Dover Corporation (DOV) Earnings Call Transcript & Summary

Good morning and welcome to Dover's 2020 Analyst and Investor Meeting Webcast. In attendance from Dover Corporation today are Richard J. Tobin, President and Chief Executive Officer; Brad Cerepak, Senior Vice President and Chief Financial Officer; and Andrey Galiuk, Vice President of Corporate Development and Investor Relations; Karl Buscher, President of Dover's Pump Solutions Group; and Janel Wittmayer, President of Colder Products Company. [Operator Instructions] Today's presentation will include 2 videos. To all attendees who do not anticipate asking questions are encouraged to participate via the webcast link on Dover's website. As a reminder, ladies and gentlemen, this webcast and conference call is being recorded, and your participation implies consent to our recording. 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. Galiuk. Please go ahead, sir.

Thank you, Gigi. Good morning, everyone, and thank you for joining our virtual meeting today. This webcast will be available for playback on our website through December 11, 2020. Dover provides non-GAAP information and performance metrics, relevant definitions and reconciliations between GAAP and adjusted measures are included in the presentation materials, which are available on our website. We want to remind everyone that our comments today may contain forward-looking statements that are subject to uncertainties and risks, including the impact of COVID-19 on the global economy and on our customers, suppliers, employees, operations, business, liquidity and cash flow. We caution everyone to be guided in their analysis of Dover by referring to our Form 10-K and Form 10-Q for the second quarter for a list of factors that could cause our results to differ from those anticipated in any forward-looking statement. We undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. With that, I will turn this call over to Rich.

