Q3 2023 Dover Corp Earnings Call

Please standby your program is about to begin if you need assistance during your conference today. Please press Star zero.

Good morning, and welcome to Dover's third quarter, 2023rd earnings Conference call.

Speaking today are Richard J, Tobin, President and Chief Executive Officer, Brad <unk>, Senior Vice President and Chief Financial Officer, and Andre Vice President corporate development and Investor Relations.

After the Speakers' remarks, there will be a question and answer period.

If you would like to ask a question. During this time. Please press Star then the number one on your telephone keypad.

If you would like to withdraw your question. Please press star two.

As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call.

If you do not agree with these terms. Please disconnect at this time.

Thank you I would now like to turn the call over to Mr. Andrzej <unk>. Please go ahead Sir.

Thank you Angela and good morning, everyone and thank you for joining our call today and audio version of this call will be available on our website through November 14th.

And the 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.

Assume no obligation to update our forward looking statements with that I will turn this call over to rich.

Okay. Thanks Andre.

We posted very encouraging results.

What has become a dynamic operating environment across our different end markets and geographies.

Revenue and order rates improved sequentially in the quarter are normalizing lead times and inventories improving demand across several end markets.

And a return to normal seasonality, our backlog continue to normalize in the quarter in tandem with lead times as we shipped longer dated orders from a box.

Speaking margin performance in the quarter was exceptional.

Reaching an all time high driven by productivity cost controls and disciplined pricing, which more than offset the negative product mix in pumps and process solutions. The proactive structural cost actions, we have undertaken over the last 12 months are paying dividends and sheets and should support strong margin conversion going forward.

Our recent portfolio moves the acquisition of F. F. W. Murphy and the sale of the stake all followed the the portfolio intent and priorities that we reiterated our investor day earlier in the year.

And continue our portfolio evolution towards higher growth and higher return businesses at attractive valuations, our balance sheet position and cash flow are strong and provide attractive optionality as we continue to pursue bolt on acquisitions and a more favorable M&A environment and evaluate opportunistic capital return strategies.

We have reduced our EPS guidance for the full year and are now targeting the low end of the previous guidance range. This was driven by continued lag in biopharma recovery that we expected to happen in the second half of the year temporary cost and supply chain issues that I will expand upon later in a general trends towards inventory liquidation across supply chain as a result.

It's a macro uncertainty and prohibitive carrying cost I'll cover the specifics in the segment commentary.

Overall demand remains good across the portfolio, considering the plaintiffs plentiful negative macro headlines.

Our new product launches and capacity additions and identified areas of growth are all on track and we expect that our fourth quarter production posture will help balance our channel inventories are at prevailing demand lead times and inventory carrying costs by the end of 2023.

We are increasingly convinced that inventory position will be critical to the pricing dynamic and financial results moving into 2024.

Going into 2024, we expect to see growth in our in our bookings driven by secular growth expose the recovering end markets and we expect to carry elevated backlog into next year in select businesses.

Our demand outlook flexible business model and in flight structural cost actions, we see a good foundation for value creation in 2024.

Let's move on to the performance highlights on page four.

Consolidated revenue was down 2% in the quarter. Despite sequential growth in four out of five segments bookings were up sequentially, but down 4% organically year over year, resulting in a book to bill of <unk> 93, reflecting better lead times and strong shipments against our longer dated orders as a result, as a result, our backlog continued to normally.

<unk>, but remains elevated relative to pre pandemic levels.

Segment margins were up 50 basis points to $21 seven a record since the average spend is broadly based productivity and portfolio improvements were more than able to offset biopharma mix adjusted EPS was up 4% to two point $2.35.

In the quarter on positive price cost dynamics, together with cost containment actions and strong execution more than offset lower volumes.

Let's go to slide five.

Engineered products was down 3% organically in the quarter general weakness in Europe , Europe , and Asia, together with lower shipments shipments in vehicle service more than offset a record quarter in aerospace and defense and strong shipments in waste hauling order rates. In this segment were up 12% organically in the quarter, primarily driven by waste handling.

<unk>, which continues to take capacity reservations.

Well into 2024.

Margins at 20% were up 260 basis points year over year, driven by a better mix of reoccurring and aftermarket revenue price cost and productivity mate productivity investments.

Made in previous periods.

I'd like to mention the announcement of our agreement to divest to stake out.

One of the operating units within the engineered products segments and an attractive valuation this is not related to <unk>.

But we leave the evaluation, we achieved underscores the quality and strong performance of the businesses that we have that we have proven to have best in class operating margin and less cyclicality than typical capital goods businesses.

Clean energy and fueling revenue was flat organically in the quarter, we saw double digit growth in components for LNG and hydrogen markets and the above ground retail fueling business returned to growth as opposed to N V recovery is in progress high interest rates led to two project push outs and vehicle wash and and and forecasted chat.

Destocking has resulted in slower activity in LPG components and below ground fueling which are highly margin accretive to the segment.

Margins in the quarter were up at 20%, we're up 40 basis points on structural cost actions and our retail fueling business and solid execution more than offset negative mix.

Imaging, an idea was down 4% organically as slowing demand in China, and a difficult comparable period in marking and coding printer shipments more than offset the growth in serialization software and marking and coding consumables and professional services.

Margins in imaging and idea was strong at 26% to go down year over year.

[noise] against an all time record high for the segment in the comparable quarter.

Pumps and process solutions was down 7% organically in the quarter precision components and hygienic dosing systems posted another quarter of excellent growth, but were more than offset by the continued softness in biopharma.

Industrial pumps and Pollard from polymer processing, we're still in the quarter.

Segment margin of 27% was down to the lower mix of Biopharma revenue.

Topline in climate and sustainability technology was up 2% organically C. O. Two systems continued its double digit growth trajectory.

Heat exchanger shipments remained strong in North America, and Europe that we experienced at the beginning of the demand headwinds in Asia.

The segment posted strong margin performance 18th consecutive quarter with a food retailer food retail business, our refrigeration business operating at a robust 15% margin.

The steady margin improvement trajectory in refrigeration has been noteworthy as positive mix and productivity investments have driven excellent margin conversion, we expect the margin improvement trend to continue for the whole segment.

I'll pass it onto Brad here.

Thanks, Rich good morning, everyone.

On slide seven.

The top right shows our organic revenue decline of 2% both acquisitions and FX translation contributed positive 1% to the top line in the quarter FX, which has had has been a headwind for the past year and a half resulted in two cents of positive EPS impact in the quarter.

Based on recent movement in the Euro dollar exchange rate, we now expect FX to be a one to two cent headwind in the fourth quarter.

From a geographic perspective are you the U S. Our largest market was down 7% in the quarter due to lower shipments in vehicle service.

Pharma LPG components and below ground retail fueling.

Europe was down 5% and Asia was down 3%, China, which represents about half of our revenue base.

And Asia was down 5% organically in the quarter.

On the bottom chart bookings were down year over year due to normalization of lead times and strong shipments against elevated backlogs.

Now on our cash flow statement slide eight.

Year to date free cash flow came in at 688 million or 11% of revenue, representing an increase of nearly $400 million year over year.

As discussed previously with supply chain is improving we have begun actively working to liquidate our working capital balances in 2023.

We accelerated our inventory reduction at third quarter and expect the trend to continue as we plan to balance our inventory levels by the end of the year.

Free cash flow generation has historically peaked in the fourth quarter and again, we expect strong.

Fourth quarter cash flow to finish the year.

Our forecast for.

2023 free cash flow is 13% to 15% of revenue, let me turn it back to rich alright, I'm on slide nine.

We expect engineered products to generate moderate growth in the fourth quarter Aerospace and defense should remain strong. Meanwhile, the auto strike away on several businesses in the near term.

Growth in our waste handling business, which is expected to be robust in the fourth quarter into 24 will be reduced in the near term by recent strike at a major truck Oems impacting deliveries.

Shipments of vehicle aftermarket is expected to be lower versus a record previous year on higher interest rates way on service shops ability to finance Capex, we expect margins to improve in the quarter on positive positive price cost tailwind and benefits from our recent productivity capital investments.

Clean energy and fuel is expected to remain steady clean energy LNG and hydrogen components should continue their robust trajectory in order trends in above ground retail fueling point to continued continued post ENV recovery.

We expect channel Destocking in interest rate driven headwinds in the below ground fueling second LPG components and vehicle, Washington maintain through year end.

We expect stable margin performance as the $60 million in aggregate structural cost containment actions in retail fueling should offset negative mix from lower below ground and lower car wash volumes.

Imaging and idea is expect to be down organically against a difficult comparable period, driven by slowing demand in Asia and a good outlook for textiles serialization shot software should continue its growth trajectory.

Our new customer conversion margin performs should remain attract tractive levels in this segment pumps.

Pumps and process is expected to remain roughly flat organically in the fourth quarter precision components should continued growth tailwind from energy transition projects.

Polymer processing is booked for the year the recovery in Biopharma components has been <unk>.

Very subdued in at all and although channel inventory levels are now below pre pandemic levels and customer demand has not recovered enough to drive.

2023 growth despite earlier forecasts forecasts, indicating recovery, where we have reduced our production and inventory levels appropriately.

And we'll remain in this posture for the balance of the year. This is generally a short cycle business and we can ramp as order rates recovery recover in 'twenty four.

We expect year over year margin headwinds on negative mix in Biopharma.

And after several years years of impressive topline growth climate and sustainability technology is expect to moderate in the fourth quarter as demand for heat exchangers abruptly slowed.

In Q3, due to near term uncertainty and European heat pumps as a result, we are reducing production levels.

