Dover Corporation (DOV) Earnings Call Transcript & Summary

Good morning, and welcome to the Dover Fueling Solutions' 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; Andrey Galiuk, Vice President of Corporate Development and Investor Relations; David Crouse, President of DFS, Kevin Long, President of OPW. Today's webcast will include multiple video presentations, so all attendees are encouraged to participate via the webcast link on Dover's website. After the presentation, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this webcast and conference call is being recorded. And your participation implies consent to our recorded. 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.

Thank you, Dylan. Good morning, everyone, and thank you for joining our virtual meeting today. This webcast will be available for playback on our website through February 17, 2021. 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 in 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 third 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 thank you for joining us today for the second iteration of our business deep dives. We are pleased to talk to you today about our Fueling Solutions business. I'll begin with a high-level overview of the business and our strategy and then let our business leaders walk you through what we believe is a compelling value creation story. Joining me today are 2 of our seasoned operators, David Crouse, who leads our Dover Fueling Solutions operating company; and Kevin Long, who leads OPW. Let me clear out some potential terminology confusion before we get started here. We have an operating company called Dover Fueling Solutions led by David, which supplies above-ground equipment and software solutions. We didn't help ourselves by naming the segment Fueling Solutions, but to avoid confusion we will use Fueling Solutions, our segment, when referring to the segment and DFS when referring to the operating company. So let's start with Slide 5. As you know, Dover's industrial portfolio consists of a healthy diversity of end markets and geographies. This has been a great asset to us in the recent downturn. And we believe this model will continue to be value creating in the future. The Fueling Solutions segment about 20% of our total revenue. And there are a number of factors making this a very Dover-like business. We will demonstrate in the presentation that the businesses have many positive attributes, diverse product lines, geographic revenue balance and attractive market structures. Additionally, there are a number of logical adjacencies around the Core Fueling Solutions segment that we already participate in, and we believe new adjacencies will emerge as the large and healthy customer base evolves into the future. In brief, Fueling Solutions is a truly global operation with an attractive financial profile grounded in an innovative product portfolio of proprietary technologies supported by more than 1,600 global patents. The business mix within the segment is also diverse with attractive profit pools. Dispensers represent less than 40% of the total revenue, and the total core fueling capital equipment is less than 60% of sales. We already derive a substantial share of revenue from aftermarket and systems and software as well as adjacent offerings like vehicle wash, which will be significant growth platforms into the future. Our portfolio has been purpose-built, and we believe that we have the broadest set of solutions available to the global convenience and fuel retail market and adjacent vehicle wash, critical fluid transportation and fleet fueling markets. This breadth of participation makes us an indispensable partner to our customers and puts us in a position to participate in emerging business models as the convenience retail infrastructure continues to evolve. Today, we organize and manage the businesses in this segment along several product lines and end markets. As you can see on the page, intuitively, you can see that there are significant opportunities, particularly in systems and software, to provide integrated solutions across the product portfolio. If you follow Dover closely, you know this management team has delivered commendable performance over the past few years. Revenue grew at 10% average rate in 2018 and 2019, and we are on track to achieve nearly 500 basis points of margin improvement for the segment, exceeding the targets we established in 2018. Much of this margin improvement is the synergy captured from the deals executed in 2016, but more importantly, we still have clear margin improvement path to continue to execute. The industry has experienced a slowdown this year, primarily caused by a slowing in China where double-wall compliance was largely achieved last year, resulting in a $50 million regulatory revenue headwind for us. The balance of the decline has been caused by COVID and its disruption to demand and ability to conduct normal business, but we remain bullish about our future prospects. The future opportunity in this market is significant with an addressable -- total addressable market of $12 billion. While our core market is retail fueling, we also serve sizable adjacencies outside of retail fueling, such as fluid transfer and vehicle wash. The core fueling equipment demand is expected to grow in low single digits, and we expect the systems in software and vehicle wash markets to grow in mid-single digits. Alternative fuels such as CNG, LNG, hydrogen and electric charging represent the smallest market today but will grow relatively faster over the next decade. And my colleagues will present today the strategies for winning the share in this sizable TAM opportunity. We expect the core equipment market to grow in low single digits as the global car park and fuel consumption continue growing for the next 15 years, driving the need for new, improved and safer infrastructure around the world. This growth will be augmented by additional environmental regulations and continued consolidation across our customer landscape, which we see as an opportunity rather than a risk to future volume. Consolidation by customers typically bring site upgrades and remodels where margin mix is attractive and larger operators tend to be also be more sophisticated in deploying digital solutions which are high-value reoccurring revenue streams. We are well positioned to participate in these trends, which our 2 leaders will cover in their presentations. Overall, we will be opportunistic with capital deployment in the core equipment markets, and we will continue diversifying the fluid transfer components business. Next, we'll build out adjacencies where we have already strong positions. We are a leading supplier of vehicle wash systems in the U.S. and will capitalize on the secular growth and expand our participation in that space. Systems and software that operate fueling sites and convenience stores, where we're still in the early stages of adoption are -- and are evolving rapidly. We have a strong position here and the business is over $200 million in size today. Our #1 capital deployment priority will be investing organically and inorganically to drive long-term growth as these solutions will serve the global installed base. And finally, we're keeping our eye on emerging sources of value in our markets, alternative fuels like compressed and liquefied gas, hydrogen and electric charging are the most obvious vectors. We do intend to capitalize on these value streams, and we'll share more of that strategy today. In addition, we believe that convenience retail format and business model will continue to evolve in the end and their key asset is their convenient location, which can be monetized in a variety of ways. As such, technologies that help retailers increase and monetize traffic and improve operational efficiency will continue to evolve, and we intend to participate in those over the long term. In summation, we intend to invest behind the segment to maintain our technological edge and competitiveness, which underpin the strong financial profile it delivers. We'll also pursue growth avenues already on our radar and continue repositioning the business longer term towards revenue streams that are less dependent on capital replacement cycles and fueling equipment. With that, let's get on to the meat of the presentation. I believe that you'll find that we have some interesting initiatives and opportunities, which will deliver significant future value to Dover. So I'll hand it over to David here.