Thanks, Andrey. Good morning, everyone, and welcome to our Investor and Analyst Meeting. The purpose of today's meeting will be to focus on our Pumps & Process Solutions segment, which, as you know, has been performing very well over the last several years. In particular, we will deep dive into our high-growth biopharma business where we've made some interesting organic and inorganic investments recently and we see a long runway for profitable growth. When we initially planned this event, our intention was to have it coincide with the grand opening of our brand-new CPC facility near Minneapolis. But due to pandemic-related restrictions, a prerecorded video will hopefully give you a glimpse of how our new best-in-class manufacturing and engineering facility, coupled with some recent product acquisitions, position us to sustain and accelerate our growth trajectory. Moving on to Slide 3. Joining me today are 2 of our operating company presidents, both veteran operators with experience in driving growth and strong operational performance. Karl Buscher is the President of our Pumps and -- Pump Solutions Group, and Janel Wittmayer is the President of Colder Products Company. Today, I will provide a brief third quarter corporate performance update and then provide a high-level view of our Pumps & Process Solutions and biopharma businesses. After that, Karl and Janel will take us through more detail about their businesses. We'll do a brief Q&A at the end of the session. Okay. Let's jump into the quick corporate update on Slide 4. I assume most people in attendance are familiar with Dover. But those of you that are new to the name, we are a $7 billion supplier of engineered and differentiated industrial equipment, components, services and software to a verse set of attractive niche businesses or business-to-business markets. Our strategy of participating in new attractive markets, coupled with strong operating track record, attractive cash flow and active capital deployment, have historically resulted in superior shareholder value creation over long-term horizons. Despite the challenging business environment thus far in 2020, Dover has demonstrated relative top line resilience and an ability to flex our cost structure to preserve profitability. This performance has been augmented by our multiyear effort to drive permanent cost efficiency programs across our portfolio. With the confidence of continuability of our portfolios' companies to execute well in the covered -- current environment, we were one of the few multi-industrials to reinstitute full year guidance at the end of Q2. So let's go to Slide 5, and I'll give you a short Q3 update on trading conditions. Demand conditions continue to improve sequentially across the majority of our markets. Bookings, while negative year-over-year, are higher than our forecasted expectations and improving sequentially with book-to-bill turning above 1 in August. Also, our absolute backlog remains higher than this time last year, providing confidence of our revenue forecast for the full year. In terms of the individual business highlights, our aboveground retail fueling, heat exchanger, aerospace and defense and biopharma businesses continue to deliver robust performance. Demand conditions are constructive in marking and coding, food retail and vehicle aftermarket. Our longer-cycle businesses, such as plastics and polymers and can-making equipment, continue to track as expected with limited disruption or shipment deferment. Our expectation to deliver improved comparative margin performance in our refrigeration business remains on track. As a result of the Q3 top line trends, positive product mix, some of mix -- some of which we will highlight today and continued good execution on our cost control measures, we expect to exceed our internal modeled Q3 forecast embedded in our full year guidance, derisking any potential of unexpected demand dislocations in the fourth quarter. This provides us a clear path to achieve the top end of our full year guidance, which I would expect to be further refined at the end of Q3. So with that, let's move on to why we're here today. On Slide 6, we are providing an update on our capital allocation execution toward the priorities we outlined in prior years. We prioritized high-ROI and high-certainty organic investments to fuel growth and improve productivity. We've made significant investments over the last 2 years, and these strategic projects remain on track despite moderate supply or obstacles associated with the COVID pandemic. One of the largest organic investments by Dover was the new building for CPC to support growth. We are proud to announce the completion of this project, which provides CPC with significant growth capacity and an expanded set of capabilities. Janel will talk more about this today. Our investment to automate production of our doorcases in Richmond is progressing as well. We are piloting production, and we'll be gradually increasing volume through the next several quarters, driving improvement in our margin performance. Inorganic deployment of capital is in Dover's DNA and remains a high priority. We have a solid track record of driving value through bolt-on acquisitions. An important vector of our M&A efforts is enhancing our offerings to customers and upgrading our business mix through digital and software offerings and investments in markets with secular growth trends. All 6 bolt-on deals we have closed this year meet this criteria. Four are focused on software and digital offerings; and two on product line extensions of high-growth spaces. As we mentioned during the second quarter results, our M&A pipeline remains robust, and we are well positioned to continue enhancing our earnings growth through smart capital redeployment. Lastly, we remain committed to providing shareholder returns by regularly returning a portion of our strong cash flow. To this end, Dover has maintained its 66-year track record of uninterrupted dividend increases, and we will continue growing our dividend. Turning to Slide 7. This tees up why we want to shine some more light on our Pumps & Process Solutions business. This segment has been an excellent performer, both within the Dover portfolio and when benchmarked