Dover Corporation (DOV) Earnings Call Transcript & Summary

All right. We're kicking off day 2 here with Dover and CEO, Rich Tobin. Rich, thanks for joining us.

Thanks, Steve.

You have a couple of prepared remarks here and then we'll go to Q&A.

I do. I'm going to filibuster for 39 minutes and 38 seconds, just joking with you. Anyway, so let's get beyond the -- I'm on Slide 3. This is basically the scorecard that we use in terms of the performance of Dover. And as you can see, despite having the decline in revenue in 2020, we actually have an organic revenue CAGR through cycle of 4% to 5%. So I think a lot of you've heard me say this before, Dover is looked at as a margin accretion story that you can see in the bottom left of the slide. But I think what's underappreciated is the growth rate potential of the portfolio. So if you look at estimates of '23 revenue, it's below that CAGR despite the fact that we went through the COVID period. So I'll just call your attention to that. And then you can see that performance reflected in earnings per share and total shareholder return. I won't spend a lot of time here. This is a little bit old news. This is '21 performance. I've hit the growth already. The margin improvement is there on that growth, which you would expect coming off the bottom of 2020 and 35% adjusted EPS growth. I think a lot of people are familiar with this, it's kind of our capital allocation priorities. I think that this is going to come up probably in the Q&A, so I won't spend again a lot of time here. We have been reinvesting in the business, both organically and inorganically. Organically, had the weighting probably between 2018 through 2020. And then since then, we've stepped up on the inorganic side as you can see and then on the return on capital, I think that we're a steady dividend payer and have been opportunistic in terms of share repurchases, and we can talk about that also in the Q&A. In terms of the portfolio evolution, we are a multi-industrial so we are a portfolio story. We've done as you can see in the slide, quite a bit of acquisitions. They tend to be medium sized, they tend to be private transactions for the most part where we're trying to buy either products or entry into business lines where we believe that have secular growth. I think the foray into the biopharma side has been very successful, both organically and inorganically. I think that we took a big swing in Q4 of '21 into clean energy, and I think we can probably talk about that in the Q&A also. So more to come. We did do a divestiture in '21, which is the first since I've been here when we exited the food products, our business. And I guess we can talk about that in terms of the portfolio cycle. So really, what we're looking for is companies that are exposed to markets with secular growth that we can use the power of the Dover network to accelerate that growth either geography or -- because it's an ancillary position to one of our existing positions. So that's it I have for the preamble. It was only 3 minutes instead of 39 minutes, and that leaves plenty of time for Q&A, Steve.

Great, all right. We'll start off with the long-term strategic question of how is the quarter going so far?

Pretty much as we expected. So when we closed the year, we said that we would have liked to had gotten more product out the door. But because of Omicron and some supply chain issues, we were unable to do so. So the good news is we carried even bigger backlogs into '22. The unfortunate news is that we're still bleeding off a little bit of this price/cost in terms of the timing between the backlog and the inventory. So we expected in terms of a performance point of view for Q1 to look largely like Q4. It's doing so, but having said that, we're beyond Omicron now. So January was tough with the absenteeism. We don't see that since then. So February pretty much started up. And we're getting product out the door. We're still dealing with supply chain issues. It's a little bit of a whack-a-mole because it's always something. And I'm sure we'll get into this in the Q&A, and now we're dealing with this issue on the stainless steel and what's going on there because of geopolitical events, for lack of a better word. But having said that, production performance is moving up nicely. February was a really good month for production performance. Looks like March is also going to be there. So as opposed to last year where we had line stoppages, we don't expect line stoppages this year. So that will help in terms of fixed cost absorption and like, which should be margin accretive on a comparable basis.

How much do you think that line stoppage hurt you guys last year?

Yes, it was a killer.

Is it like a couple hundred basis points of sales growth or what...