To allow for inventory to be cleared in the fourth quarter traditional refrigeration demand will retain its seasonal seasonality was reduced activity during the holiday season.

But we continue to see robust demand for our C. O two refrigeration systems and are ramping up production and go to market efforts appropriately.

We expect continued year over year margin improvement through year end on productivity gains and improved mix.

Going to slide 10, our updated EPS guide reflects the near term changes in demand and our production posture temporary and isolated issues in the supply chain and cost related to acquisitions integration and divestment activities. We expect these headwinds to be partially offset by a lower effective tax rate in Q4 as a REIT.

A tax reorganization activities driven by upcoming regulatory changes.

Highlighted we believe our changed operating and production posture focused on reducing inventories and prioritizing cash flow over the over volume in reaction to the dynamic operating environment is critical it's critical to setting up 2024 outlook, where we can maintain and expand operating margins.

Let's go to slide 11, and take a quick look at the inorganic moves that we made during the quarter here, we summarize the two recently announced transaction.

That aligned well with our portfolio of priorities and enhance the overall quality of this portfolio through margin growth in reoccurring revenue uplift, all while reducing our exposure to automotive in China.

Importantly, we were able to acquire FW Murphy at a lower valuation multiples and then our sale of the stake and the after tax proceeds from the stake of sell more than pay for F. F. W. Murphy preserving significant balance sheet capacity for additional capital deployment options.

Slide 12 provides more color on the rationale for the acquisition of FW Murphy Murphy by our precision components operating unit, which is part of pumps and process solutions segment FW Murphy brings a highly complementary product offering to our existing position.

<unk> compression industry.

Solutions capitalize on the growing adoption of advanced remote monitoring control.

Real time optimized optimization solutions as customers seek to reduce costs improve uptime and lower emissions.

In combination with our best in class Cook clean technology, and our leading position in sealing and valve technology for alternative energy applications, including in hydrogen W. Murphy acquisition offers a compelling value proposition into a global industry, where we see robust demand from energy transition.

Investments.

The FW Murphy acquisition provides a good segue into the next topic, which is to highlight.

The recent developments in investment in sustainability driven market starting on slide 13.

There's been plenty of interest around hydrogen as a result of the recent announcement of $7 billion in federal funding for multiple regional hydrogen hubs.

Expected to also attract 40 billion in private funding and in our roster of Blue chip industry participants.

Dover has established a position in hydrogen.

With the 2021 acquisition of Acme, which supplies flow control components for liquid hydrogen and Ley Cal which offers turnkey hydrogen refueling sites. Additionally, we are organically invested in extending D. P CS gas compression components.

To participate in gaseous hydrogen applications in short there is no hydrogen economy without compression, we have great relationships with the industrial gas and hydrogen players and aimed to participate.

The whole value chain.

Through transport and storage through end use in collaboration with equipment Oems, we are well positioned to capitalize on growth in hydrogen and industry with a high focus on safety and regulatory compliance with high technological requirements for participation.

Moving to slide 14, the EPA recently finalized its rule under the aim act with a deadline for new installation of refrigeration systems to be compliant with lower G. WP requirements by January of 2027.

We believe this rule is a clear tailwind to our C. O two systems business we have.

We have had a leading position in European C O two market for over a decade, where we enjoyed steady double digit growth trajectory.

We were the early mover in translating this technology to the U S. We were colored currently enjoy a technological lead and have the largest installed base and broadest differentiated offering.

We are proactively expanded our capacity in addition in anticipation of market growth and I haven't been investing behind a platform based product strategy to drive standardization.

Thereby reducing cost for ourselves and our customers improving product quality and simplifying the sales process.

Our global C O two business is approximately $200 million in revenue the.

The U S market is in the early innings and we're in our business is on track for 30% growth in 2023.

Drawing outlook we're also.

Excited about our new C O two based heat pump offerings for industrial district heating applications. It's early days, but we have an active pipeline of orders.

And finally on slide 15 shows our latest views on heat exchangers census has become a battleground topic, our heat exchanger business supplies braised plate technology.

She is currently the most sustainable commercialized heat transfer technology for fluids.

We have been the clear beneficiary of the sustainability and climate tailwind across various applications with a lot of attention drawn recently.

From our participation as a key supplier to hydronic heat pumps. He pumps have emerged in recent years as the technology of choice to Decarbonize residential heating.

Which is responsible for a significant portion of global emissions.

With hydraulic heat pumps as a primary primary technology to retrofit houses that rely on water based heating.

Legislative initiatives in European Union in individual countries are driving the conversion of fossil fuel boilers to food prep.

Recent uncertainties and slipped about subsidies in select European countries have weighed on near term volumes are as I indicated earlier.

Please stand by, your program is about to begin. If you need assistance during your conference today, please press star zero.

Our exposure across multiple Oems in geographies and as such we are not over index to any product or customer concentration risk. We remain confident about the long term growth prospects for heat pumps and our technology. It is important to note that European residential heat pumps represent only a quarter of our.

Richard Tobin: Good morning and welcome to Dover's 3rd quarter, 2023 earnings conference call. Speaking today are Richard J. Tobin, President and Chief Executive Officer, Brad Cerepak, Senior Vice President and Chief Financial Officer, and Andrey Galiuk, Vice President, Corporate Development, and Investor Relations.

After the speakers remarks, there will be a question and answer period. If you would like to ask a question during this time, please press star and then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. As a reminder, ladies and gentlemen, this conference call is being recorded and your participation implies consent to our recording of this call. If you do not agree with these terms, please disconnect at this time.

Heat exchanger business.

C set several solid growth vectors, driven by sustainability tailwind and continued share gains from other legacy heat exchanger technologies, we have proactively expanded our capacity.

Thank you.

We expect continued robust growth trajectory and heat exchangers, albeit albeit with slightly lower rates in the near term as various dynamics in Europe slowdown.

Close my prepared remarks by thanking our global teams for driving our strong financial performance during the quarter.

Andrey Galiuk: I would now like to turn the call over to Mr. Andrey Galiuk. Please go ahead, sir. Thank you, Angela. Good morning, everyone, and thank you for joining our call today. An audio version of this call will be available on our website through November 14th, 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 thirties which are discussed in our SEC filings. We assume no obligations to update our forward-looking statements.

And it's time for Q&A.

If you would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press star two.

We ask that participants limit themselves to one question and one follow up question. Once again, if you would like to ask a question press Star one.

Yes.

Yes.

Our first question comes from Steve Tusa with J P. Morgan. Please go ahead.

Hey, guys good morning.

Richard Tobin: With that, I will turn this call over to Rich. Okay, thanks, Andrey. We posted very encourage results and what has become a dynamic operating environment across our different end markets and geographies. Revenue and order rates improve sequentially in the quarter on normalizing lead times and inventories, improving demand across several end markets, and return to normal seasonality. Our backlog continued to normalize in the quarter in tandem with lead times as we shipped longer data to orders from our books.

Yeah.

So I think you were a little more positive Ah in early September than you know this fourth quarter guidance understand you know maybe the world's changed a little bit. Since then maybe you could just discuss that but then just looking ahead I'm thinking about perhaps a more cautious view of the world for next year.

What's kind of a low end assumption for next year when it comes to organic and margins just kind of level set us on you know a case where perhaps.

Richard Tobin: Broadly speaking, margins performance in the quarter was exceptional, reaching an all-time high driven by productivity, cost controls, and discipline pricing, which more than offset the negative product mix in pumps and process solutions. The proactive structural cost actions we have undertaken over the last 12 months are paying dividends and should support strong margin conversion forward. Our recent portfolio moves, the acquisition of FW Murphy and the sale of DeStaco followed the portfolio intent and priorities that we reiterated our investor day earlier in the year, and continue our portfolio evolution towards higher growth and higher return businesses that attract evaluations. Our balance sheet position in cash flow is strong and provide attractive optionality as we continue to pursue bolt-on acquisitions in a more favorable M&A environment and evaluate opportunistic capital return strategies.

The orders don't recall is strongly to the trend lines are the trend lines are a little bit weaker like in your in your macro view, what what is it more cautious outlook for next year bring.

For Dover, because you've been talking about growth. There you know as things were a couple of the trend.

It seems like that would have changed over the last month or so.

That is a that's a lot to take on their stable, let's give it a try.

Look I think if I, if we look at our forecast for the year, we were just wrong about biopharma.

We were getting indications.

From our customers that there was going to be some nascent recovery, we actually did see some order upticks.

But quite frankly, it just never turned into much.

So that's a little bit different than we were back in September I think we just have to throw in the towel on biopharma demand and it gets pushed to 2024.

Richard Tobin: We have reduced our EPS guidance for the full year and are now targeting the low end of the previous guidance range. This is driven by continued lag and biopharma recovery that we expected to happen in the second half of the year. Temporary cost and supply chain issues that I will expand upon later in a general trends towards inventory liquidation across supply chains as a result of macro uncertainty and prohibitive carrying cost to cover the specifics and the segment comments.

We didn't expect in terms of market dynamics was this.

This UAW on trucks right, we thought it would stay limited into the car sector and Unfortunately, what we were betting on us being able to ship quite heavily out of ESG and quite and Q4 will actually have a good quarter in Q4, but it's not going to be as robust in our plans.

Richard Tobin: Terry. Overall, demand remains good across the portfolio, considering the plentiful negative macro headlines. Our new product launches and capacity additions in identified areas of growth are all on track. We expect that our fourth quarter production posture will help balance our channel inventories will prevailing demand. And three times an inventory carrying cost by the end of 2023. We are increasingly convinced that inventory position will be critical to the pricing dynamic and financial results moving into 2024.

