted to come back to the bio orders really strong. I guess any detail in the nature of the applications you're winning? And any concentration, is there 1 to 2 customers? Is it fairly broad based? And then how should we think about that delivery schedule?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

It is broad based. I mean, we cleared inventory in the back half or the front half of this year. And then we started orders inflected, I think, more or less at the end of Q2. We don't know a lot in terms of where it ends up because there's a big portion that sell through from our clients at the end of the day. But I think I would categorize it as we are a supplier to in use production and that the inventory is cleared out of the system and that those units are operating now and it's just pull through.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

Yes, makes sense. And then just

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

a follow-up on the liquid cooling, very strong demand again, obviously with everything that's going on. But maybe talk about that specification process with those partners. And how large has the total addressable market for Dover grown over the last couple of years? And where do you think your share of that can run?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Well, it's grown significantly because it was a traditional product of ours that have been supplied into supercomputing applications. What the TAM is, is anybody's guess right now. If you go back and look at the transcript, I think that we made the right decision in terms of having the product available and we made the right decision to build out the capacity in advance of the demand because it has turned out what I would have thought to be a business that would have because of the build out time for these data centers that we you would know when the orders are coming. It's turned out to be a very short cycle business for us. So the data that we get of where the product is going is almost at the last minute.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Now we've been a market share winner here because we've got the capacity installed, to the detriment of some of the working capital, I would say, in the Q4 of this year. But I can't even give you TAM numbers, quite frankly. I don't think anybody knows. We'll see how it plays out. But right now, super proud of the management team in terms of how they've managed a credibly complex situation.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

Appreciate the detail.

[Operator]

Thank you. Our next question comes from Michael Halloran with Baird. Please go ahead.

[Michael Halloran, Associate Director of Research at Robert W. Baird & Co]

Hey, good morning everyone and congrats Brad.

[Brad Cerepak, Senior VP & CFO at Dover]

Thank you.

[Michael Halloran, Associate Director of Research at Robert W. Baird & Co]

So just another high level question here, just make sure I understand the cadencing through the year. In an answer to the earlier questions, the thought process then, if I think about typical earnings by quarter, relatively normal or a little subdued in the first and then build it up in the back. But then related, are you basically assuming the underlying demand dynamics are relatively stable with current levels, not improving, not getting worse, but relatively stable in normal sequentials? Is that the thought process?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Yes. I think the sequential should be relatively stable and typically from a calendarization point of view. So there's nothing and the mix benefit should be relatively stable. But when we're talking about the incremental growth on the roll forward, then you're going to get the growth most of the growth in Q2 and Q3. So it doesn't leg down and then leg up.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

It kind of just sequentially rolls forward. The mix impact on the business should be relatively stable, right, because that's if you look at the order rates, that's where we're going to be shipping out of. And then the growth that we're getting, which will be producing in Q1 will be shipped out in Q2 and Q3. That's our estimates right now.

[Michael Halloran, Associate Director of Research at Robert W. Baird & Co]

Yes. That makes sense. And then just an update on the M and A side. Any change to what you're seeing from a backdrop, actionability and the amount of content that might be in the market at some point?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Yes, lots of stuff coming. We're really interested to see what the spirits are out there and what we'd like to see a couple of transactions to get done. There's quite a few in the pipe to see at what how aggressive everybody is going to be at valuation. But those are the ones everybody knows about. We've also got a handful of very interesting proprietary deals that we're working on.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

So we'll see. I mean, we're very popular in multi industrial world because of all the cash flow we're sitting on. So we're seeing a lot. Time will tell about what multiples look like when we see a couple of transactions.

[Brad Cerepak, Senior VP & CFO at Dover]

Yes. And keep in mind that that cash on the balance sheet right now is not deployed in our forecast. It's generating nice interest income. So it doesn't burn a hole in our pocket, so to speak. And when you think about your models, just keep in mind that we're sticking to our $0.50 year over year concept around interest income until we deploy that capital.

[Brad Cerepak, Senior VP & CFO at Dover]

And then you'll see a shift between the interest line and the segment performance line as

[Brad Cerepak, Senior VP & CFO at Dover]

we do deal flow.