Thanks, Rich. Good morning, everyone. This is David Crouse. I'll begin with an overview of key long-term tailwinds in our core fuel and convenience retail space. Before I dive in, though, I want to say a few words about our customers. They are first and foremost retailers with high-value real estate assets that capitalize on their convenient locations and customer traffic in a variety of ways. In fact, a typical customer site derives approximately 30% of its profits from fuel sales, and the rest from store sales, carwash and other services. The set of products and services offered by retailers will continue to expand. This is important because our playing field is not just fueling, the customer's whole ecosystem, and we will continue expanding our solution set to serve our customers' critical applications and helping them run their overall retail business efficiently. This also shapes how we view our value proposition to our customers. We don't just sell fueling equipment, but rather tools that attract and engage their consumers in a safe and revenue maximizing way. Our solutions improve the economic efficiency of their operations. In short, we saw higher revenues, lower costs and better safety, and we will showcase some of these examples today. We expect the following 5 secular trends to support growth over the coming decade or 2. And I'll elaborate on each of these in the subsequent slides. First, the global car park with increasing consumption of both traditional fuels and alternative fuels will grow through at least 2030. Second, the convenience retail landscape will continue consolidating around more sophisticated operators, and that benefits our business through demand for upgrades and demand for cutting-edge solutions. Third, evolving regulations around environment, payment and security and safety will continue to get more stringent around the world, and we supply compliant solutions for all of these things. Fourth, a shift towards automated car washes, which will continue to grow for the foreseeable future, driven by environmental regulations, convenience and labor economics. And lastly and probably most importantly, the convenience retail industry, which has traditionally been less sophisticated in the digital realm compared to other retail formats, will accelerate the adoption of new digital technologies that drive revenue and efficiency. All 5 of these trends will drive growth over the long term. First, the most important driver for our customers and for our business are total car park, miles driven and fuel consumption. It's not necessarily new car sales. We've done a study of all the forecasts out there, and the majority seem to project battery-powered vehicles to represent about 30% of new vehicle sales by 2030, with the majority still being combustion engine and hybrid powered. With approximately 1.5 billion automobiles on the road today and the increasing lifespan of modern automobiles, the expected shift in the mix of this large car park will happen slowly and gradually over decades. There are, of course, multiple uncertainties around the future of forecast of electric vehicles such as cost of batteries, government subsidies, supply chain constraints around rare earth minerals for battery production, battery recycling. And lastly, the power generation required to produce electricity to power all these EV vehicles. Based on all these things, most experts foresee at least another decade or 2 of growth in the core infrastructure that we serve, and then many decades, where fueling infrastructure will continue serving the traditional car park and gradually evolve to include new sources of energy. Let's move on to the customer base we serve. Convenience retail is a healthy and growing industry. As you can see, the number of locations is growing and is expected to increase significantly in the developing markets. Our customers see favorable sales trends and improving economics, making investments in new facilities and upgrades a strong return on investment opportunity for them. The margins on fuels and in-store sales are increasing, and in-store sales are growing well above sales and general retail. And this is why you see many large players in convenience retail continuing to invest in their sites, and we expect that trend to continue in the long term. Another important dynamic in our industry is growth of chain operators around the world. There are multiple chains not affiliated with large oil companies and that are expanding their presence both organically and inorganically. The consolidation is around more sophisticated retail operators that are highly interested in technology and solutions that drive revenue and create operational efficiencies to keep their costs low. And this is exactly where we are going with our dispenser technology and our solutions suite. We are focused on enhancing the customer experience and providing cloud-deployed applications that improve efficiencies and drive profitability. On this slide, you can see an illustration of positive capital deployment trends based on the data from 4 publicly traded convenience retail operators in North America. When these operators acquire properties, they tend to upgrade them to modern standards, and most of them also have a robust new-to-industry construction pipeline. There has been a number of announcements in just the past few weeks around new M&A and also increasing organic capital deployment outlooks from many of these players, and you can see those announcements online. We believe that current industry fragmentation, favorable economics and robust return on investment on capital deployment will support the trends towards industry professionalization well into the future. Let's briefly touch on a few additional important trends that support the growth of our business. First, regulations around the world continue to become more stringent around the environment, payment and security and safety. We expect a steady deployment of regulations to continue over the long term. Another trend is the shift away from do-it-yourself car washing to the use of automated car washes. Automatic car wash systems use significantly less water than do-it-yourself washing. Additionally, modern conveyor wash systems offer much more favorable economics for operators compared to full service manual washes, especially in high labor cost locations. Our convenience retail customers view carwashes as a very important profit driver. All of these factors are driving stable growth and demand for automated car wash systems, and we see continued long-term growth in this market. And lastly, adoption of digital technologies in convenience and fuel retail is still in the early stages. The return on investment of our solutions is very clear, and we expect the adoption of these new technologies to continue to grow for an extended period of time. Plus new solutions are being developed, especially around customer loyalty and engagement. And we are going to showcase some of these exciting examples later today, including our partnership with Microsoft to bring the latest cloud technologies to our industry. The last slide in this section shows how the large installed base we serve will continue to be a source of value over the long term. We expect both dollars per site and number of the sites adopting these various solutions will continue growing in the future. A typical modern fueling site requires approximately $450,000 worth of equipment, with approximately half of that for the car wash system itself. Most equipment is replaced every 8 to 10 years and is driven not just by wear and tear, but also due to technological advances, making modern equipment more productive, safer and cost-effective. We will show you examples later. Largely the same but scaled down equipment base will be required when retailers begin adding electric chargers, which in itself represents a separate revenue opportunity. We expect operating expenses and recurring revenue to grow in the future as solutions and software are adopted to further digitize and improve retailer operations. For example, today in North America, car washes are present at about 10% to 15% of fueling sites. We expect that number to grow as car wash represents a great profit center for operators. Rapid growth is expected, and the number of sites adopting software technologies as solutions outside of payment and back office are still relatively nascent. We will now get into more detail on specific products and solutions. We will begin by showing you a short introduction video showcasing our portfolio of products and solutions. [Presentation]