versus our peers. As we showed you last year after decade-long upgrading, our portfolio has demonstrated robust GDP-plus growth and margin accretion through cycle. Pumps & Process Solutions stands out against that solid backdrop. As you can see, this is one of the fastest-growing businesses with the highest margin profile and significant recurring-like revenue sources. We expect this segment to be the most resilient in 2020 as well, and they have a commendable margin performance year-to-date. Moving to Slide 8. We have 4 operating companies in the segment ranging in size from approximately $200 million to $0.5 billion. These are leaders in niche markets mostly focused on high-criticality flow control applications. From a business mix perspective, the majority of the segment is compromised of components that represent relatively small cost compared to the value in use and total cost of the system. Many of our technologies are proprietary. For example, CPC's portfolio includes 85 patents. And em-tec utilizes proprietary software in their flow controllers to optimize flow rates based on meter readings. Furthermore, contributing to the stability and predictability of these businesses are significant replacement demand and a sizable stream of parts and services after initial install. As an example, nearly 2/3 of the demand of our pumps comes from maintenance repair and goes toward replacing equipment in the field. Within our PPS segment, we have several high-growth subplatforms that have been under development for several years. One of them is biopharma, which we're going to talk about today. But there are also growing applications and offerings like renewable energy, thermal management, medical and hygienic. I'm not going to spend a lot of time on Slide 9 and will just point out that we have a number of product lines serving a variety of life science and hygienic applications that add up to roughly $300 million business, serving addressable markets of over $2 billion. On Slide 10, we show you how we think about the growth avenues for this platform. Our biopharma business is an excellent example of that. We developed it organically from an industrial connector offering, and Janel will talk about another great example of driving growth through thermal management applications. To support these aspirations, we invest almost $10 million a year in R&D across CPC and PSG, which drives our organic product development and our inorganic opportunity identification. Quattroflow is a great example. It offers new-to-the-world positive displacement pumping technology. We also have our sights set on more opportunities just like it. Lastly, we continually look for ways to enhance our offering to existing customers through complementary solutions that go hand-in-hand with our core products. em-tec is a great example, and Karl will talk about it later in the presentation. We believe we can continue to drive substantial growth through this framework. Moving ahead, let's dive into our biopharma business. We are really proud of what our teams have accomplished here, starting from virtually 0. We made a few targeted inorganic investments that seeded the platform, and the majority of the growth has come through excellent application of customer-centric organic growth levers. This platform is growing at rates well into the double digits and, at this pace, doubles in size every few years. This is why we're feeding this growth as smart organic investment is our paramount priority. We have moved Quattroflow to a new facility a few years ago and now have built a greenfield site for CPC to support their growth into the future. On the next few slides, we'll give you a high-level overview of our thesis for biopharma market participation and let Karl and Janel take us through a more in-depth look. On Slide 12, we lay out the growth drivers behind biopharma and single-use production technology, in particular. These drivers are well supported and have been playing out for a long time and, importantly, have runway to support future growth. First off, biologic drugs have been growing at a rate double that of traditional small-volume pharmaceuticals. They deliver successful novel therapies from multiple common elements. And share of biologics in pharma pipelines has been increasing with a steady stream of innovation coming out of the industry, including, recently, cell and gene therapies. Globally, the volume of biologics production is growing in double digits. Within biopharma, there are 2 main production methods, 6 stainless steel structures require deep cleaning after each patch and single-use production systems utilizing recyclable plastic components, where possible, such as bags, tubing, connectors and more recently, pumps. Single-use technology offers a clear operational benefits to producers and has been a technology of choice for the vast majority of new production capacity put in place, the results in single-use offering growing above double-digit base growth of biologics production. Additionally, the single-use nature of our products, essentially consumables, tied to the production volume as opposed to capital expense. On Slide 13, we show that we partner with customers across the whole value chain of drug development and production. We start collaborating early in the R&D process and development stage, and that makes our product the natural choice for manufacturing scale-up phase. Slide 14 is the last one we will cover before we get into the meat of the presentation. It's just a visual showing of the logic behind the platform we are building. As you can see, the offering we've built over time is not a random collection of products. We aim to participate in high-criticality components that operate on the same fluid path and often can be sold on the same-sale occasion and could be engineered to work together and make the overall system safer and more efficient. This visual shows our pumps, connectors and flow meters on a continuous chromatography system. Importantly, we operate an OEM-agnostic model that offers the most flexibility to our end customers. With that, I'd like to hand the presentation over to Karl Buscher to speak more about the biopharma business within our Pumps Solutions Group. Karl?