I think and I think I mentioned on the heat exchangers that was a little bit of a rig.

Abrupt reversal.

And really didn't happen until almost the end of Q3, so up until.

About 30 days ago.

Everything looks good there and I think that we've got a little bit of a pivot as.

While we understand is there's a lot of finished goods in the supply chain that needs to be reduced.

Richard Tobin: Going into 2024, we expect to see growth and our bookings driven by secular growth exposed and recovering end markets. And we expect to carry an elevated backlog into next year in select businesses between our demand outlook, flexible business model. Business model and inflite structural cost actions. We see good foundation for value creation in 2024.

From there so.

You know.

At the end of the day I think.

It has slowed some.

And which leads into the to the next question. Our next question are positioning now.

Is to drive for cash because I think that the way.

Richard Tobin: Let's move on to the performance highlights on page four. Consolidated revenue is down 2% in the quarter despite sequential growth in four out of five segments. Bookings are up sequentially, but down 4% organically over here, resulting in a book to bill of 0.93 reflecting better lead times and strong shipments against our longer data orders. As a result, our backlog continued to normalize, but remains elevated relative to pre-pandemic levels. Segment margins were up 50 basis points to 21.7, a record since the apogee spin. As broadly-based productivity and portfolio improvements were more than able to offset bioforma mix, adjusted EPS was up 4% to $1.35.

We're going to be able to protect margins into 2024 is not to be long inventory. We had a lot of discussions around here about incentivizing revenue into in 'twenty four driving revenue, but then you start touching on things like price and Youll start touching on things like payment terms.

And we're not going there I mean, I think that the strategy that we have is to adapt quickly and efficiently to the market demand bring down our inventory with the hope of.

With the strategy of protecting margin into next year and I think if you look how we've handled demand this year.

Exactly what we've done at the end of the day I mean, we've talked about it before what we've seen over the previous two years was not a lot of.

In the quarter, a positive price cost dynamics together with cost containment actions, strong execution, more than offset lower volumes. Go to slide five.

Unitary demand you saw a lot of pricing going into the system. So we came into this year.

Saying.

No.

Probably going to be less price and some unitary demand, but the importance and I think that we've done that in terms of managing which is reflected in our margins year to date is it is managing.

Richard Tobin: Engineer products was down 3% organically in the quarter general weakness in Europe and Asia together with lower shipments and vehicle service, more than offset the record quarter in aerospace and defense and strong shipments in waste hauling order rates in the segment were up 12% organically in the quarter. Primarily driven by waste handling business, which continues to take capacity reservations well into 2024, margins at 20% were up 260 basis points year over year driven by a better mix of reoccurring and aftermarket revenue price cost and productivity investments made in previous periods.

Not getting oversupply and over our skis, a little bit in terms of inventory and that we're going to take that on for next year.

You want me to make a call on the market next year.

I think we're gonna have to wait on that clearly there's a lot of headwinds in the system.

I don't want to get on a personal soapbox, but.

The amount of liquidity that's being withdrawn.

Going to show up somewhere and this notion that we're all going to wait on the government to bail us out because there's this wave of government spending coming.

Richard Tobin: I would like to mention the announcement of agreement to divest a stakeholder one of the operating units within the engineer product segments and attract evaluation. This is not related to performance, but we leave the valuation we achieved underscores the quality and strong performance of the businesses that we have proven to have best in class operating margin and less cyclicality than typical capital goods businesses. Clean energy and fueling revenue was flat organically in the quarter.

I find that a problematic strategy. So I think it all is going to be triggered by monetary policy between now and the end of the year, which is going to allow for us to predict growth into next year. What I can tell you is is if we do what we were planning on doing in Q4, we will not be long inventory.

And we're not going to get into a situation, where if there are kind of top line headwinds that we're going to have to start playing price to drive growth.

Richard Tobin: We saw double-digit growth in components for LNG and hydrogen markets and the above ground retail fueling business returns to growth as both EMV recovery is in progress. Margin and the quarter were up at 20 percent, were up 40 basis points on structural cost actions in our retail fueling business and solid execution more than offset negative mix.

So like should we just think about flat as the starting point for next year.

No I don't think so I think that we're ahead of the curve remember, we're a component supplier into end market industries right. So were first.

At the end okay. So.

I you know I think that if we get this right. We've got top line growth next year, even in a pretty.

Benign kind of macro environment, I think that we can drive growth and I think that's part of the reason that we covered some of those growth factors in terms of our investment at the end of the presentation.

Great Alright, thanks, a lot.

Thanks.

Richard Tobin: Imaging an ID was down 4 percent, organically a slowing demand in China and a difficult comparable period in marking and coding printer shipments more than offset the growth of serialization software and marking and coding consumables and professional services. Margin's an imaging and ID was throwing at 26 percent the down year over year against an all time record high for the segment in the comparable quarter.

The next question comes from Jeff Sprague with vertical research partners. Please go ahead.

Thank you good morning.

Hey, rich maybe a question on restructuring and thinking fueling in particular I think you had a lot of restructuring plan there for Q4, but it looks like your <unk>.

<unk> margins kind of flat I guess on a year over year basis could you speak to that maybe at some of the absorption issues, you're talking about on inventory, but love some more color on the margin trajectory there.

Richard Tobin: Pumson process solutions was down 7 percent organically in the quarter, precision components and hygienic dosing systems posted another quarter of excellent growth, but were more than offset by the continuous offices and biopharma. Industrial pumps and polymer processing were staying in the quarter. Segment margin at 27 percent was down to the lower mix of biopharma revenue.

Sure I think if you go back and look at the script basically what it says is the restructuring that we took.

Is going to protect margins into Q4.

Because we actually have a poor mix forecasted for Q4.

Because where we're seeing the headwinds.

Richard Tobin: Top line and climate and sustainability technologies up 2 percent organically, CO2 systems continued its double digit growth trajectory. Heat exchanger shipments remained strong in North America and Europe, though we experienced the beginning of demand headwinds in Asia. The segment posted strong margin performance 18 percent quarter of food retail business or refrigeration business operating at a robust 15 percent margin. The steady margin improvement trajectory in refrigeration has been noteworthy as positive mix and productivity investments have driven excellent margin conversion.

In fueling solutions is in the below ground portion of the segment and that is highly accretive to margins were basically.

You heard me answer Steve's question, there and we're taking the position of let's allow inventory to be draw down even.

We would argue at this point below even normal levels between now and the end of the year and protect and protect production performance into next year. So.

The restructuring benefit the restriction that we've done is actually protecting margins into Q4.

We expect the margin improvement trend to continue for the whole segment.

And all of these questions are just kind of what's at the customer level right, whether it was biopharma earlier. This year. He pumps may be now some other pockets.

Brad Cerepak: Passing on to Brad here. Thanks for it.

Brad Cerepak: Good morning, everyone. I'm on slide 7. The top bridge shows our organic revenue decline of 2 percent, both acquisitions and effects translation contributed positive 1 percent to the top line in the quarter, effects which has been a headwind for the past year and a half resulted in 2 cents of positive EPS impact in the quarter. Based on recent movement in the Euro Dollar exchange rate, we now expect effects to be a 1 to 2 cent headwind in the fourth quarter.

How would you kind of square up your visibility and kind of comfort level one.

Understanding what that what the right level of inventory is or when the customer demand.

It might turn a little bit.

Yeah, I think we're getting a lot better at if at the end of the day, where we sell through distribution, we have visibility right. Because we've just got a material position within distribution. So we can see.

Pretty much stocking levels at the OEM level it becomes a lot more difficult at the end of the day, we're relying on the Oems to basically tell us their own position. So let's take heat exchangers up until 45 days ago. It was still a demand capacity deficit I'll give us everything you've got and then.

Brad Cerepak: From a geographic perspective, the US, our largest market was down 7 percent in the quarter due to low shipments and vehicle service by a pharma LPG components and below ground retail fueling. Europe was down 5 percent and Asia was down 3 percent. China, which represents about half of our revenue base, in Asia was down 5 percent organically in the quarter. On the bottom chart, bookings were down year over year due to normalization of lead times and strong shipments against elevated backlogs.

All of a sudden.

For reasons that I tried to cover the market has come to a halt because there's a recognition of seemingly is a lot of finished goods in the chain now that need to be bled off.

Well.

Like I said from if its distribution I think that we've got a pretty good handle on it when its OEM, we just got to take the signals from them.

Brad Cerepak: Now on our cash flow statement, slide 8. Year-to-date free cash flow came in at 688 million or 11 percent of revenue represented in an increase of nearly 400 million year over year. As discussed previously with supply chains improving, we had begun actively working to liquidate our working capital balances in 2023.

I'm sorry, just a quick one for Brad does the tax rate bounce back to 20, something next year or what should we expect going forward yeah, Jeff.

The things we're seeing here in Q3 and into Q4 on taxes will not carry into into next year. So said differently I think are.

Brad Cerepak: We accelerated our inventory reduction at third quarter and expect the trend to continue as we plan to balance our inventory levels by the end of the year. Freakash Flow Generation has historically peaked in the fourth quarter, and again, we expect strong fourth quarter cash flow to finish the year.

24 tax rate's going to be much like we saw earlier in this year. When we gave guidance you know somewhere in that 20% to 22% rate.

Great. Thank you.

Okay.

Brad Cerepak: Our forecast for 2023 Freakash Flow is 13 to 15% of revenue.

The next question comes from Andrew <unk> with Bank of America. Please go ahead.