We will start with our largest product line, above-ground dispensing equipment. We operate 2 of the world's leading brands, Wayne and Tokheim, both with more than a century long legacy of innovation. Wayne is stronger in the Americas, and Tokheim is stronger in Europe, Middle East, Africa and Asia Pacific. In terms of products, we offer traditional 4-core dispensers as well as dispensers for fleet fueling applications and for LPG, liquefied petroleum gas, and CNG, compressed natural gas. We currently offer our customers electric chargers through strategic partnerships with ChargePoint in the U.S. and with ABB in Europe. Our strategy to drive growth above and beyond market growth rests on 2 pillars. First, continue to innovate and offer our customers cutting-edge revenue-maximizing solutions that drive equipment upgrades beyond normal replacement cycles. Our latest dispenser with an enhanced user experience technology is a good example of such innovation, and we expect it to drive healthy growth in the coming years. This is a proprietary technology with over 100 global patents and patent applications. Second, we have runway to continue improving our margins. Since Wayne and Tokheim were brought together in 2016, we have executed on many operational synergies. However, there are a lot of remaining opportunities to harmonize product platforms and technologies to drive vast efficiencies on a global scale. In our business, we also have a well-developed rhythm of driving continuous improvement and execution excellence. Our margin performance in the past few years is a testament to those capabilities and gives us a lot of confidence for continued margin expansion into the future. Since innovation is so important in this business and a major driver of value creation over the long term, I want to illustrate the power of innovation by comparing dispensers that were brought to market around 20 years apart. You can see the evolution in the technology content. The Ovation dispenser with our Anthem-enhanced user interface on the right is a vast upgrade versus the model from the late '90s on the left. Our state-of-the-art dispenser includes a cutting-edge customer engagement technology that is important to driving a retailer's top line, increasing fuel throughput, offering multiple compliant payment options and connectivity enabling advertising optionality, remote monitoring and operational optimization. This kind of innovation drives replacement demand at much higher average selling prices. Our competitive differentiation in the dispenser business today is much more centered on software and intelligent machinery versus legacy pumping and flow control technology. To wrap this section, we will show a short video showcasing this enhanced user experience technology. We hope you get a chance to experience one of these dispensers in your own neighborhood sometime soon. [Presentation]