Thanks, Rich. Let me start by briefly introducing Pump Solutions Group. PSG is a global pump and dispensing solution expert, enabling safe and efficient transfer of critical and valuable fluids with revenue about $0.5 billion. Our end markets include chemical processing, general industrial, liquid and dry bulk transport, downstream oil and gas, commercial cleaning and the rapidly growing medical and biopharma space. I've been with PSG for the last 9 years and President of the business for the last 6. To begin, I'd like to show you a short video about our Quattroflow pump offering and our recent acquisition, em-tec. [Presentation]

So let's move to Slide 17 for additional detail about Quattroflow. I had recently joined PSG as a sales and marketing leader when we acquired Quattroflow in January 2012. So I've been involved with the Quattroflow journey from the beginning. It has really been exciting to lead the organization that drove the growth of this nascent new technology and overcome the obstacles that often accompany scaling up a small business. The Quattroflow business has grown tenfold since we acquired it, and we continue to see strong growth momentum going forward. On Slide 18, we highlight some of the advantage of this innovative patent protective technology. These pumps produce low-pressure pulsation and consistent flow for the gentle handling of critical fluids under dynamic system pressure conditions. The ability to maintain cell viability at the customer's desired operating conditions improves yields and optimizes processing times. Other pump technologies are not as effective at higher system pressures. And as a result, Quattroflow has been able to stake out a share in highly sensitive bioprocessing applications. When we first acquired the business, only a couple of pump models were available and the flow range was severely limited. In addition, very few customers have tested and accepted the technology into their systems. Under Dover ownership, we've grown the business by focusing and investing in creating a scalable product line while working with our OEM channels and end customers -- end-user customers to drive industry specification. This has led to a great increase in the addressable market opportunity for the technology. We also have been rapidly expanding manufacturing, clean room capacity and supply chain to meet the growing customer increasing demand. On Slide 19, we show the current Quattroflow product range. The first model developed was the QF1200. And over the past 8 years, we've expanded the offering of both multiuse and single-use models to increase the applications we can serve. The scalability of the product allows for the pump to be used in early R&D and process development stages as well as into full-scale commercial manufacturing. This gives us an advantage as we partner with customers very early in a drug's development. During the R&D stage, we showcased the benefit of our technology and what it will provide throughout the life cycle of the drug. Moving to Slide 20. Here, we highlight various bioprocessing applications where you might see Quattroflow. Bioprocessing is a complex multistage process that has varying system requirements throughout the process, Quattroflow's core applicability in downstream bioprocessing and is well-established in chromatography and filtration applications. We are also finding success now in other applications where end users are requiring improved flow accuracy, more process control and reduced processing times. Let's switch gears a bit and talk about em-tec on Slide 21. We acquired em-tec earlier this year and have already seen positive results from the integration to our platform. em-tec roots are in flow metering in medical applications, in particular, heart and lung machines, life support machines and dialysis. Prior to the acquisition by Dover, they had successfully entered the biopharma space with their noninvasive flow meters, and we started noticing the product being adopted by our customers. That's where we realized the opportunity to help em-tec accelerate growth through our global sales channels, but also to integrate the pump, flow meter and process controller to deliver even better flow control solutions to our customers. You can see this business has a nice growth trajectory, doubling in the past 4 years, and we will help improve that trajectory. Slide 22 provides an overview of the em-tec technology and product offering. The em-tec flow meters use ultrasound to measure the rate of fluid flow noninvasively. The sensor's clamped around the outside of the tube. This noninvasive flow measurement technology is a great fit for medical and bioprocessing applications where there are 0 tolerance for contamination. The noninvasive design also allows for quick and easy installation and has a compatibility with a broad range of tube sizes and materials. This, in turn, gives the customer flexibility in R&D during process development and when designing full-scale production. em-tec supplies clamp on transducers, flow measurement solutions and embedded in-house developed software for a broad range of application needs. em-tec can supply a single flow measurement device for a laboratory environment or can provide a complete flow station for multiple commercial-scale processing units. For end customers -- end-use customers who desire more accuracy and/or an all-in-1 clean room package tube set solution, we are now developing a truly single-use flow measurement device. On Slide 23, we show both the key bioprocessing applications currently addressed by em-tec meters and prospective applications we are targeting. [ In ] Quattroflow, the technology can be used throughout the life cycle of a drug. em-tec's standard offering is currently well positioned to penetrate upstream process development applications and downstream chromatography, filtration and filling applications. As biomanufacturing processes become more sophisticated, end users need to improve the control of their manufacturing processes, and we believe we are well positioned to help meet customer flow-sensing needs. Hopefully, you can tell that we're really excited about our future in the biopharma market, and we see a clear runway to continue innovating and expanding our addressable market. Moreover, we have our sights on other opportunities like em-tec to grow inorganically in this space. Thank you for listening to our story. I'll now hand over things to Janel.