It was more in the margin at the end of the day. And you can see from the segment performances, right? So the capital goods side of the business, which has pretty much the trifecta of raw material cost escalation, a lot of assembly labor and there -- and they have to ship a lot of big, heavy products. So you've got everything that you didn't want to get last year. Now the line stoppages were more driven by absenteeism, so COVID related. So that's gone now. And I don't, knock wood right now, I am unaware of us doing any line stoppages, meaning curtail production at the plant because of componentry. So we bled off by reducing production performance in Q4 and we don't have a bunch of whips sitting in the parking lot, right? So we can kind of manage production performance better in Q1 versus that middle-end of Q3, the beginning of Q4 last year.

So you mentioned steel. Hubbell was in here yesterday and they had guided a certain steel price that was higher than where it was when they actually guided. They were feeling pretty good about that spread over the course of this year. Now things have moved back up and so they're like it's basically back to being in line. How did you guys -- did you guys guide at that kind of lower steel rate and now you're kind of behind the curve a bit and have to get more price? Or is that generally still in line from what you planned on a price cost perspective?

I think that we are in line right now, but it's a watch point, right? Because things have -- like stainless steel that have -- it's not a production capacity point of view. It's the raw materials that go into stainless steel and an exposure that Russia is a big supplier of some of those materials. So it's a watch item right now. But we don't believe -- if you look at the forward curves on those materials, it's pretty much what we modeled in when we came into the year.

Sticking just with demand at a high level, $2.4 billion in orders has been a pretty big number. Rockwell is doing $2.5 billion and they say it's going to be close to just above $9 billion this year. So they clearly are calling for a slowdown in their back half, which is a fiscal year end September. I know you don't like to guide on orders, but like is that $2.4 billion steady today and then kind of migrates its way down? Or should we be kind of prepared for something more of a linear back to a more normal book-to-bill in the next 3 quarters? Or is it going to be better here? I don't know.

Well, look, order rates have been steady. I mean, it's early days. We're only just closing. We just closed February more or less. So order rates have been steady. But we've been pretty public about this notion about backlog and orders because the fact remains is because of supply chain constraints and an acceleration of demand post COVID that orders came in because a lot of our clients were basically trying to get in line because capacity was tight. So naturally, as supply chains ease that those -- rate those -- that amount of backlog should bleed off over time. And I don't think anybody should panic about it. Somebody's going to panic about it, I'm sure.

Don't say the word panic.

Yes, okay, maybe not panic. But look, I think it's natural. I mean, we're -- I'd have to go check today, but the last time I checked, we were sold out in Refrigeration until October. That's just not the way the market generally works. There's plenty of capacity in the marketplace. It's just a function of pent-up demand and supply chain and trying to -- everybody get in line. That should naturally come down. And I don't believe -- I don't think it's very binary of backlog comes down, that is a precursor of demand slowing. I think it's going to be -- if demand is going to slow, it's going to be because inflation is sticky and then you're in price increase #4 and #5, and then naturally, you're going to get demand destruction from there. So we are more worried about inflation than we are about demand as far as us interacting with our clients.

So what you're saying is so far through February that $2.4 billion is pretty stable. March is a big month, and then you would expect it to kind of linearly kind of move down because you want lead times to shrink a bit.

Yes.

On that Refrigeration side and on some of these orders you're getting, I mean, I can't imagine the little bits and pieces you sell have deposits, but does something like Refrigeration have any deposit? Or can these guys just kind of like say, yes, you know what, I ordered a couple, I don't need it. I mean how much have you scraped the backlog from that perspective?

Yes, I mean we've got some of our longer cycle businesses where the ticket price on the individual item is quite high, then you have deposits. So if you think about a Maag, Belvac, then sure, then we do get deposits. In Refrigeration, we don't, but we manage that by lock-in periods for capacity planning. Meaning if you don't reconfirm your order that happens to be in backlog for 9 months, at the 90-day window, then we're taking you out of the production schedule. And then you've lost it. And then based on what I said about the backlog there, you're punted 7 months down the field, which is a little bit problematic.

Have you seen -- and I mean I can't imagine you've seen much of that so far.