[Michael Halloran, Associate Director of Research at Robert W. Baird & Co]

Thanks guys. Helpful as always.

[Brad Cerepak, Senior VP & CFO at Dover]

Thanks.

[Operator]

We'll take our next question from Julian Mitchell with Barclays. Please go ahead.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Hi, thanks. Good morning and Brad, thanks for all the help. If we think about just the segment level, I wanted to start with clean energy and fueling. It seemed like you did see some very encouraging signs exiting the year in below ground and vehicle wash. And as we're thinking about the 2025 guidance, maybe help us understand kind of how much of the business now is that clean energy components piece, which is sort of come together fairly recently?

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

And how does the growth there differ this year versus the more traditional parts of DCEF?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Okay. I'm going to have to go back and look, but I would think in terms of absolute profit, it is the largest contributor year over year that segment. And that's a combination of restructuring benefits, growth, mix on growth and acquisitions that we had done in the prior period that actually calendarized at 12 months. Breaking it into pieces, I think that we'll let Jack take you through it. But we had in terms of the cryogenic component exposure, we are significantly larger than our nearest competitor.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

That's helpful. Thank you. And then secondly on Engineered Products, there's been a lot of change in the business mix there, aerospace and defense, a bigger weighting now within DEP. And maybe remind us of kind of the main exposures there, because it looks like the volumes there were down in the 4th quarter, but should grow this year as a whole in DEP. Maybe kind of remind us sort of what's moving around in that and what's the visibility on that second half improvement in the A and D shipments at DEP?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Okay. The comp was bad in Q4 and that's what drove the commentary, which is timing of shipments, which I think that we had some pretty big shipments in Q4 of 2023. Having said that, the business is it's big as it's ever been in terms of its absolute size, because we've actually been an acquirer in there. In terms of the calendarization, I'd have to go and work with Jack to see what 2025 looks like, but it is posted to grow year over year and having a positive margin mix benefit on that growth.

[Julian Mitchell, Equity Research Analyst at Barclays Investment Bank]

Great. Thank you.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

You're welcome.

[Operator]

Our next question comes from Jeff Sprague with Vertical Research. Please go ahead.

[Jeffrey Sprague, Managing Partner at Vertical Research Partners]

Hey, thanks. Good morning, everyone. And congrats, Brad. Hate to admit it, but we go back American Standard, Honeywell Allied.

[Brad Cerepak, Senior VP & CFO at Dover]

I know,

[Brad Cerepak, Senior VP & CFO at Dover]

a lot of years, Jeff.

[Jeffrey Sprague, Managing Partner at Vertical Research Partners]

Almost to high school. So maybe a CFO question to start. Just on kind of interest income. Thanks for that color. I assume rates are a little bit more favorable and sitting on cash than maybe you thought if you were thinking about the Fed, maybe address if that is in fact helpful.

[Jeffrey Sprague, Managing Partner at Vertical Research Partners]

And then also I just wanted to clarify that guide that you're talking about is really only accounting for cash on hand. It doesn't look like you're giving yourself any credit for just the very solid free cash flow generation you're expecting in 2025?

[Brad Cerepak, Senior VP & CFO at Dover]

No, I think it's inclusive. But we have uses of that cash flow like we normally do, right? So we'll have to see. It is volatile in the sense of how many rate cuts will there be next year. We model it out.

[Brad Cerepak, Senior VP & CFO at Dover]

And when I say we're sticking to our year over year that we guided back or gave insight into in the Q3, it is all inclusive for sure. But capital deployment will impact it, Jeff, and there's a lot of variables. So I think at this stage,

[Jeffrey Sprague, Managing Partner at Vertical Research Partners]

just just maybe a little bit more color there, right? Demand trends are giving us a solid green pie, but we're growing low single digit. I'm guessing it's just sort of the fashion fabric or whatever you call that piece of the business is really still lagging and holding back the base. Is that what's going on? Maybe a little more color there?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

It's just de minimis in terms of the revenue and earnings at this point. So we're not modeling in any kind of snapback in terms of performance. Credit to the management team, the margin accretion has even lapped that business declining over the last 3 years through improving the profitability of the core marketing and coding business. As I mentioned in my comments, we've got some other efficiency programs, if you will, laid in for 2025 that should help the accretion there. So let's just call it on the textile stuff, the bottoming has taken place, but it's de minimis now in terms of the earnings of the group.