Let's move to the next slide of business on Page 27. We are proud of the business we've built around software and solutions that power modern convenience, retail and fueling operations. This is approximately a $200 million business for us and encompasses payment solutions and a variety of forecourt management solutions. Our offerings help customers maximize revenue, reduce cost, and ensure safety and compliance. We'll show you some examples of this shortly. Convenience and fuel retail is a complex, multifaceted operation where uptime, safety, speed and consumer experience are keys to success. Connected and digital solutions are evolving to improve operator's performance across the whole site, from underground infrastructure to above-ground equipment, in-store equipment and car wash. DFS today offers a leading portfolio of solutions focused on payments and forecourt management. The applications you see in blue are within our portfolio today. The ones in gray are where we're pursuing partnerships with third parties. There are also many evolving applications we are developing. We do intend to become an end-to-end digital and equipment solutions partner to our customers. We believe that the software and solutions demand in our market will continue growing and mid- to high single digits over the next decade and beyond, increasing to over $10 billion in size. This will primarily be driven by adoption of digital solutions as they become core to remaining competitive as a retailer. Industry consolidation around more sophisticated operators will also support this trend, as mentioned earlier. Additionally, new applications will continue to be developed, in particular, around customer engagement and customer loyalty. You can see how modern technology embedded in our equipment unlocks a whole new layer of possibilities here for our customers. Lastly, the drive to standardize and integrate disparate solutions will favor broad line suppliers. Operators will favor single-screen solutions to manage their workflows and business and have one support number to call as opposed to picking various applications with narrow functionality. So think of this as a single operating system for the site. Let me show you a preview of the cloud platform we are building that we envision will become the single operating system for the site. DFS has partnered with Dover Digital and with Microsoft to develop a new, truly unique cloud platform specifically tailored to our industry. We have not yet officially introduced this to the world. Today, we're giving you a preview. Our edge device will enable operators to connect all sorts of equipment and devices at the site. This will streamline workflows and allow operational optimization by providing a single-pane view and data compatibility. The platform will be a true cloud solution that will speed up and simplify deployment and upgrades. The platform will also be unique in that it will be an open platform that allows operators to connect their preferred solutions. So think of it as an Android-style open platform compared to Apple's closed iOS platform. Teams from Dover -- from DFS, Dover Digital and Microsoft brought to table cutting-edge capabilities, including machine learning and AI-powered solutions to create these operational optimizations. The following video will showcase some of the benefits and capabilities of this new platform, and how it can advance our customers' digital capabilities to the next level. [Presentation]

We are very confident about the growth potential of the digital solutions we are offering because we know they bring real return on investment to site operators. Let me give you 2 quick examples. One of the growing solutions we offer is wetstock monitoring, which comprises both connected hardware and a software subscription. It offers operators multiple benefits such as monitoring and managing fuel inventories but on a granular level, that would otherwise be too time-consuming to perform in a traditional manual way. One of the most tangible benefits of this solution is ensuring that the customer gets what they ordered and what they paid for. It sounds like a trivial task but even small deviations in volumes can add up over time. And in this 1 customer example, using the data from our solutions, they were able to reclaim $0.5 million in under-delivered fuel, which if you think about it is the cost of replacing all the equipment at a site. Operators place a lot of value on the peace of mind that the supply chain is functioning as intended, and they can focus on running their store operations. Another example of an innovative solution with a clear return on investment is the self-checkout payment terminal we are piloting with Shell in Europe. The solution greatly speeds up the checkout process, increasing customer satisfaction and reducing the need for cash, while also allowing greater store labor utilization and lower operating costs. We've seen tremendous results in these pilots, with sales increasing by about 20% and cost reductions of around 40%. Shifting gears to our growth strategy in this business. First, we already have strong offering across multiple products and solutions. We will continue to drive adoption of these solutions globally. Second, we will continue adding new applications and functionalities to our portfolio, with a focus on continuing to enhance the customer experience. We will do this organically, through strategic partnerships such as Microsoft as well as inorganically. And we have interesting opportunities in the pipeline in this area. As I mentioned before, our cloud platform will be the single operating system for all digital solutions deployed to our customers. And we think that this will serve as a great way for us to remain relevant and at the cutting-edge of digital innovation in this space. With that, let me pass it to Kevin to talk about the OPW business.