Good morning. This is David Ridley Lane on for Andrew Rubin.

Richard Tobin: Let me turn it back to Ritch. All right, I'm on slide nine. We expect engineered products to generate moderate growth in the fourth quarter. Aerospace events should remain strong.

Hey, rich how would you characterize kind of the excess backlog at this point in time and how that.

Richard Tobin: Meanwhile, the auto strike will weigh on several businesses in the near term. Growth in our waste handling business, which is expected to be robust in the fourth quarter into 24 will be reduced in the near term by recent strike at a major truck OEM impacting deliveries. Shipments and vehicle aftermarket expect to be lower versus a record previous year on higher interest rates weigh on service shop's ability to finance catbacks. We expect margins to improve in the quarter on positive positive price cost tailwinds and benefits for our recent productivity capital investments.

Kind of enter plays into.

The revenue will see versus kind of the bookings trends that you need.

I don't think that we have excess backlog anymore. I mean, I think they were by the end of the year.

We will have drawn down our longer cycle backlog, particularly in bell vac in maag, which which drove a lot of it.

<unk>.

I think it will end up being a little bit higher than kind of on average in terms of its aggregate. If you go back and look over the last five years, but that is more related to portfolio general portfolio mix.

Richard Tobin: Clean energy and fuel is expected to remain steady. Clean energy, LNG and hydrogen components should continue the robust trajectory and order trends and above ground retail fueling point to continued post EMV recovery. We expect channel destocking and interest rate driven headwinds in the below ground fueling second LPG components and vehicle wash to maintain through year end. We expect stable margin performance as the 60 million and aggregate structural cost containment actions retail fueling should offset negative mix from lower below ground and lower car wash volumes.

As opposed to anything else cell.

Like I said at the end of the year, we think that we'll be in balance between.

Our inventory and our and our and.

And our.

Either as our customer distribution inventory.

I would expect the long cycle business backlogs to be.

Done that reduction to be done by the end of the year.

Got it.

And then.

No. It's it's tough task about bookings, but do you see bookings sequentially increasing in the fourth quarter then.

Richard Tobin: Imaging and ideas expect to be down organically against a difficult comparable period driven by slowing demand in Asia and a nude outlook for textiles. Serialization software should continue its growth trajectory. A new customer conversion margin performs should remain attractive levels at this segment. Pumps and process expected to remain roughly flat organically in the fourth quarter precision components should continue growth tailwinds from energy transition projects. Polymer processing is booked for the year the recovery and buying farm components has been very subdued and although channel inventory levels are now below pre pandemic levels and customer demand is not recovered enough to drive.

I Gotta go back and take a look I mean, I would say flat.

If I think about where bookings are coming from we've got a lot in ESG at high dollar value.

Quite frankly, we are booking well into 'twenty four in that particular business just because of supply constraints.

Flat I would call it right now I think that there is an overall caution.

With the macro everybody recognizes that that lead times have been vastly reduced.

So I think thats.

If there's going to be a lot of hurry for bookings in Q4, but we would expect.

Richard Tobin: 2023 growth despite earlier forecast forecast indicating recovery where we have reduced our production and inventory levels appropriately and will remain in this posture for the balance of the year. This is generally a short cycle business and we can ramp as order rates recovery recover in 24. We expect year over year margin heavens and negative mix and bioformer.

Pretty large acceleration in Q1.

If we've got understood.

Thank you very much.

Okay.

Yeah.

The next question comes from my Colleran with Baird. Please go ahead.

Richard Tobin: And after several years of impressive top line growth climate and sustainability technologies expect to moderate in the fourth quarter as demand for heat exchangers abruptly slowed. In Q3 due to near term uncertainty in European heat pumps as a result were reduction levels to allow for inventory to be cleared in the fourth quarter traditional refrigeration demand retain its season seasonality with reduced activity during the holiday season. But we continue to see robust demand for our CO2 refrigeration systems and are ramping up production and go to market efforts appropriate.

Hey, good morning, everyone. Two here so first on the inventory side, you're obviously, bringing inventory down a fair amount pretty aggressively more so than what we're hearing elsewhere.

The same sense of urgency in the channel when you look at your channel partners or do you think they are lagging the pace of your inventory drawdown.

No I think that our channel partners are in certain cases below normal holding pattern.

And that is because of the cost of carry with interest rates. So if you think about a typical distributor that's got $100 million.

Of inventory a working capital loan that they would have been able to have you know 18 months ago was probably two or 3%, they're probably paying nine now right. So there's a dynamic now.

Richard Tobin: Ridley. We expect continued year-over-year margin improvement through year-end on productivity gains and improved mix.

Going to slide 10, our updated DPS guide reflects the near-term changes in demand and our production posture, temporary and isolated issues in the supply chain and costs related to acquisitions, integration, and divestment activities. We expect these headwinds to be partially offset by a lower effective tax rate and Q4 as a result of tax reorganization activities driven by upcoming regulatory changes. As I've highlighted, we believe our changed operating and production posture focused on reducing inventories and prioritizing cash flow over volume in reactions of the dynamic operating environment is critical to setting up 2024 outlook where we can maintain and expand operating margins.

Because of higher interest rates of everybody trying to liquidate working capital because of the cost of that working capital US included by the way.

And we're in a little bit of a a standoff in certain in certain end markets, where we would argue that inventories are down too low.

But we are not going to incentivize revenue into the system either through price or through terms, we're just going to sit tight and will cut off and we will cut our own production into Q4, because that's just harvesting the demand that's in 'twenty four into 'twenty.

Yes.

So the comment that you made with the previous question about <unk>.

Richard Tobin: Let's go to slide 11 and take a quick look at the inorganic moves that we made during the quarter. Here, we summarized the two recently announced transactions that align well with our portfolio priorities and enhance the overall quality of dollars portfolio through margin growth and reoccurring revenue uplift all while reducing our exposure to automotive and China. Importantly, we're able to acquire FW Murphy, the lower valuation multiples, and then our sale of destaco and the aftertax proceeds from the destaco sale more than pay for FW Murphy preserving significant balance sheet capacity for additional capital deployment options.

<unk>.

We're having a better chance to turn positive in the first quarter.

I'm guessing part of it the comments you just made that inventory flush through the channel.

Essentially normalize by year end, and we should have at least normal throughput if not a little bit more given where inventory levels are in certain channels.

That's correct I mean, if you look at the topline revenue trajectory in.

Some of our businesses you have to take destocking into it that's not a reflection of end market demand and market demand minus destocking.

Great and then on the D. P. P. S side, maybe just kind of parse out the moving pieces. There obviously you have the.

Richard Tobin: Slide 12 provides more color on the rationale for the acquisition of FW Murphy by our precision components operating unit which is part of pumps and process solution segment. FW Murphy brings a highly complimentary product offering to our existing position and reciprocating compression industry. That's the solutions capitalized in the growing adoption of advanced remote monitoring, control, real-time optimization solutions that customers seek to reduce costs and prove uptime and lower emissions. In combination with our best-in-class cook clean technology and our leading position in sealing and valve technology for alternative energy applications including in Hydrogen, the FW Murphy acquisition offers a compelling value proposition into a global industry where we see robust demand from energy transition investments.

Continued destock on the Biopharm P screening some pretty easy comps in the next year, but a lot of your other pieces are a little bit more IP sensitive. So maybe just talk about some of the moving pieces, you're seeing on that side.

Well I think that overall, it's underestimated the amount of profit loss that we've had on the Biopharma reduction.

Uh huh.

To the extent they were clocking at record margins in the quarter, while eating that's pretty bad.

Sandwich here.

I think they were.

Quite frankly, I think we're pretty proud of so to the extent that its pushed into 'twenty four.

At the end of the day the comps get.

Pretty damn easy once we get into Q1 of next year the balance of the underlying business our precision components.

Where we basically bought F. W. Murphy into look we're behind.

Richard Tobin: The FW Murphy acquisition provides a good segue into our next topic which is to highlight the recent developments in investment and sustainability driven markets starting on slide 13. There has been plenty of interest around Hydrogen as a result of the recent announcement of $7 billion in federal funding for multiple regional hydrogen hubs that are expected to also attract $40 billion in private funding and a roster of blue chip industry participants. Dover has established a position in Hydrogen with the 2021 acquisition of Acme which supplies flow control components for liquid Hydrogen and Lee Cowl which offers turnkey Hydrogen refueling sites.

Energy transition, we're betting on gas and total LNG hydrogen you name it.

Order rates, there, we expect to be really good.

I think MOG on plastics and polymers.

Driven down a lot of that backlog, that's probably the one business, that's probably going to be weaker next year, but I think it gets completely offset.

By DPC and by FW Murphy.

And some amount of bio.

Yeah.

Great I appreciate it.

Richard Tobin: Additionally, we are organically invested in extending DPC's gas compression components to participate in gaseous Hydrogen applications. In short, there is no Hydrogen economy without compression. We have great relationships with the industrial gas and hydrogen players and aim to participate throughout the whole value chain through transport and storage through end use and collaboration with Equipment OEMs. We are well positioned to capitalize in growth in Hydrogen and industry with a high focus on safety and regulatory compliance with high technological requirements for participation.

The next question comes from Andrew Kaplowitz with Citigroup. Please go ahead.

Hey, good morning, guys.

Good morning.

Which you've talked about being proactive regarding cost out, but if economic conditions stay somewhat difficult what kind of opportunities do you have to deliver the kind of margins. We just delivered in Q3, and then I think you were fearful at the beginning of the year the pricing industrials might erode a bit have you seen any erosion or do you expect any erosion you might get two would you still expect a resilient price cost.