[Brett Linzey, Executive Director at Mizuho Financial Group, Inc.]

So the low single digit growth just reflects then what's the normalization on the equipment side after a little bit of bump in 20?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

It will this one's got a ton of FX in it and it flops around between equipment and consumables. So we don't get all bent out of shape quarter to quarter. We look at this business really on a full year basis. It grows 2% to 4% at the end of the day. So I wouldn't intra quarter volatility is almost meaningless.

[Jeffrey Sprague, Managing Partner at Vertical Research Partners]

Okay. Yes, talking about the outlook, we're good to go. I'll leave it there. Thanks a lot. Take care.

[Operator]

Thank you. Our next question will come from Andrew Obin with Bank of America. Please go ahead.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Good morning. Hi. Yes. We'll try and congratulate Brad on his retirement. It was a pleasure.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Thank you.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

He's still saying we when he answers the question.

[Brad Cerepak, Senior VP & CFO at Dover]

I know. I know. Encouraging.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

That's

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

good.

[Brad Cerepak, Senior VP & CFO at Dover]

We're going

[Brad Cerepak, Senior VP & CFO at Dover]

to be here through all that capital deployment.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

I'm binge watching severance these days. So just 25 outlook for growth in vehicle wash is much better than the commentary from peers and I would also say above ground is turning. Do you think you're gaining share or is it a real turn in the market, right?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Well, I mean, we got to be careful with the peer commentary in vehicle wash because a lot of them own distribution and operate sites. We don't. We're purely equipment manufacturer. I think the commentary around that it's gotten better, but it's not inflected super better. But even a little bit of better on a margin point of view, it's positive.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

I think the real material inflection that we're seeing there, if we take the cryogenic side and put it aside is the mix impact a couple of things. The mix impact of below ground, which has been pretty depressed for 2 or 3 years now, which is highly margin accretive. That's good. A lot of the restructuring we did last year is in this particular segment. So that's where the flow through comes in, which is good.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

And then the cryogenic piece, we talked about at length in the end of Q3, that we are going to go through a big integration year here and expect to get the integration benefits of those prior period acquisitions probably levered towards the second half of this year. So it's got a lot of kind of nonrevenue benefit underlying it, number 1. And number 2, mix is improving.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Excellent. Thank you for expansive answer. And just a simple question on Calder. Do you think that business can double this year given sort of the underlying growth in liquid cooling?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Well, I mean double relative to what, right? With biopharm

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Relative to 24. Yes, no, just the sorry, just the liquid cooling part, sorry. Just the data center part. Yes, the data center part, sorry.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Could it? Yes. Will it? We'll

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

see. As I

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

mentioned before, it's just turned out to be such a short cycle business that we've got we got a view of maybe 45 days in terms of the demand cycle. So we'll see, but could it? Yes.

[Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch]

Thank you. It's good to have happy optimistic reach back. Thank you.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Yes.

[Operator]

Our next question comes from Scott Davis with Melius Research. Please go ahead.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Hey, good morning guys. Hi. And congrats. I'm sure you're going to miss that flight out on Monday morning or Sunday night or whatever to Chicago. But I spent some frequent flyer miles our way, I guess, probably have plenty.

[Scott Davis, CEO & Chairman at Melius Research LLC]

But anyways, I think you guys have covered most of the terrain here. It's been a lot of minutiae too. But if we back up a little bit, is the refrigeration story just about CO2 in 25? Or is it really also just about pent up demand that there was a it's been a pretty long period, I think, of underinvestment from a lot of your customers. Is that a correct assessment?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

I think it's a correct assessment, but recall that we have capped our capacity in that particular segment. So it's more for us margin performance through productivity plus CO2. Okay. So we're not going to chase dilutive growth on the retail refrigeration side. So between the CO2 product offering and the specialty product offering, we'll take as much as we can get there.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

On the case business, we'll see, that we're in early innings now about the CO2 transformation of whether you can bundle the CO2 system with the case and what does that mean for margins, I think that is something that will unfold during 2025.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Okay, fair enough. And then just a small question. I guess I've never asked this before, but if you had to split up your CapEx between kind of maintenance and growth, how would you think about what kind of that base level of maintenance CapEx is in the numbers?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

That's a good question. We used to give out a pie chart on that. I'm guessing that it's 40 maintenance, but that does not include IT and 60 growth. And if I had to carve out IT, I'd have to get back to you, Scott.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Okay.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Good color.