Thanks, David. OPW is a global provider of above- and below-ground retail fueling equipment, components and supplies. We're the #1 global supplier of both above-ground hanging hardware as well as below-ground equipment. On the above-ground side, we provide fuel-dispensing nozzles, breakaways, valves and vapor recovery systems as well as nozzles for CNG's dispensing and other fuel types. On our below-ground business, consists of variou products for delivery and storage of fuels and harsh environments, together with related sensors and technologies to help monitor tank gauge and leak detection. Moving to Slide 36. I'll outline our growth strategy. Since our founding in the 1890s, the OPW brand has stood for reliability, performance and safety, which is paramount importance in our field. They are a myriad of localized government regulations and compliance initiatives that dictate which products can be sold to which customers. We have the scale to maintain a diverse product portfolio that can accommodate these regulatory requirements. We also continuously invest in new product development to drive innovation and improve user experience, which often results in patent-protected technologies and applications. As an example, here's a recent Clean Technology nozzle line that greatly reduces spilling, dripping and contamination. We all know how unpleasant the little spills are after you remove the nozzle from the tank, and those little spills do add up across billions of fueling sessions. The reputation for reliability and innovation, together with our global presence, has enabled us to continue expanding into new product adjacencies and geographies. An example of this lever is our strategy in the new Euro-nozzle that we introduced recently to participate in a large European segment of the market, which is historically not addressed for us. I'd like to show you a brief video highlighting our innovative capabilities. [Presentation]

I'll now shift gears to discuss our vehicle wash business. OPW has been in this business since the late 1990s with the acquisition of PDQ, the #1 North America supplier of in-bay automatic equipment, which is the type of wash equipment most prevalent at convenience store sites due to the smaller real estate footprint required. In 2019, we acquired Belanger, one of the leading supplier of conveyorized tunnel equipment. The acquisition further strengthened our position in both the convenience retail segment as well as the independent wash operator, which is a thriving segment of the market. We do also offer terminals and tunnel controllers, which are smaller suppliers in those spaces, but they're areas that we want to expand. The following video will give you a sense for the type of solutions we offer and the benefits they bring to our operators. [Presentation]

Let's talk briefly about the market tailwinds in this industry on Slide 40. Carwash equipment has exhibited through-cycle above-GDP growth, driven by steady increases in consumer demand for professional automated washes. The primary driver of the secular trend is a shift away from do-it-yourself washes and driveway washing, which is inconvenient and less environmentally friendly. Do-it-yourself washing still comprise somewhere between 20% and 30% of total washes, so there's runway for this driver to continue supporting growth. The second driver is the attractive economics of carwashes, if built in the right location and operated well, car wash systems offer very attractive return on investment for both convenience retailers and stand-alone wash operators. We also see the consolidation among chain wash operators, which typically leads to site upgrades. This trend is also in the early innings as the largest consolidators still operate just a few hundred sites in a market with tens of thousands of sites. Our equipment is thoughtfully designed to enhance an operator's return from providing revenue-generating features to optimizing the washer's consumption of power, water, chemicals and to minimize downtime and total cost of ownership via highly engineered and well manufactured systems. Everything we produce is aimed at helping the wash operator drive attractive profitable levels. Finally, this market is benefiting from the secular shift away from labor-intensive hand washes towards automated facilities. To give you a sense of the labor arbitrage magnitude, a professional conveyorized tunnel site operated by just 4 people can support a similar throughput as a full service manual wash that requires 15 to 20 workers. This creates a massive competitive advantage for the automated washes, further supported by fast service, customers could be in and out in a couple of minutes at a tunnel and within 5 minutes at an in-bay automatic compared to 30 to 60 minutes at a full service manual site. We have multiple avenues to continue driving growth for a very strong foundation in this business. First, we don't currently supply the full scope of equipment required to operate a wash, and we see several attractive product niches that we can add to our portfolio. Most notably, we intend to expand our offering in access terminals, which is a very important digital solution powering the site. Second, we're uniquely advantaged with the broadest distribution channel spanning convenience retail and stand-alone locations. We'll continue leveraging these channels to maximize the reach of our solutions to scale new additions to our product portfolio. On the efficiency side, we have synergies that can be derived by leveraging technology across our in-bay and tunnel offerings. And lastly, being joined with DFS puts us in a unique position to integrate vehicle wash operations into the broader convenience site infrastructure and offer that single-pane visibility that David talked about earlier. I won't spend too much time on Slide 42, but suffice it to say that our car wash franchise is built on a culture of innovation. We invented the touchless car wash. And in recent years, have introduced our SpinLite and Cube product offerings that are unlike any other wash experience because they provide by our patent -- our patented ShineMitt wash media. Unlike conventional fast fin brushes that require centrifugal force to extend the brushes to engage with the vehicle surface, freestanding foam arms rotate slowly over a vehicle, providing an outstanding clean and gentler, quieter customer experience. I encourage you to go to experience a SpinLite or Cube for yourself, and I guarantee it will become your wash of choice. The last line of business I want to talk about is our fluid transfer business. We are a global leader in the safe handling, monitoring and transportation of hazardous fluids. We're the #1 global supplier of loading systems, including couplers, loading arms and other components-related monitoring solutions for chemicals and other industrial applications. We are also the #1 global supplier of petroleum transfer solutions, including valves, breakaways and swivels for rail and cargo tank transport of fuel across the value chain. This business applies mission-critical components with sticky, specified demand and high compliance and safety requirements. With a large and growing installed base, there's also an annuity-like aftermarket opportunity for replacement parts. And finally, there are also clear regulatory tailwinds that will continue to benefit our business into the future. The following short video showcases our offering and innovative solutions in this space. [Presentation]