Thanks, Karl. We'll now transition to Colder Products Company. Let's begin on Page 25 with a quick CPC profile. We are one of the smaller operating companies at Dover, but one of the fastest-growing for a reason. Fitting into that Dover profile that Rich talked about, we supply highly engineered connectors for biopharma, medical, industrial and thermal management applications. We make sterile connectors for the biopharma market that are single-use and thousands of other low-pressure companies, many of which are used in medical applications that are also single-use. And the beauty of our business model is for many of our customers, we are designed into their equipment from the beginning, so there's an annuity, a recurring nature there. Dover acquired CPC in 2005, and the business has grown fourfold since then, making it a really nice growth story that I will tell you about today. But to begin, let's talk about our recent facility expansion. We're really excited about our new building. CPC had been stationed across several buildings and the setup was operationally not very efficient. Plus, with the growth we've experienced, we were bumping literally into physical capacity limits. And since reliability of supply is paramount in this industry, it was imperative for us to expand. We now have the capacity to double and triple production. Additionally, the facility includes a large clean room, larger and redundant to another nearby that we will continue to keep operating. This will accommodate spikes and growth in demand like the one we are seeing during the COVID vaccine development sprint. Now let's take a look at the video featuring our new building. [Presentation]

And we are primed for growth. On Slide 27, you can see the evolution of our product design in the markets we serve. From CPC's founding, we have earned the reputation as the innovative specialist supplier of high-performance couplings and connectors. And our current portfolio of over 85 U.S. patents is a testament to that. And that reputation has led customers to turn to us when they have a new challenge in their equipment design. And that's what got us into the biopharma business when in 2002, a customer asked us to figure out a way to connect a disposable bag to a stainless steel bioreactor. That's when we launched Steam-Thru. In 2009, building on some early traction, we launched AseptiQuik, which enables sterile connections in nonsterile environments. With that success and intimate knowledge of the industry, we knew we could score with the genderless AseptiQuik that offers increasing operational efficiency and flexibility. From that introduction in 2013, it is now our fastest-growing product line and opening avenues for growth in our other aseptic products. What seems like a simple product from the outside is really decades of R&D and intellectual property that make customer demanding applications perform flawlessly. As you can see, the story of CPC growth is really a story of continuous customer-centric innovation based on market knowledge and pushing the boundary of where our technology can be applied. A bit more about leveraging our industry knowledge on Slide 28. Our biopharma business unit is a great point -- at a great point in its growth story. We are well positioned with leading drug manufacturers and OEMs who drive the specification to use CPC products in their production processes. We are prepared to participate in the next waves of innovation and production of vaccines, cell and gene therapies as well as feeding continuous growth in single-use applications. We also have a material presence in various medical applications that involve transfer of fluids, which can be gases or liquids, such as dialysis, ventilators, laser surgery systems and disinfectant systems. These applications have secular growth tailwinds behind them as well. Our next growth frontier is thermal management where leak-free sealed connectors are required in a variety of demanding applications, such as data centers and electrical vehicle charging. Traditional HVAC methods are insufficient and liquid cooling is a technology of choice. Whenever you have liquid transfer in a constrained electronic environment, leaks are unacceptable and robust non-spill technology is enviable. We will touch on this industry in a few slides. Turning now to Slide 29. We'll discuss CPC's biopharma offerings and why we win. In short, connectors and couplings are all that we do, and our cumulative application expertise and investment are second to none. Quality of the product, ease of use and reliability of supply matter greatly in this industry, especially with the significant growth. We meet those criteria and another key consideration in the industry. Most connector suppliers also compete on integrated systems with the very OEMs that are looking for connectors. Because we make connectors, we are not competing on other product lines to be included in a specification set. We call this being market neutral or OEM agnostic. Choosing CPC has been an easy proposition. There is the reputation for quality and reliability. And then the choice isn't complicated by price or supply bundling, other components decisions. We -- that -- to that, add the benefit of the fact that many of our AseptiQuik connectors are genderless, which reduces inventory costs and simplifies operator training. Our growth strategy is built around both push and pull marketing. We're a recognized leader in the space, so we are often pulled into new customer opportunities through our extensive distribution network. However, we also maintain close relationships with end users, and our partnerships allow us to stay on the cutting-edge of innovation and push new applications to grow the market opportunity for our connectors. These close ties with both distribution partners and end users position us to win the spec or get in at the beginner -- beginning of a customer's development cycle, creating a loyal customer and strong partnership for years to come. The mantra, win the spec, is embedded in our culture and is a significant driver of our growth. Turning to Slide 30. We'll now talk about the opportunity in thermal applications, which shares a number of parallels with our biopharma business about a decade ago. We had developed technologies over the years to service this sector with the growth in computing. However, similar to our biopharma business, our business really took off when a customer approached us for a customized solution that use liquid coolant because air-conditioned cooling was no longer an effective option. In creating the product and developing industry know-how, we quickly learned there was a significant commercial opportunity, and we were able to broadly market our technology to other customers in the space, including data centers and cell towers. With our close partnerships with end users, we not only have a seat at the table, but are at the forefront of driving innovation in the space, including a move toward thermoplastic connectors from the traditional brass and stainless steel. We are very excited about the potential for this business line. With that, I'll pass it back up to Rich for wrap-up.