Moving forward.

Look we're always working on efficiency and structural cost take out at the end of the day. So that's just.

Richard Tobin: Moving to slide 14, the EPA recently finalized its rule under the aim act with a deadline for new installation of refrigeration systems to be compliant with lower GWP requirements by January of 2027. We believe this rule is a clear tailwind to our CO2 systems business. We have had a leading position in European CO2 market for over a decade where we enjoyed steady double digit growth trajectory. We were the early mover in translating this technology to the U.S. We were currently currently enjoy a technological lead and have the largest installed based and brought us differentiated offering.

Part and parcel to the business model here.

Now looking at M&A.

In a dire demand environment.

If I point back to how we performed during the Covid period, we've got the ability to flex the cost structure, we don't want to other than kind of productivity and efficiency driven not from a demand point of view.

As it relates to pricing.

Look.

I think there was a comment in the script. If you go back and look at is that we fundamentally believe that inventory position is going to be incredibly important as it relates to pricing as it goes into 'twenty four and.

Richard Tobin: We have proactively expanded our capacity in addition in anticipation of market growth and have been investing behind a platform-based product strategy to drive standardization thereby reducing costs for ourselves and our customers improving product quality and simplifying the sales process. Our global CO2 business is approximately 200 million in revenue. The U.S, market is in the early innings and we're in our businesses on track for 30% growth in 2023 with a strong outlook. We are also excited about our new CO2-based heat pump offerings for industrial and district heating applications. It's early days but we have an active pipeline of orders.

And Thats why were taking a little bit of hard medicine here between now and the end of the year.

Not too.

Incentivize demand through pricing action right.

We've done a lot of hard work of moving the margins up here and we're keeping these margins.

Helpful. Rich and then maybe just a little more color into the puts and takes you've seen D. C. S. T. You mentioned the slowdown in the heat exchangers, but the strength in tier two systems, you mentioned as well and you did deliver strong margin do you still see D. S. T. C. S. T is a growth segment for you in 'twenty four and how would you assess margin.

Richard Tobin: And finally on slide 15 shows our latest views on heat exchangers since it has become a battleground topic. Our heat exchanger business supplies braze plate technology which is currently the most sustainable commercialized heat transfer technology for fluids. We have been the clear beneficiary of the sustainability and climate tailwinds across various applications with a lot of attention drawn recently from our participation as a heat supplier to hydronic heat pumps. Heat pumps have emerged in recent years as a technology of choice to decarbonize residential heating which is responsible for a significant portion of global emissions with hydrotic heat pumps as a primary technology to retrofit houses that rely on water-based heating.

From here given what you just reported in Q3.

Well look I think that.

I think the heat exchangers temporal.

I mean, we went through this incredible amount of demand I don't know we are clocking up until.

A month ago, but it was very high demand that we had there I think this is just a bit a little bit of an inventory clearing things. So we expect growth out of the heat exchanger business next year.

I think we did our highest margin quarter in refrigeration in the last five years here.

We don't think that that's.

We're gonna give back there now just recall, though that Q4, we have to take production down due to seasonality. There alright. So that has some amount of impact on margins, but.

Richard Tobin: Legislative initiatives in the European Union and individual countries are driving the conversion of fossil fuel boil. Recent uncertainties about subsidies and select European countries have weighed on near-term volumes as I indicated earlier. Our exposure across multiple OEMs and geographies and as such we are not over-indexed to any product or customer concentration risk. We remain confident about the long-term growth prospects for heat pumps and our technology. It is important to note that European residential heat pumps represent only a quarter of our heat exchanger business.

The trajectory on our refrigeration, coupled with C. O two which is margin accretive we would expect margins to increase their next year clearly, we're going to add that will.

Likely offset the.

The negative impact from Belfast, where would you expect.

We'll run off its backlog next year and have a little bit of a down here in 2024.

Appreciate all the color.

Yeah.

The next question comes from Joe Ritchie with Goldman Sachs. Please go ahead.

Richard Tobin: We see several solid growth vectors driven by sustainability tailwinds and continue to share gains from other legacy heat exchanger technologies. We have proactively expanded our capacity. As we expect continued robust growth trajectory in heat exchangers albeit it was slightly lower rates in the near-term as various dynamics in Europe so far.

Thanks, Good morning, guys.

Yes, Hey, just a few quick follow ups on the just the inventory dynamics, because I mean rich you've been doing this a while it typically base.

Based on what we've seen it typically takes longer than a quarter to normalize inventory and so just any color on your on your confidence on being able to get inventory, where you needed to be by the end of the year or is there a good likelihood that some of this kind of spills into 2024.

Richard Tobin: All of my prepared remarks by thanking our global teams for driving our strong financial performance during the quarter and it's time for Q&A. If you would like to ask a question simply press star then the number one on your telephone keypad. If you would like to withdraw your question please press star two.

Well I mean, when we're talking about total inventory, we're talking about our own inventory, which we're in control of which is reflected in the cash flow that we're signing up for right that takes.

We ask that participants limit themselves to one question and one follow-up question. Once again if you would like to ask a question press star one.

Working capital liquidation a big chunk of that is inventory I think if you look at the <unk>.

600 million of free cash flow during the quarter.

Steve Tusa: Our first question comes from Steve Tusa with JP Morgan. Please go ahead. Hey guys, good morning. So I think you were a little more positive in early September than, you know, this fourth quarter guidance.

A material chunk of that was our own inventory reduction.

When we're talking about channel inventory like I said before where we've been the channel inventory and a lot of our end markets has been coming down progressively.

Over the year.

And now we're adopting a posture between now and the end of the year and certain businesses to allow that inventory to clear rather than try to push revenue.

Into either channel inventory or OEM inventory and then because of the only way you can do that is to start.

What's kind of a low end assumption for next year when it comes to organic and margins, just to, you know, kind of level set us on, you know, a case where perhaps the orders don't re-couple as strongly to the trend lines or the trend lines are a little bit weaker like in your macro view. So what is a more cautious outlook for next year bring, you know, for Dover because you've been talking about growth there, you know, as things re-couple the trend. It seems like that would have changed over the last month or so. Okay, that is a lot to take on there.

Modifying commercial conditions and we're not doing it.

So.

Should it clear we believe that we're on the front foot here.

And so we think by will be imbalance in kind of most of our end markets by the end of the year and then it just becomes a question of what is growth look like next year and how much confidence there is in the end markets of how much that channel and how quickly they built it back but we feel good about the trajectory we're on.

Richard Tobin: Steve, let's give it a try. Look, I think if we look at our forecast of the year, we were just wrong about biopharma. I mean, we were getting indications from our customers that there was going to be some nascent recovery. We actually did see some order optics, but quite frankly, it just never turned into much. So that's a little bit different than we were back in September.

So that it's an end of the year phenomenon based on current demand rates.

I think we just have to throw in the towel on biopharma demand and it gets pushed to 2024. We didn't expect in terms of market dynamics was this UAW on trucks, right? We thought it would stay limited into the car sector and unfortunately what we were betting on is being able to ship quite heavily out of ESG and Q4. We'll actually have a good quarter in Q4, but it's not going to be as robust in our plans.

Yeah.

Got it okay.

Helpful. And then I guess, just a real quick one on <unk> in <unk>. So I think you've I think you called out you know flat growth in the segment.

Hi, <unk>.

Sequentially revenue was down a little bit I'm curious just from a margin standpoint, similar revenues similar margins in <unk> or how do you think how do you think about the margins in four key for Dps.

They're they're either it'll be immaterial up or down.

Right subject to Mecca.

Perfect. Thanks, guys.

Thanks.

Yeah.

The next question comes from Brett Linzey with Mizuho. Please go ahead.

Hey, good morning.

Wanted to ask a question on the portfolio I guess as you consider additional pruning is there a way to maybe quantify what percent of revenue could be under review and you know certainly understand M&A is episodic but are you seeking to find.

I think I mentioned on the heat exchangers that was a little bit of a abrupt reversal and really didn't happen until almost the end of Q3. Up until about 30 days ago, everything looked good there and I think that we've got a little bit of a pivot as we understand is there's a lot of finished goods and the supply chain that need to be reduced from there. So at the end of the day, I think it slowed some and which leads into the next question.

Find comparable sized acquisitions to offset or how should we think about this portfolio shuffle.

The portfolio the whole portfolio is under review all the time.

Locke no Luckily, we don't go around and say.

We've got a business that's got $200 million revenue, let's go buy one or 200 million revenue.

Orchestrate that.

But I think that we've gone over Brent a lot about where our priorities are.

To the extent that we could make a change to our portfolio that we did without.

The next question our positioning now is to drive for cash because I think that the way we're going to be able to protect margins into 2024 is not to be long inventory. We had a lot of discussions around here about incentivizing revenue into 24 driving revenue, but then you start touching on things like price and you start touching on things like payment terms. And we're not going there. I think that the strategy that we have is to adapt quickly and efficiently to the market demands, bring down a inventory with the hope of the strategy of protecting margin into next year.

Touching our balance sheet I think is a positive so to the extent that we can do that repeatedly.

That would be great, but that is subject to a lot of timing differences both in and out at the end of the day, but.

<unk> as.

As an overall comment what we did.

This quarter and M&A is what we would like to do progressively every year.

Got it makes sense.

Just shifting back to the heat exchangers, and the Destocking in Europe , and Asia I guess, there's this slow the rollout of some of those capacity additions or change the way you're thinking.