In addition to our core business today, we see the opportunity to grow digital solutions in the space. We're proud to offer the world's first digital tank truck solution, a connected set of electronic devices such as overfill protection, sensors, controllers and emergency shutoff devices. By connecting these devices under one digital system, we're able to provide asset management, reduce operator intervention and human error to improve safety, guard against environmental contamination and lower risk of business disruption. We introduced this solution to the market recently, and we're seeing good traction already. With that, I'll turn it back over to David to discuss our opportunities in alternative fuels and emerging business models. David?

Thanks, Kevin. I'll spend a couple of minutes talking about our vision and plan for alternative fuels. The most obvious one is EV charging. This is an emerging market, as we showed earlier, but in a couple of decades, it will be material. We expect that over 20% of charges will be located at convenience retail sites, in particular, along highways and in urban areas where charging in garage and/or charging on street-level parking may not be available. It is important to emphasize, again, that the key asset of convenience stores is their location, and their infrastructure like restrooms, cafeterias, car washes and other services like e-commerce hubs that will continue evolving. Consumers will continue visiting convenience stores to meet these various needs. And fast charging will be a very suitable service as well. We already see customers investing in EV charging. Currently, the investment goes primarily towards electric infrastructure to enable the site to support EV charging. As part of the electric vehicle incentives package adopted last summer, Germany has required that all fueling sites offer EV charging, but the time line and details are not yet clear. Just last week, Total announced the acquisition of a large network of electric chargers in Germany. But in most markets, convenience retailers are just experimenting with putting in EV chargers. As you may know, fast charging technology is still evolving and until the charge time gets reliably to around 10 to 20 minutes, charging and fueling sites will remain limited. It's important to highlight that EV charging will need to be integrated into the site's broader infrastructure to allow operational visibility and asset management. And we believe there is a role for our site management software and solutions here. Today, we offer electric charges to our customers through strategic partnerships with both ChargePoint in the U.S. and ABB in Europe. Both players are the largest OEMs in their respective markets. At this time, we are a channel partner representing these solutions in the convenience retail segment. We believe at this early stage, this model best leverages our collective capabilities to bring these early solutions to interested customers. As the market evolves, we will continue evaluating our participation options. Currently, we envision 2 primary paths to participating in electric charging space. First is the equipment supply. This is an obvious path, and we do have a right to play here since the electric chargers have many commonalities with a dispenser. There are wires and transformers, of course, instead of pumps and pipes but the customer interface payment processing and other functionalities are quite similar. Over time, we may adapt a third-party electric charging technology into a DFS form factor suitable for a C-store and provide a similar intuitive customer interface and payment functionality. For now, though, we're satisfied with the partnership model. A second vector of participation is software and connected solutions. The primary opportunity for us here is helping connect EV chargers into the broader site ecosystem and provide similar asset management, monitoring and optimization tools that we offer in our core fueling business today. Additionally, sites will likely strive to unify the customer engagement and interfaces at their sites, and that may open an opportunity for our user experience platforms like Anthem that we demonstrated earlier. I do want to emphasize that we view EV charging as an upside opportunity. We are fully confident about the growth prospects in our core market for at least 1 or 2 decades and the large installed base of fueling equipment will exist for many decades to come, and there will be plenty of opportunity for us to monetize it. We also see interesting opportunities in other alternative fuels, which have revenue potential comparable to electric charging. In the near term, CNG and LNG represent the most tangible opportunities. We already have an offering for compressed natural gas, and we are looking for participation options in LNG fueling. These solutions will primarily be applicable for larger vehicles such as trucks, buses or construction machinery where EVs are not optimal. We believe these new fuel markets will evolve differently in various regions and will be driven by local regulations, existing infrastructure and the local access to different alternative fuels. For example, compressed natural gas is already used to fuel fleets globally and will continue growing. LNG is growing as a source of fuel for trucks and buses in China. And hydrogen appears promising for large machinery and also specialized small fleets. On this slide, you can see a visual of a typical hydrogen fueling site and some of the products that we believe could be a fit for us to participate in. We are in the early stages of evaluating different opportunities for hydrogen. But hydrogen is still very much in the early stages, and we expect the adoption to be gradual. As we said earlier, the convenience retail format will continue evolving. To leverage their physical locations, operators will enhance the selection of services they offer to their customers. New business may emerge providing vehicle services and autonomous vehicle subs -- hubs or e-commerce delivery hubs. Consumer behaviors and preferences as well as transport technologies will evolve, but the need for mobility and convenience will remain, and there will be a place for convenience retailers. We also believe that there will be ongoing trends towards more automation and unmanned solutions for these sites. We think the future will present more exciting opportunities, and we will continue to be a go-to partner for our customers. So with that, I'll pass it back to Rich for closing comments.