Thanks, Janel. Thanks. So I hope this short overview gives you a flavor of what we're building in the biopharma space. This business is less than 5% of total Dover revenue. But with organic growth rates we've been achieving with the -- and additional investment, our aim is to triple this business in the future. I hope the examples we provided demonstrate how we organically expand our addressable markets and take our products into new applications. Also, we wanted to underscore the importance of long-term value creation potential from smaller inorganic bolt-ons, which may seem unimpressive at first but can drive substantial growth, leveraging the scale and synergy of being part of a larger enterprise. We will continue investing behind this platform and other similar high-performing businesses at Dover, and we believe that it will create significant value to show our shareholders in the future. So thanks for your time today despite not getting to visit the facility that hopefully, we can soon. Now we'll open it up to Q&A, Andrey.

Gigi, let's move on to the Q&A.

[Operator Instructions] Our first question comes from the line of Steve Tusa from JPMorgan.

Thanks for making this interactive. It's great to be able to chat a bit about this stuff. Just curious as to -- I'm -- I have -- I got to go back and see how much you paid for Quattroflow. Can you just remind us of what kind of returns you're getting on this deal? And when you look at kind of the one you just did, the em-tec deal, with this type of growth, what kind of cash-on-cash returns that you're going to get? They seemed like they're very high-return types of things that they're growing this fast?

Sure, Steve. I mean you know that we have a hurdle of 10% return on invested capital for inorganic investments. I mean Quattroflow was done some time ago. But with the growth -- and we haven't calculated it recently, but with the growth rate and where it is from a margin profile, I can pretty much guarantee that it far exceeds that return threshold. em-tec is new based on what we can tell. I mean I don't want to put Karl in the spot to forecast over the next 3 years for em-tec. But our expectation, again, because of the margin accretion and because of the underlying growth that we can expect in the space that, that one will also significantly exceed the 10% return on invested capital threshold in 3 years.

How much did you pay for that one again, em-tec?

We didn't say. I think you're going to have to go look at our disclosure at the end of the year. It's not a lot, I'll put it to you that way.

Okay. I'll have to expend the effort then.

Well, look, again, it's -- yes, I know it's -- oh, go ahead. Go ahead.

When you mentioned -- you talked about some of the better markets early on in the presentation. Maybe if you could give us an update on some of the ones that you were a bit -- that had a bit less visibility. I know food retail was one that was uncertain. Maybe there's waste handling. Just maybe on some of the more questionable markets, where you stand on those.