And I think if you look how we've handled demand this, this year. It's exactly what we've done at the end of the day. I mean, we've talked about it before. What we'd seen over the previous two years was not a lot of unitary demand. You saw a lot of price and going into the system. So we came into this year saying, you know, there's probably going to be less price and some unitary demand.

Thinking about the near term from a capacity standpoint, and then what is your level of visibility there in terms of these imbalances that of.

Maybe skewed more negatively here.

No I think the capacity is coming on.

Sequentially. These are highly automated plant. So it's not like we've got a ramp employees, it's they're almost blackout plants at the end of the day. So we needed the standing capacity remember heat exchangers is 40% of our revenue. So I get it's getting a lot of headlines and that's why we wanted to address it or vis.

But the important and I think that we've done that in terms of managing, which is reflected in our margins here to date, is managing, not getting oversupply and over our skis a little bit in terms of inventory.

And that we're going to take that on for next year. You want me to make a call on the market next year. I, you know, I think we're going to have to wait on that. Clearly, there's a lot of headwinds in the system. I, you know, I don't want to get on a personal soap box. But the amount of liquidity that's being withdrawn is going to show up somewhere. And this notion that we're all going to wait on the government to bail us out because there's this wave of government spending coming.

Abilities.

As I mentioned is not great because its an OEM sale, mostly for us so up into the point, where they decided they want to slow down that's when we find out and the slowdown that we have been called out for.

For the balance of the year manifested itself over the last 45 days or so so are we are we worried about the capacity investment absolutely not we think the technology is fundamental it's going to grow over time.

I find that a problematic strategy. So I think it all is going to be triggered by monetary policy between now and the end of the year, which is going to allow for us to predict growth in the next year. What I can tell you is, is if we do what we're planning on doing in Q4, we will not be long inventory. And we're not going to get into a situation where if there are kind of top-line headwinds that we're going to have to start playing bright, to drive growth.

There has been a massive amount of capacity in heat pumps, that's been announced that always seems a little bit implausible. So I think at the end of the day the market reset is going to be on the finished goods not so much on the consumption of the heat exchanges.

Okay, Great I appreciate the insight.

Thanks.

Okay.

So, like, should we just think about flat? Is this starting point for next year? I know. I don't think so. I think that we're ahead of the curve. Remember, we're a component supplier into end market industries, right? So we're first at the end of the year. So, I, you know, I think that if we get this right, we've got top-line growth next year, even in a pretty, but nine kind of macro environment, I think, that we can drive growth.

The next question comes from Julian Mitchell with Barclays. Please go ahead.

Hi, good morning.

One element I just wanted to circle back to in context of the inventory discussion is around the free cash flow.

Margin guide I'm, saying that it's very high still could this year, but maybe move down a little bit.

And that's despite the good progress on the inventory liquidations that you cited in in Q3.

And I think that's the part of the reason that we covered some of those growth factors in terms of our investment at the end of the presentation.

So maybe just any sort of color around the moving parts inside them free cash flow.

Great. All right.

Thanks a lot.

Thanks.

And it has been very.

Jeff Sprague: The next question comes from Jeff Sprague with Vertical Research Partners. Please go ahead. Thank you. Good morning. Hey, Rich, maybe a question on restructuring and thinking fueling in particular. I think you had a lot of restructuring planned there for Q4, but it looks like you're guiding margins kind of flat, I guess, on a year-over-year basis. Could you speak to that? Maybe it's some of the absorption issues you're talking about on inventory, but lots of more color on the margin trajectory there.

Volatile.

So any sort of thoughts on maybe next 12 months.

As it's more sort of normalized.

Well, it's been volatile only because of the amount of <unk>.

Demand that was there to meet that demand you had basically an expansion of <unk>.

Everybody's balance sheet from a inventory point of view I think that when we put out the.

The guidance for this year, we basically said now that we're in a more normalized market that we were going to bring inventory inventory is down I think we're making really good progress on raw materials I think by cutting production in Q4, we should clear width and finished goods and then it's all about receivables.

Richard Tobin: Sure. I think if you go back and look at the script, basically what it says is the restructuring that we took is going to protect margins into Q4. Because we actually have a poor mix forecasted for Q4, because where we've seen the headwinds in fueling solutions is in the below ground portion of the segment. And that is highly accretive to margins. We're basically, you heard me answer Steve's question there.

From here to the end of the year.

Okay.

And so receivables was kind of the main delta around the change in the free cash margin guide.

Well, it's part of it but.

We're taking the position of, let's allow inventory to be drawn down. Even we would argue at this point below even normal levels between now and the end of the year and protect production performance into next year. So the restructuring benefit, the restructuring that we've done is actually protecting margins, and the Q4.

If you go back and look at where commentary has been over the course of the year. We've indicated that you know it's.

Tough to bring inventories down, but we did that in Q3, we see that continuing into Q4 as we look back you know in the actual good performance in Q3 receivables given the timing of sales actually built in the quarter a bit so that liquidation is due to come here in the fourth quarter and I.

Richard Tobin: And on these questions of just kind of what's at the customer level, right, whether it was by a pharma earlier this year, heat pumps maybe now, some other pockets, how would you kind of square up your visibility and kind of comfort level on, you know, understanding what the right level of inventory is or when the customer demand, you know, equation might turn a little bit. Yeah, I think we're getting a lot better at it. At the end of the day, where we sell through distribution, we have visibility, right, because we've just got a material position within distribution, so we can see pretty much stocking levels.

We will see very robust.

Cash flow again based on the commentary that we already provided the fourth quarter is always seasonally strong.

But I think given the actions, we're taking and it will be even more robust.

In line with our guide.

Yeah between cash flow and the proceeds of the disposal of the disposal, which will receive in Q1, we're in a very healthy cash position.

Yeah.

That makes sense. Thank you and maybe just to follow up on the question around the sort of the sales outlook. So I think it's very clear and the right thing to do that yet.

At the OEM level, it becomes a lot more difficult. At the end of the day, we're reliant on the OEMs to basically tell us their own position. So let's take heat exchangers up until 45 days ago, it was still a demand capacity deficit of, give us everything you got and then all of a sudden, for reasons that I tried to cover, the markets come to a halt because there's a recognition of, there seemingly is a lot of finished goods in the chain now that need to be bled off. So like I said, from, you know, if it's distribution, I think that we've got a pretty good handle on it. When it's OEM, we just got to take the signals from them.

I'm sorry, just a quick one for Brad.

Some.

Selling into the channel if you like short term to make sure channel partners have low inventories entering the new year.

When you sort of take that comment plus the <unk>.

Improvement in some orders figures you have seen.

Recently does that make you sort of confident around the revenue growth outlook. Despite the backlog has done.

And so we should sort of take the low inventories in the channel.

The orders movement, that's embedded determinant of sort of sales into early next year than perhaps what the backlog has been doing recently.

Brad Cerepak: Does the tax rate bounce back to 20 something next year or what should we expect going forward? Yeah, Jeff. You know, the things we're seeing here in Q3 and into Q4 on taxes will not carry into into next year. So said differently, I think our 24 tax rate is going to be much like we saw earlier in this year when we gave guys, you know, somewhere in that 20 to 22 percent rate.

Yeah, I mean at the end of the day everything Thats in our control.

Right, thank you.

For 2024.

I think that we're taking the right move so.

We.

Discussed managing channel.

From an inventory point of view.

The reason that we highlighted some of the investments we think that those are growth vectors that.

Those businesses are going to grow despite the macro.

But they are not subject to kind of general sentiment at the end of the day, our interest rates or anything else just because they've got.

Andrew Obin: The next question comes from Andrew Oben with Bank of America. Please go ahead.

Demand there so.

David Ridley: Morning, this is David Ridley Lane on for Andrew Oben. Rich, how would you characterize, you know, kind of the excess backlog at this point in time and how that kind of interplays into the revenue you'll see versus kind of the bookings trends that you need? I don't think that we have excess backlog anymore. I mean, I think that we're by the end of the year, you have a little drawn down our longer cycle backlog, particularly in Belvack and Mog, which which drove a lot of it.

Yeah, I mean look I.

Sure.

Knock wood, we're feeling positive about our setup going into 2024 based on how we've managed and will continue to manage 2023.

That's helpful. Thank you.

Thanks.

The next question comes from Deane Dray with RBC capital markets. Please go ahead.

Thank you and good morning, everyone.

Morning.

Hey was hoping to get some color on the retail fueling and it just sounds like there was a bit of a disconnect between below ground and above ground below ground I seem to be feeling the effects of higher rates and maybe some destock, but you weren't seeing that in above ground, but just can you square those please.

David Ridley: I think it will end up being a little bit higher than kind of on average in terms of its aggregate. If you go back and look over the last five years, but that is more related to portfolio, general portfolio mix as opposed to anything else. So, you know, like I said, at the end of the year, we think that we'll be in balance between our inventory and our, and our, either either customer distribution inventory. I would expect the long cycle business backlogs to be. He's done that reduction to be done by the end of the year. Got it.

Sure.

<unk> had in 2022 we had a great year and below ground and a bad year in above ground. So.

You think about kind of the time it takes to build sites or refurbishment sites you had kind of capacity that got built and then they finished the job on the top of this year.

Below ground now is in a bit of a headwind because of the fact that if you think about like a retailer and a retailer is going to spec in the product that they want.

David Ridley: And then, you know, it's tough to ask about bookings, but do you see bookings exponentially increasing in the fourth quarter then? I got to go back and take a look. I mean, I would say flat. If I think about where bookings are coming from, we've got a lot in ESG at high dollar value. It's quite frankly, we're booking well into 24 in that particular business just because of supply constraints. Flat, I would call it right now.