Thanks, David. I hope this gives you appreciation of the quality of this business and its future prospects. Before we get to the Q&A, let's address EMV and revenue trends and a brief 2021 group outlook, so we can hopefully use the Q&A time to talk about product and markets. The current EMV compliance deadline is April 2021, and we expect to reach approximately 70% adoption rate by the end of this year. If you remember, EMV is a $500 million revenue opportunity for us, which we've been benefiting from for the last 5 years. 2020 is the peak year, and we will see some slope of demand fade from here that will last 2 to 3 years. The exact shape is hard to predict. But overall, we're talking about tens of millions of dollars of headwind per year for a segment with $1.6 billion in revenue base, implying a headwind of several percentage points. However, we expect that growth in the systems and software business, developing economies and other trends we talked about today will help us offset the headwind. Additionally, we plan to make further progress on margins in this business. All in all, we expect to maintain or modestly grow the profit line for 2021. On Slide 55, I'd like to recap the very attractive strategic fundamentals of this business. We cater to a healthy and growing retail format and sell high-value innovative solutions that maximize customers' bottom line. Footprint growth and continued innovation and model mix enhancement as well as further adoption of software solutions will support the growth for at least over a decade. We already participate in attractive adjacencies, and we'll continue to build out those with the goal to future-proof the business and improve the revenue mix towards more reoccurring sources. We see a robust path to participate in EV charging in a logical and targeted way, helping our retail customers deploy these solutions efficiently into their greater ecosystem. We also intend to participate in other alternative fuels such as CNG, LNG and hydrogen, which, by the way, we already do in our Precision Components business. We expect that executing on this strategy will deliver strong double-digit shareholder return in line with our corporate objectives. The sources of value creation will be balanced between mid-single-digit growth margin expansion yielding a high single-digit earnings growth and a healthy free cash flow. I'll finish with a brief performance update on Slide 56, since we're already halfway through the quarter and I won't be able to avoid the topic in Q&A. We continued to see a positive trajectory across the majority of our portfolio in October, continuing solid trends from the third quarter, particularly in the shorter-cycle businesses. Bookings and backlog were up on a year-over-year basis with sustained demand momentum in food retail, marking and coding, above-ground retail fueling, biopharma and heat exchangers. We are targeting the high end of our full year EPS and cash flow guidance provided at the end of Q3. Moreover, we remain encouraged by the setup for a good 2021 performance, driven by the continued recovery across our end markets. New product launches and digital initiatives and robust productivity plans across our portfolio as we continue our multiyear structural cost initiative. We are continuing to drive efficiency improvement, leveraging Dover scale and common ownership through multiple initiatives you see on the right side. We have significant runway remaining across all of these levers. We will provide more color on our 2021 outlook and guidance during our Q4 earnings call early next year. And in closing, I would like to thank all of our employees of this segment for delivering excellent performance in the last few years and also persevering in 2020 while continuing to serve our essential customer operations in this time of need. And with that, let's move on to the Q&A.

[Operator Instructions] I show our first question comes from the line of Jeff Sprague from Vertical Research.

Great presentation. I want -- a couple of things. First, on the car wash opportunity, $2 billion potential served market. I know you're experiencing some nice growth there. But how do you accelerate that? And could you elaborate a little bit on maybe what kind of the service and aftermarket opportunity that gets generated by kind of the propagation of these more automated technologies?

Sure. I think Kevin can answer that question for you, Jeff. Go ahead, Kevin.

Sure. So as mentioned in the presentation, so we've got the fundamental economics and the growth prospects that are going on that are driving some of the growth. And the way that we accelerate that through our distribution channel, I'd mention that we're only offering a portion of the solution that goes into a site when they're building a new selection. So we're looking at expanding into some other parts of the solution that go into there. We have some things that are interesting that we'd add to our portfolio that allow us to participate bigger on a site-by-site basis. And was there a second part of your question as well on the service and aftermarket piece? So...

Yes.

From an aftermarket -- so we've got a replacement cycle for anything. You have this in roughly in a 10-year type of time frame. So with our installed base that we have, we do see a nice aftermarket business there. On the service side, we sell through distribution, and that's largely done with our distribution partners. That's the service that they provide on the ground with an in-bay automatic, particularly in a C-store, as they're providing that service on hand. We support them through technical support and through the parts business, but they're performing the service business.

And then on EMV, if I could just get a second one in here. Just your view on how this tail plays out. I mean I think part of the punch line for you guys has been maybe your bias towards some of the smaller players that maybe take longer. I guess that would be fully incorporated in the guide you gave us today. But looking at that kind of 70% plus complete, do we get to 100%? Is the number 90%? How long do you think this actually spreads out?