No. I believe that's a competitive dynamic. So it's not as if anybody has brought on capacity in most of the markets that I can think of off the top of my head where now you're competing upon capacity. We don't see any of that right now.

Can you remind us how much of your costs or sales are kind of purchased components and then raws within that?

It's all over the map. I mean, I'd have to think about it and do it almost segment by segment.

For each of the 40 operating companies?

For each of the...

We have 28 minutes left. So...

It's -- look, I'll put it in this way. The more labor component generally speaking, the lower the margin. So I wouldn't be concerned about raw materials or purchased components as a percentage of COGS as a reflection of good or bad margin. Really, it's more assembly labor, and if you think about the capital goods portion of the business, Refrigeration, it's reflected in the margins as opposed to some of the businesses like Markem-Imaje which has very, very little labor associated with them, and that's reflected in the gross margin.

What kind of labor inflation are you seeing out there?

It's not worse than it was. So we had to raise our rates quite a bit, but that took place during the start-up period. So mid-year of '21. We have not done a round since then and our forecast for '22 incorporate that labor inflation.

Is that like high single digit or more like mids?

Again, it could be at the lower rates where assembly labor was very difficult to get. It may be in the low double digits in certain cases, right? But for machinists less so, but those tend to be -- it's a function of small numbers at the end of the day. So the lower the base rate, the percentage is higher as opposed to some of the higher paid employees.

And then on the pricing side, are you still kind of rifling through increases? Is there embedded in your guidance? I don't think there's another one embedded in your guidance, or is there? And then is March the demarcation and how long does this go on here?

There is not going to be another round unless we have to do surcharges for specialty steel. So that may come because that's where we see some inflation right now is in stainless steel and titanium and some of the more exotics. So if that was to come to pass, then we would just do a surcharge because the backlog already exists at the end of the day.

Where do you use like the exotics, is that like the pumps business or...

Yes.

Because you don't -- do you still have Cook Compression, you still have that business or have you sold that?

No, no. We still have Cook. Yes, it's the pumps, it's where we just got into cryogenic, right? So you think about that to a certain extent. So anything that's machined at the end of the day.

Do those cryo businesses have an exposure to Russia from that perspective?

Only through exotic raw materials, not on revenue in any way.

But I mean, is that a big -- is that a meaningful part of the business?

No, I mean that's part of the -- I mean we buy in certain cases directly from the mill but in some of the smaller businesses, we're buying it through distribution.

You guys were pretty clear that you didn't reprice the backlog. So maybe there is like a bit of a lag impact coming through on that. I mean, should we see -- but then again, historically, your backlog is really not that big as a percentage of annual sales. Should we see that kind of work its way through in the first and second quarter? Or does some of that bleed in into the third quarter as far as that backlog rolling through?

Yes, the severity rolls through, the big chunk of it -- the more severe price cost is isolated in Q1. We don't mop it up 100% because it's got a little bit of a longer tail. We have begun to reprice some of our backlog since I made that comment because we can, because the lead times are what they are and because of some volatility. I think that the one thing which is a watch item for us was we made some assumptions in terms of logistics costs, getting some help there. That, some of that is tied to petroleum pricing. So we're not getting any help there. But we believe based on what we see on container rates, the portion that's not tied to input costs but was tied more to this notion about all these containers backed up in L.A., that has started to come down some. So that's another watch item. But that's -- and there a lot of businesses that we have sell FOB dock. So it's just a question of marking it up in the invoice.

One more on the supply chain question. You had mentioned there were certain parts of Refrigeration that were really tight and crazy last year. What are the 1 or 2 that really stand out right now to you from a component perspective, maybe outside of semiconductors. Everybody's saying semiconductor is [indiscernible].

Yes. We don't have a lot of semiconductors. We've got some parts of our portfolio that have to source basic chips that go into motherboards and the like. It's more nagging issues now. It's certain plastics resins for particular reasons you can't get your hands on. So you need to either wait to get those little subcomponents or you try to work with the customer to swap it out for something else. So it's not the same that it was during -- when everybody tried to restart in Q2, where there just wasn't -- it was a capacity problem. The capacity there is now largely up and running. Now it's just these nichey bothersome items. But unfortunately, you can't ship something that's 98% complete.