Add a fueling site and then I'm going to go contract the installation.

And part of the problem is it's no longer labor anymore, and it's no longer product availability.

It's the fact that those contractors need working capital loans in order to do these projects and the cost of those loans now is probably quintupled.

Over the last year or so it was very nice where everybody would be talking about 5%, 5%. As is is a baseline your contract or you need a working capital loan you're paying nine or 10, and so that is.

David Ridley: I think that there's an overall caution with the macro. Everybody recognizes that lead times have been vastly reduced. So I think that I think there's going to be a lot of hurry for bookings in Q4, but we would expect a pretty large acceleration in Q1.

Putting a bit of a little bit of a drag in terms of getting that work done number one or number two.

Just a general comment.

I gave the example before.

Is that a lot of that underground business at least the recurring revenue portion of it is sold through distribution the carrying cost of that inventory has gone up quite a bit and you basically see almost an over liquidation.

Thank you very much.

The next question comes from Mike Halloran with Baird. Please go ahead.

Of inventory in the chain because they know that our lead times are down low so there.

Michael Halloran: Thank you, Morning, everyone. Two here. So first, on the inventory side, you're obviously bringing your inventory down a fair amount pretty aggressively, more so than what we're here in elsewhere. Do you have the same sense of urgency in the channel when you look at your channel partners, or do you think they're lagging to the pace of your inventory drawdown? No, I think that our channel partners are in certain cases below normal holding pattern.

They're taking their inventory down because they don't want to pay the carrying cost at some point, that's got to give and we're not incentivizing through price or terms to push that inventory back into the system.

We'll deal with that on the come when we get into 2024.

Alright, that's real helpful. And then just a follow up on the geographies just the idea what were the surprises and maybe youre seeing some of the macro.

Michael Halloran: And that is because of the cost of carry with interest rates. So if you think about a typical distributor that's got a hundred million inventory, a working capital loan that they would have been able to have, you know, 18 months ago is probably two or three percent, they're probably paying nine now, right? So there's the dynamic now because of higher interest rates of everybody trying to liquidate working capital because of the cost of that working capital.

To be felt in the U S side was down 7%, but what surprised you there.

I think it's more and more I Luckily no. One came into this year thinking that Europe was going to be robust it hasn't been I think that that Oh, two systems and.

And heat exchangers are running counter to that argument C. O. Two is actually performing quite well the heat exchanger issue like I said up until 45 days ago, you couldn't make enough of them to supply heat pump demand and that just.

Michael Halloran: That's included, by the way. And we're a little bit of a a standoff in certain in certain end markets where in that we would argue that inventories are down too low, but we are not going to incentivize revenue into the system either through price or through terms. We're just going to sit tight and we'll cut our own production into Q4 because that's just harvesting demand that's in 24 into 23. So the comment that you made to the previous question about order or having a better chance to turn positive in the first quarter, I'm guessing part of it is the comments you just made that inventory flush through the channel defensive normalizes by year and you should have at least normal throughput if not a little bit more given where inventory levels are in certain channels. That's correct. If you look at the top line revenue trajectory and some of our businesses, you have to take destocking into it. That's not a reflection of end market demand. It's end market demand Thank you.

Great.

Came to quite a halt here I think and a recognition that there's too much inventory in the chain.

We were not very hopeful.

Hopeful about China, and China has been poor and I think in the U S. It's just the general.

What I just answered I gave you. The example of a second ago in the U S.

Can't raise rates at the rate, we're doing and not to have knock on effects in terms of the carrying cost and thats what were seeing now.

Thank you.

Our final question comes from Nigel Coe with Wolfe Research. Please go ahead.

Oh, thanks, guys.

Hum.

So going back to the non cool kind of the portfolio review I mean, obviously, there's a parlor game about guest which methods might not meet the.

Cut going forward, but the stucco wasn't one of those assets I think I think <unk> seen as a potentially noncore. So I'm. Just curious you know given the decent growth obviously very good margins.

Richard Tobin: And then on the DPPS side, maybe just kind of a parse out the moving pieces there. Obviously, you have to continue to be stuck on the biofarm piece, creating some pretty easy towns in the next year, but a lot of your other pieces are a little bit more IP sensitive. So maybe just talk about some of the moving pieces you're seeing on that side.

Was it that led that's assets being sold.

Yeah.

I think that the growth was okay.

At least in my tenure here.

Yes.

The end market exposure, both from the end market exposure and the geographic geographical exposure.

Well, I think that overall it's underestimated the amount of profit loss that we've had on the bioformer reduction. To the extent that we're clocking at record margins in the quarter while eating this pretty bad sandwich here, I think that we're quite frankly we're pretty proud of. So to the extent that it's pushed into 24, at the end of the day, the comps get pretty damn easy once we get into Q1 of next year.

Did not find.

Tractive.

Two months Europe I think.

Too much auto and too much.

Yeah.

Okay.

China, Yes.

Okay.

And then just on buybacks you know you did have an ASR last year.

You've got a fair amount of you know.

The balance of the underlying business precision components where we've basically bought FW Murphy into look, we're behind energy transition, we're betting on gas in total LNG hydrogen you name it. Order rates there, we expect to be really good. I think mag on plastics and polymers, we've driven down a lot of that backlog. That's probably the one business that's probably going to be weaker next year, but I think it gets completely offset by DPC and by FW Murphy and some amount of bio.

Bacci flexibility if you get your free cash flow forecast.

With the with the sale as well I mean any thoughts on buybacks at these levels.

Yeah, I mean look at buying back our stock at these levels is become very attractive I think that we've got a lot of moving parts right here in terms of delivering on the fourth to fourth quarter on the cash flow.

Andrew Kaplowitz: Great, appreciate it.

And then we've got an outbound on the acquisition and in inbounds on.

The disposal.

After all of that is settled we will clearly be in a very healthy.

Healthy balance sheet position and I'm sure that capital return.

Capital return discussion will become to the forefront.

Okay I'll leave it there thanks guys.

Thanks.

Okay.

Thank you that concludes our question and answer period, and Dover's third quarter 2023 earnings Conference call. You may disconnect. Your line at this time and have a wonderful day.

The next question comes from Andrew Kaplowitz with Citigroup, please go ahead. Good morning, guys. Good morning.

Rich, you've talked about being proactive regarding costs, but if economic business stays somewhat difficult, what kind of opportunities do you have to deliver the kind of margin that's just delivered in Q3? And then I think you were fearful, the beginning of the year, the pricing industrials might have wrote a bit. Have you seen any erosion or do you expect any erosion, your markets or do you still expect resilient price costs moving forward?

[music].

Hum.

[music].

Look, we're always working on efficiency and structural costs take out at the end of the day. So that's just part and parcel to the business model here. Look, in a dire demand environment, if I point back to how we performed during the COVID period, we've got the ability to flex the cost structure. We don't want to, other than kind of productivity and efficiency driven not from a demand point of view. As a relates to pricing, look, I think there was a comment in the script, he go back and look is that we fundamentally believe that inventory position is going to be incredibly important as it relates to pricing as it goes into 24.

Mhm.

Yeah.

Hum.

Hum.

Oh.

[music].

Yeah.

[music].

And that's why we're taking a little bit of hard medicine here between now and the end of the year of not to incentivize demand through pricing action. We've done a lot of hard work of moving the margins up here and we're keeping these margins.

Joseph, Paul Ritchie, and then maybe just a little more color into the puts and takes you're seeing DCST. You mentioned the slowdown of the heat exchangers, but the strengthens CO2 systems, you mentioned as well, and you did deliver strong margin. You still see DCST as a growth segment for you in 24 and how would you assess margin potential from here, given what you just are supporting?

Richard Tobin: Good thing. Look, I think that the heat exchangers temporal, right? I mean, we went through this incredible amount of demand. I don't know, we were clocking up until a month ago, but it was very high demand that we had there. I think this is just a little bit of an inventory clearing things that we expect growth out of the heat exchanger business next year. I think we did our highest margin quarter in refrigeration in the last five years here.

Richard Tobin: We don't think that that's we're going to give back there. Now, just recall, though, the Q4, we have to take production down due to seasonality there. All right, so that has some amount of impact on margins, but the trajectory on a refrigeration coupled with CO2, which is margin accretive, we would expect margins to increase there next year. Clearly, we're going to, at that, we'll likely offset the negative impact from Belvack, which we expect will run off its backlog next year and have a little bit of a down year in 2024.

Appreciate all the color.

Richard Tobin: The next question comes from Joe Richie with Goldman Sachs. Please go ahead. Thanks. Good morning, guys. Hey, just a few quick follow-ups on the, I'm just seeing inventory dynamics because, I mean, Rich, you've been doing this a while. It typically, you know, based on what we've seen, it typically takes longer than a quarter to normalize inventory. And so, just any color on your confidence on being able to get inventory where you need it to be by the end of the year or is there a good likelihood that some of this kind of spills into 2024?

Richard Tobin: Well, I mean, when we're talking about total inventory, we're talking about our own inventory, which we're in control of, which is reflected in the cash flow that we're signing up for, right? That takes, you know, a working capital liquidation, a big chunk of that is inventory. I think if you look at the 600 million of free cash flow during the quarter of a material chunk of that was our own inventory reduction.

Richard Tobin: But when we're talking about channel inventory, like I said before, where we've been, the channel inventory in a lot of our end markets has been coming down progressively over the year. And now, we're adopting a posture between now and the end of the year in certain businesses to allow that inventory to clear rather than try to push revenue into either channel inventory or OEM inventory. And because the only way you can do that is to start modifying commercial conditions and we're not doing that.