Sure. This is David. I'll take that. We don't think it will get to 100%. That's unlikely. But I do believe it will get to 90% plus. We've looked at the implementation of EMV in Europe, and then we looked at the years after the deadline. And really, there was a multiyear smooth curve as the installed base of EMV was built out. We looked at Canada, and they went through a similar thing when they deployed EMV. It was a multiyear smooth curve as that demand was taken care of. So we expect something similar in the U.S. We think it will be fairly steady over a number of years. If we're at 70% at the end of this year, there's probably 20% or 25% of the market left, and that will get spread across multiple years.

And I guess the biggest headwind should be 2021 based on that historical algorithm as we kind of just spread out the rest over time.

Yes. I think the wildcard is how much how much work did not get accomplished in 2020 because of coronavirus and other obstacles that could get pushed into 2021. So I think there's a lot of really unknown about how that will shape up. I think Rich's comment that 2020 was probably the peak year is correct. But 2021 could also be a fairly strong year as well.

I show our next question comes from the line of Steve Tusa from JPMorgan.

Has COVID at all or anything in the last year kind of changed the way that your customers were thinking about kind of EV infrastructure investments?

Go ahead, David?

Yes, sure. I think from what we all see in the news, it appears that EV investment is at the forefront of everyone's talking points. But in reality, we're not seeing a whole lot of market activity. I think the whole COVID situation will change people's thinking on how they want to touch customers and things like that. But I don't necessarily see an increase in capital being deployed towards EV charging.

Got it. Very, very helpful. And are there any investments that you guys need to undertake kind of out of the ordinary to reposition your product line for that? Or you kind of have capacity and technology.

Do you mean reposition for EV? Or...

Yes, yes, yes. For any of these growth initiatives, I guess, going forward?

Yes. Well, I think right now, our strategic partnerships with ChargePoint and ABB are working. And we are participating in the investment that is taking place. As we mentioned in the deck, we are incorporating EV chargers into, for example, our POS systems in Europe and the way that we channel financial transactions from an EV charger through the point of sale in hosting those transactions. So we are doing that incremental work as we go, but it's not going to require, like, a seismic shift in the way we're investing our R&D dollars right now.

I show our next question comes from the line of Andy Kaplowitz from Citigroup.

You obviously gave a fair amount of color around the opportunities in software and systems and your international businesses in '21 that should help you offset EMV headwind. Can you give us a little more color regarding what your expectations are for China and the overall international business in '21 that's embedded in that 1% to 2% growth forecast? I mean I see the little bar there, but maybe if you can give us more color around expectations.

Sure. I'll touch on the software and solutions first and then touch on China. We're seeing, I'd say, a fairly high growth in our solutions portfolio today. During the course of next year, we are launching that cloud solution with Microsoft starting in the first quarter. So we should see almost a full year impact of that product launch. In terms of China, I think we saw kind of a stable market environment this year at the reduced levels after the double-wall tank and piping initiative was complete. I think that we're just going to see some incremental gains in that market as we go into 2021. But I don't think we'll see a shift back to prior year levels until the next regulatory wave of activity.

Great. And then maybe following up on that, I often get asked a question about sort of future regulations, and you talked about sort of vapor recovery systems. So as you look over the next few years, obviously, EMV is the big one. But can you give us more color around future regulations in these emerging markets? We obviously have -- likely have a new administration coming in. So how that could impact overall fueling over the next couple of years?

Yes. I'll take a first shot at this. And then Kevin, I'll turn it over to you for vapor recovery. But there's a lot of regulations around security that are underway right now. Mexico has passed regulations that require the security around dispensers to get pushed to a whole new level. And the security is really around ensuring that if the dispenser says a litter of fuel was dispensed that it was actually a litter of fuel that was dispensed. So that's driving a lot of volume this year and it will into the first quarter of next year. India is looking at something very similar. Brazil is looking at something very similar. So even just around dispenser security, which involves weights and measures, there's going to be waves of activity over the next, I would say, decade. And then on the environmental front, I'll let Kevin talk about that.

Yes. In much the same way, so as the technologies mature in one country and then the others are expanding their environmental regulations that we see the same thing. So vapor recovery, we see the potential with the station build out and some of the double-wall piping and other opportunities within India and on the vapor recovery. So we see vapor recovery opportunities that are going on in Latin America right now. And then even in the U.S., where we have our CARB-approved now, the California Air Resources Board-approved nozzle. So in that case, the one that I had mentioned in here, it's becoming the standard in one of the states and that could span to other states as well. So as the technology continues to improve, that can offset and help drive some of the regulations as we have the different technology that can achieve different levels of vapor recovery or some other environmental regulation standpoint. But we see that continuing to advance. It's not always able to see how it is coming down the road maybe 3 or 4 years out, and it tends to come in waves, as Dave said. But we are seeing in different parts of the world different elements that we're seeing through different markets.