Right, so this sounds to me like it's, I don't know, it sounds stable. Like definitely not getting -- it doesn't sound like it's getting worse.

Yes, it's disappointingly stable. We'd like it to be better.

I mean, are you banking on it getting better in the second half of the year?

Yes. Look, I mean, we've got some pretty interesting revenue growth based on our forecast. And so that implies some -- an increase in production performance, which implies that we get the raw materials. So yes, we are just reflected in the revenue line.

But is it too early to kind of make that call, do you think?

Well, we'd like to have a month or two without Omicron or Ukraine. Can we take a month or two off and we'd probably would be better positioned to answer that.

Are you seeing anything? What are you -- I mean, you're not a big China -- you don't have a big China exposure, but obviously, some volatility going on there. Are you -- anything so far that you're seeing there that's disrupted you guys at all?

No, but it cannot be helpful from a supply chain point of view.

Getting into the businesses a bit, starting with your favorite topic, EMV.

Here we go. Yes.

Can you just remind everybody, perhaps why you guys may be different or the same than what Vontier had said, they kind of woke people up to a big cliff that they have. What are you guys seeing that may be different or the same in that part of your business?

I think that we hit our '21 forecast for EMV on the button. So I think that what we've got in our forecast for '22, I have no reason to believe that we're wrong right about it. So it's reflected in our forecast presently. So I don't see the need to kind of update it or to size it at this point. The fact of the matter is, is what we've been saying for years now is that EMV was a North American phenomenon. It wasn't a global phenomenon and Europe did EMV years ago. And that there's a difference in terms of market share by geography, a significant one between us and some of our competitors, meaning we have a lower exposure. So we didn't write it up as high, so necessarily, we're not going to write it down as much. Furthermore, that the highest profit margin in that business is the North American market. So for every dollar lost in North America, it's got a disproportionate impact in terms of profits because the balance of the globe is dilutive to margins largely.

So in '23, what do you guys expect in '23?

The balance of the tail to roll off .

Entirely?

No, probably not entirely.

Why isn't this -- why doesn't this represent a pull forward of the curve of guys who were going to replace their dispensers? And so therefore, why would it go back to a normal kind of flat rate to where it was before? Why wouldn't we have a more severe drop off where it goes -- those units that were pulled forward actually come out of the future years?

But it has been dropping off. And we've been living with the drop off for a couple of years now. So now this notion of that there is a so-called cliff. On a percentage basis, it drops off more because the base is smaller again. So without getting into percentage drop offs and the like, the implementation period is done. So if you're one of the bigger operators that have bigger exposures to the credit card companies, then you would be motivated to do it. But then there's a long tail of private operators where they're going to take their chances to a certain extent because they're making a decision about whether just to change the card reader versus to change the dispenser and the card reader. To me, it looks like there's the EMV, depending on how you want to size it, you want to size it as the EMV card reader, which is really the regulation. Or do you want to size it for anybody that replaced the pump and the card reader, right? There's 2 ways to look at this. And maybe that's why people's numbers are different, rather meaning that they're going to call -- so you think about the pump in terms of the cost of the pump versus the cost of the reader, they're disproportionately different at the end of the day. So having said all that, if you go look at CapEx plans for global -- for the big retailers in North America about what they're going to spend on their footprint, it's actually proactive to demand. So unless you want to make the case that they're just putting in car washes, which doesn't bother us that much or they're spending it -- where they're spending on their retail operations and they're ignoring the forecourt, where the pumps are. If you go look at refurbishment of -- in terms of the CapEx, they generally do it all, the bigger operators. And when we look on the underground side of our business, we actually see demand going up this year. So that means that there's going to be a lot of refurbishment, and that's digging up all the underground equipment. It's not like you're going to take your dispensers and go put them in the parking lot and then reinstall it, right? I mean -- so I know it gets a lot of play. All I can tell you is that, that particular segment is going to grow in '22 despite whatever you want to think about EMV cliff.