Richard Tobin: So, should it clear? We believe that we're on the front foot here. And.., and so we think we'll be in balance in kind of most of our end markets by the end of the year and then it just becomes a question of what does growth look like next year and how much confidence there is in the end markets of how much that channel and how quickly they build it back. But we feel good about the trajectory we're on so that it's an end of the year phenomenon based on current demand rates. Got it. Okay, that's that's helpful.

And then I guess just a real quick one on just 4Q in DPS. So I think you I think you called out, you know, flat growth and the segment. I said it just to quench the revenue down a little bit.

Richard Tobin: I'm curious is from a margin standpoint similar revenue to three similar margins of 3Q or how to think how do you think about the margins and 4Q for DPS. If they're either you'll be immaterial up or down. Right subject. Okay. Perfect. Thanks, guys. Thanks.

Brett Lindsey: The next question comes from Brett Lindsey with Mizzou Health. Please go ahead. Hey, good morning. Yeah, I just wanted to ask a question on the portfolio. I guess as you consider additional pruning, is there a way to maybe quantify what percent of revenue could be under review? And you certainly understand M&A is episodic, but are you seeking to, you know, find comparable sized acquisitions to offset or how should we think about this portfolio shuffle?

The portfolio, the whole portfolio was under review all the time. Look, no, look, we don't go around and say, you know, we've got a business that's got 200 million revenue. Let's go buy one or 200 million revenue. You know, we could orchestrate that. But I think that we've gone overbred a lot about where our priorities are. To the extent that we can make a change to our portfolio that we did without touching our balance sheet, I think is a positive. So to the extent that we could do that repeatedly, that would be great, but that is subject to a lot of timing differences or both in and out at the end of the day.

But just as, as an overall comment, what we did this quarter in M&A is what we would like to do progressively every year. Got it, makes sense.

Richard Tobin: Just shifting back to the heat exchangers and the destock in Europe and Asia, I guess does this slow the rollout of some of those capacity additions or change the way you're, you know, at least thinking about the near term from a capacity standpoint? And then what is your level of visibility there in terms of these imbalances that have maybe skewed more negatively here? No, I think the capacity is coming on sequentially.

Richard Tobin: These are highly automated plants, so it's not like we've got a ramp employees. They're almost blackout plants at the end of the day. We needed to stand in capacity. Remember, heat exchangers is 40% over the revenue. So I get it's getting a lot of headlines, and that's why we wanted to address it. Our visibility, as I mentioned, is not great because it's an OEM cell mostly for us. So up into the point where they decide they want to slow down, that's when we find out, and the slow down that we've been called out.

Richard Tobin: For the balance of the year, manifested itself over the last 45 days or so. So are we worried about the capacity investment? Absolutely not. We think that the technology is fundamental. It's going to grow over time. There's been a massive amount of capacity in heat pumps that's been announced and always seems a little bit implausible. So I think at the end of the day, the market reset is going to be on the finished goods not so much on the consumption of the heat exchangers.

Okay, great. Appreciate the answer. Thanks.

Julian Mitchell: The next question comes from Julian Mitchell with Barclays. Please go ahead. Hi, good morning. One element I just wanted to circle back to in context of the inventory discussion is around the free cash flow margin guide. So I think that it's very high still for this year, but maybe moved down a little bit and that despite the good progress on the inventory liquidations that you cited in Q3. Maybe just any sort of color around the moving parts inside free cash flow and it has been very volatile.

Julian Mitchell: So any sort of thoughts on maybe next 12 months as it's more sort of normalized. Well, it's been volatile only because of the amount of demands that it was there and to meet that demand, you had to basically an expansion of everybody's balance sheet from an inventory point of view. I think that we put out the the guidance to this year. We basically said, you know, now there are more normalized market that we were going to bring inventories down.

Julian Mitchell: I think we're making really good progress on raw materials. I think by cutting production in Q4, we should clear whip and finish goods, then it's all about receivables from here to the end of the year. I see. And so receivables was kind of the main delta on the change in the free cash margin guide. Well, it's part of it, but as we went, if you go back and look at what our commentary has been over the course of the year, we've indicated that, you know, it's tough to bring inventories down, but we did that in the Q3.

Julian Mitchell: We see that continuing into Q4 as we look back, you know, and the actual good performance in Q3 receivables given the timing of sales actually built in the quarter a bit. So that liquidation is due to come here in the fourth quarter. And I think we'll see very robust cash flow again based on the commentary that we already provided that fourth quarter is always seasonally strong. But I think given the actions we're taking, it'll be even more robust in line with our guide. Yeah, between cash flow and the proceeds of the disposal of the disposal, which will receive in Q1, we're in a very healthy cash position. That makes sense. Thank you.

And maybe just to follow up on the question around the sort of the sales outlook. So I think it's very clear and the right thing to do that, you know, sort of underselling into the channel, if you like, short term to make sure channel partners have low inventories entering the new year. You know, when you sort of take that comment plus the and improvement in some orders, figures you've seen recently. Does that make you sort of confident around the revenue growth outlook despite what the backlog has done?

And so we should sort of take the low inventories in the channel plus the orders movement. That's a better determinant of sort of failed into early next year than perhaps what the backlog has been doing recently. Yeah, I mean, at the end of the day, everything that's in our control for 2024, I think that we're taking the right move. So we discussed managing channel from an inventory point of view. The reason that we highlighted some of the investments, we think that those are growth vectors that those businesses are going to grow despite the macro.

That they're not subject to kind of general sentiment at the end of the day or interest rates or anything else just because we've got a demand there. So yeah, I mean, look, we're, you know, knock wood, we're feeling positive about our setup going into 2024 based on how we've managed and we'll continue to manage 2023. That's helpful. Thank you.

Thanks. The next question comes from Dean Dre with RBC capital markets. Please go ahead. Thank you. Good morning, everyone. Good morning, Dean.

I was hoping to get some color on the retail fueling and it just sound like there was a bit of a disconnect between below ground and above ground below ground. I've seen to be feeling the effects of higher rates and maybe some destock, but you weren't seeing that above ground, but just can you square those, please? Sure. We had in 2022, we had a great year in below ground and a bad year in above ground.

So if you think about kind of the time it takes to build sites or refurbishment sites, you had kind of capacity that got built and then they finished the job on the top this year. Below ground now is in a bit of a headwind because of the fact that if you think about like a retailer, a retailer is going to spec in the product that they want at a fueling site and then going to go contract the installation and part of the problem is it's no longer labor anymore and it's no longer product availability.

It's the fact that those contractors need working capital loans in order to do these projects and the cost of those loans now is probably quintupled over the last year or so. It's very nice for everybody to be talking about 5%. 5% is a baseline. You're a contractor, you need a working capital loan, you're paying 9 or 10. And so that is putting a bit, a little bit of a drag in terms of getting that work done.

Number one, a number two, just a general comment as I gave the example before because a lot of that underground business, at least the recurring revenue portion of it is sold through distribution. The carrying cost of that inventory has gone up quite a bit and you basically see almost an over-liquidation of inventory in the chain because they know that our lead times are down low so they're taking the inventory down because they don't want to pay the carrying, at some point that's got to give, and we're not incentivizing through price or terms to push that inventory back into the system. We'll deal with that on the come when we get into 2024.

All right, that's real helpful.

And then just a follow up on the geographies, just the idea of what were the surprises and maybe you're seeing some of the macro begin to be felt on the US side was down seven percent. But, you know, what surprised you? I think that it's more and more, look, no one came into this year thinking that Europe was going to be robust. It hasn't been. I think that that CO2 systems and heat exchangers are running counter to that argument.

CO2 is actually performing quite well. The heat exchanger issue, like I said, up until 45 days ago, you couldn't make enough of them to supply heat pump demand. And that just came to quite a halt here. I think in a recognition that there's too much inventory in the chain. We were not very hopeful about China and China's been poor. And I think in the US, it's just the general. What I just answered, I gave you the example a second ago when the US, you know, you can't raise rates at the rate we're doing and not to have knock on effects in terms of the carrying cost. And that's what we're seeing now. Thank you.

Nigel Coe: Our final question comes from Nigel Coe with Wolf Research. Please go ahead. Oh, thanks, guys. Thanks for there were a fit me in. So, going back to the non-core kind of for the portfolio review. I mean, obviously there's a part of game about, you know, China gas switch, which, you know, assets might not meet the cut going forward. But the second was one of those assets that I think poorly seen as potentially non-core.

Nigel Coe: So I'm just curious, you know, given the decent growth of the very good margins, you know, what was it that led that asset to being sold? I think that the growth was OK, at least in my tenure here. The, you know, the end market exposure, both from the end market exposure and the geographical geographical exposure, we did not find attractive. Too much Europe, I think. Too much auto and too much Asian.

Nigel Coe: OK, too much Asian. OK, and then just on buybacks, you know, you did an ASL off here, you've got a fair amount of, you know, tax flexibility if you get your free cash flow forecast with the sale as well. I mean, any thoughts on buybacks at these levels? Yeah, I mean, look, buying back our stock at these levels has become very attractive. I think that, you know, we've got a lot of moving parts right here in terms of delivering on the fourth quarter of the cash flow.

Nigel Coe: And then we've got an outbound on the acquisition and an inbound on the disposal. After all that is settled, we'll clearly be in a very healthy balance position and I'm sure that capital return. Capital return discussion will become to the forefront.

Okay, leave it there, thank you. Thanks. Thank you.

That concludes our question and answer period and Dover's third quarter 2023 earnings conference call. You may disconnect your line at this time and have a wonderful day.