[Scott Davis, CEO & Chairman at Melius Research LLC]

Thank you, guys. Best of luck this year, all right?

[Brad Cerepak, Senior VP & CFO at Dover]

Thanks.

[Operator]

Thank you. And our last question will come from Deane Dray with RBC Capital Markets. Please go ahead.

[Deane Dray, Managing Director at RBC Capital Markets]

Thank you. Good morning, everyone. I get to do the last congrats to Brad and wish you and family all the best.

[Brad Cerepak, Senior VP & CFO at Dover]

Thank you.

[Deane Dray, Managing Director at RBC Capital Markets]

You and I also go way back.

[Brad Cerepak, Senior VP & CFO at Dover]

I know we do.

[Deane Dray, Managing Director at RBC Capital Markets]

Maybe we just start, Rich, on the 2 bolt on deals, how did those come about? Where do they fit? What's kind of the attraction there? And how much of that pipeline that you're looking at fits that category?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

They're both proprietary. 1 is going to pumps and process solutions and both of them are going to oh, yes, yes, right. And they're both proprietary. One is cryogenics, but it actually ends up in our pumps business. The other business is a product line expansion, for plastics and polymers for MOG.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

And that one I think we've been working on for 3 years or so.

[Deane Dray, Managing Director at RBC Capital Markets]

All right. Good to hear on that. And then data center came up a whole lot in the Q and A, prepared remarks, in your slides. My guess is those were already written prior to the Monday sell off. And Rich, you've already said you're a short cycle business, it's 45 days.

[Deane Dray, Managing Director at RBC Capital Markets]

So you're probably not looking any further out than that. But just in terms of managing this business, do you feel like there's any sea change in terms of data center CapEx? And I know you can't size the TAM, but is the TAM potentially getting smaller and more competition? Just kind of how might the competitive dynamics have changed since Monday?

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

Dean, I don't know. I mean, the fact of the matter is in terms of the total TAM, we're a rounding error. We think that we've got a very good product that we have IP protected. I think that we were first in line in terms of building out the capacity and that's pretty much what's driven the volume growth that we've seen. I think we've been pretty prudent in terms of sizing the business.

[Richard Tobin, President, CEO & Chairman of the Board at Dover]

So we're not looking at the 1,000,000,000 and 1,000,000,000 of dollars and trying to do the mathematics of gigawatts to connectors. I mean, many have tried, all have failed. So I'm not overly worried about it at the end of the day. I think there's enough kind of shovels in the ground that makes us feel comfortable with our 2025 forecast.

[Deane Dray, Managing Director at RBC Capital Markets]

Excellent. I appreciate that color. Thanks. Thanks.

[Operator]

Thank you. That concludes our question and answer period of Dilworth's 4th quarter and full year 2024 earnings

Participants

Executives

• Jack Dickens, Senior Director of Investor Relations
• Richard Tobin, President, CEO & Chairman of the Board
• Brad Cerepak, Senior VP & CFO

Analysts

• Steve Tusa, Managing Director at JP Morgan
• Nigel Coe, Managing Director at Wolfe Research, LLC
• Andy Kaplowitz, Analyst at Citigroup
• Joe Ritchie, Managing Director at Goldman Sachs
• Brett Linzey, Executive Director at Mizuho Financial Group, Inc.
• Michael Halloran, Associate Director of Research at Robert W. Baird & Co
• Julian Mitchell, Equity Research Analyst at Barclays Investment Bank
• Jeffrey Sprague, Managing Partner at Vertical Research Partners
• Andrew Obin, MD - Equity Research at Bank of America Merrill Lynch
• Scott Davis, CEO & Chairman at Melius Research LLC
• Deane Dray, Managing Director at RBC Capital Markets