What about in '23.

The segment itself, yes, in '23 also. And we just brought in -- to be fair, we just brought in $300 million worth of additional revenue in the fourth quarter. And we expect that revenue base to grow at a higher rate than the legacy portfolio.

Right. And maybe talk about that stuff, what you like about it? It seems like a very interesting deal actually at somewhat reasonable multiple, which is nice in the day and age of high multiples and low returns.

Thank you for the compliment.

You're welcome. I'll get you back in a couple of days.

Yes, I'm sure. Yes, look, we're really excited about it for a variety of reasons. I literally just flew in from Acme, which is kind of the cryogenic portion of the portfolio that we purchased. Great business, it's a business that Dover can run. I think that we can bring synergy value to the 2 companies that we purchased. We think that they are both exposed to secular growth. We need to learn a lot about cryogenics on the hydrogen side, but we bought a business that's been in hydrogen for many years, so has an established position with all the gas producers that are out there and the new companies like Plug Power that are entering into the market space. So -- and the business model is a business model that we're very confident that we can run. So early days again, but right now, the performance of both RegO and Acme have been better than expected than we put in the deal model.

Engineered Materials has been a bit of a challenge from a margin perspective. Can you guys get back to the kind of 17%, 18% range at some stage of the game here in the next couple of years?

I don't think it's going to take a couple of years. Again, raw material escalation on large backlogs, that couldn't be fully repriced, supply interruption, we took both of those operations down, meaning shut the plant several times last year. So severe under -- I mean, these are capital goods businesses at the end of the day. So your incrementals and decrementals look very similar, unfortunately, and that's just the nature of the business. So we go into this year, we're going to get through this rollover of backlog and inventory role. Our backlogs are very high. So we have the runway to make the product and absorb our fixed cost and go from there.

And in that business, is there anything that is, to use Emerson's term from yesterday, kind of more disconnected from the core of the portfolio that you'd evaluate over time? It seems like that's the most kind of diversified.

Yes, I wouldn't -- I read your note on Emerson. No, I wouldn't say the same thing there. But it is a capital goods business that we have to run a little bit differently than we run some of the other portions of the portfolio. In capital goods world, it's -- they are actually top performers in terms of margin. So I would caution anybody that wants to do some of parts analysis on it and then go look at peer comps and put that multiple on there, just take into account that the margin that those businesses -- on the run margin that they have is quite high. So right now -- and we like the market structure that they participate in, meaning that the markets get very consolidated, and they are rational markets where pricing -- no one's adding capacity and pricing is generally stable.

Imaging & ID, I guess, maybe Europe had a bit of leg -- the digital printing business had some legs. I'm not quite sure what the fallout is from general European weakness there. Is there anything you can do with that business to -- from an acquisition perspective to grow it? I mean, that just seems like such a great platform, obviously.

We've been doing some small ones on track and trace. I mean there's not a lot that we can do with the core business because it's consolidated globally. I mean there's really 3, arguably 4 players in the globe that participate in that business. So you have to look for adjacencies which we do. We'd like to be an acquirer in that space, but we need to find a fit and we need -- and because these tend to be very high-margin businesses, finding value is not easy also, right? But as you know, when we're an acquirer, we act as an acquirer on a segment basis, meaning that we buy into -- we'll pay multiples that are reflective of kind of the businesses that is the acquirer. So you're going to see us generally do deals that have a wide variety of purchase multiples, but that is reflective kind of the performance of our own business and then what we think in terms of the growth rate, generally speaking, smaller deals that we're taking informed bets on, we may pay some nosebleedy multiples but a, they're not going to break the balance sheet and b, they're a free option of kind of what we did on the biopharma side that turned out to be very successful.