Sure. Embedded in the -- I think that what we said at the end of Q2, that was embedded in our full year forecast was for food retail and textile digital printing to remain -- trading conditions are going to remain difficult through the end of the year. And I don't think that we're going to change that stance between now and the end of the year. So those 2, in particular, are down significantly. I think that we've done a very good job in the 2 particular segments that they participate in of offsetting that loss of profits through better margin performance. And I think that in the printing and ID side, we've done really well in terms of the margin performance largely as a result of some cost-cutting and good mix that we're getting out of the consumable side. So we've done well there. And despite the fact that food retail we are projecting to be remain subdued, we expect the segment margins in DRFE to actually improve between now and the end of the year driven by better margin performance out of the refrigeration unit in Belvac.

Okay. And then one last one, just on the details. You guys said that this biopharma and hygienic business is like a $300 million business. You said it's about 21% of sales. That gets you about $300 million spot on. That gets you to north of $1.4 billion in sales. That's up year-over-year. I don't think that's necessarily what you're trying to say. There's probably some rounding going on. So is this the business, though, the Pumps & Process segment, that can kind of claw back to flat by the end of this year?

That was a really complicated question. I think that you misunderstood a portion of it. I think that we're saying that it's $300 million in total. I'll go back to the slide here, so I don't misstate anything. That if we go to slide -- where is it?

Yes. It's Slide 9.

Yes. Yes. It's a $300 million platform on Slide 9.

Yes. And then Slide 8, it's 21% of sales.

Well, it's $300 million in total. And the biopharma and medical piece of that $300 million is a piece of that $300 million. 20% of it. So 20% of the $300 million, and that's the part that's growing at double digit.

Okay. Got it. So this segment in total will still be down this year, revenue-wise?

This segment in total will -- I don't think that we've given forecast on the segment itself because this is a subsegment or a subplatform.

Total segment.

Yes. This subplatform will be up year-over-year. I think what we said in terms of the segment goal or PPS is we made no comment on revenue, but we are aiming to despite having some headwinds on the precision components side of delivering year-over-year full year profit increase.

Our next question comes from the line of Scott Davis from Melius Research.

Rich, are your M&A deals more likely to be in kind of your higher-margin segments? Or -- I mean, clearly, probably a couple of businesses that you don't have an interest in, but are you filtering down deals based on what your current business mix looks like? Or could you add a new platform?

I don't think that -- I think that we would add -- I would consider this a subplatform, right? And part of the reason that we wanted to do this presentation was to solve for 2 issues. One was we got a little bit of stick back in 2018 about going into a capital-intensive phase. And we said, "Well, look, you know what, there's nothing wrong with organic investment." And one of the investments we called out was a greenfield capacity expansion in a high-growth area that really our view was not a lot of investors knew about. So today was to kind of give more color around, "Here is a subsegment. Our Pumps & Process Solution is not just all industrial pumps. And as you can imagine, the questions we answer all the time about oil and gas exposure and blah, blah, blah." So this was something that we'd like to highlight because we want higher returns, and we're trying to invest smartly behind growth. So I don't envision us creating a new segment in total. The 5 that we have are broad enough. We'd like to create subplatforms within those segments.

Okay. Okay.

Again, at the end of the day, this -- yes, this got big enough. Clearly, 5, 6 years from now, you could split it in half again, but I don't see that right now. But go ahead with the question for Janel.

I know this is a new ship, but if -- is there -- Karl and Janel, can you give us a geographic breakdown of your businesses? And perhaps just clarify whether -- what's your direct versus through distribution?

Yes. Thanks for the question. This is Janel. Geographically, about 60% of our business is in North America and the rest of our businesses, the rest of the world -- distribution as an overall CPC business is about 55% of our business is through distribution and the rest of it is direct.

This is Karl. So roughly half of the business is in Europe. The Americas is our next largest region and then Asia. And we're split about 50-50 with direct and distribution.

Our next question comes from the line of Andy Kaplowitz from Citigroup.