And then on Pumps & Process, I think the only question anybody has is the 30% margin. And how is that -- is that sustainable? Can it bounce around in the high 20s? And what's the outlook for margins?

Yes. I mean it's not going to -- don't go back and look 3 years to 2018 and say, well, I mean, can it go back there? The answer is no, it cannot go back there? I mean, is it -- will it move around due to mix? Yes, but not materially.

Got it. And then lastly, on the Climate & Sustainability business. Two great businesses in there. We visited SWEP at the HR Expo. I mean that business is going to grow like a weed. People don't appreciate that. Belvac is growing. You've got Refrigeration in a great position for the next 2 years, but you're the only refrigeration company out there that's like actually, I think, performing reasonably well. What do you do -- is that still a keeper? What are you guys -- what are you thinking about? What's the most up-to-date strategic on refrigeration?

The most up-to-date is that we would have hit our margin targets that we set out in 2018 last year if it wasn't for all the dislocation. We finally had the demand, we've got the CapEx projects running and then we run into this -- we can't get anybody to -- all the things we talked about. So I want to see that business hit its targets because there's been a ton of work that's been done there. Again, we have a backlog that it hasn't seen probably in 8, 9, 10 years.

Yes, Kroger just spiked its -- the guys are spending for sure.

Yes. So if we get it to target margin, because the velocity of working capital there is so high, the return on that asset is actually, if I rack and stack them against -- in our portfolio, at mid-teens margins, its return on investment is actually quite good, and it generates a significant amount of cash. So I understand that it's dilutive to consolidated margin. But that cash flow reinvested appropriately drives earnings growth from -- on a portfolio basis for multiple years. Now having said that, if someone wants to pay an appropriate multiple for that kind of cash flow, then of course, we're always a listener as we are in many parts of the portfolio. But I think right now, our focus is on hitting those 2018 margin targets because it's the one remaining one that we have not hit yet.

And you can do that in '23?

I think that we are going to do it in Q2 and Q3 of this year. All -- knock wood.

Any questions? We're under 10 minutes, usually like to cut it off there and have any questions out there. Okay. Very excited group this morning. So taking that cash from Hill PHOENIX and thinking about what you do with the portfolio. I think you have some operating credibility at this stage of the game. What -- are you going to ramp kind of the acquisition activity? How do we think about the velocity of deals here?

I think that we would consider larger deals maybe than you've seen in the recent past. We look from time to time there. We've got all the balance sheet capacity that's required to do a larger deal. There just aren't a lot of them out there. Now we'll see in a rising interest rate environment that maybe some of the SPAC money and a variety of other things that have been going on for the last 36 months goes away and then there's some value to be created in larger deals. I like what we've done over the last 3 or 4 years. I mean the smaller deals, they don't get a lot of press. They've got kind of an unappreciated compounding benefit. And again, and not to get on my soapbox, again, I think it's underappreciated in terms of the organic growth. I mean those deals are coming in. Everybody forgets about them. 12 months, they're in the organic portion of the portfolio. And they're growing and they're slowly compounding. We've got capital that these smaller companies don't have that we can be more aggressive in terms of capacity expansion or geographic expansion than they've been able to do in the past. We've got the expertise on the back office to reduce the noncustomer-facing costs of these companies materially. So I like that and I don't think that we're ever going to stop that. But having said all that, sure, if we could find something that's larger, that may be a precursor to bigger portfolio moves. As long as it creates value, we'll consider it.

What do you want to be? I mean, you're typically -- the stuff you typically do is a little more like discrete mechanical, if you will. You buy components, you assemble them. Great markets, great niche markets, tremendous market share, high margins, so they're great businesses. You've got some companies that are focused on electrical and kind of that theme, you've got companies buying software trying to become that. There are companies that say, we want to be all services and consumables. Like what do you guys want to be longer term?

We'd like to be the last person standing in the niche that we occupy. Everybody can go and adapt themes and make their story more simplistic because everybody understands it and somehow that is reflected in multiples because it's chasing thematics. I don't want to go back to the slide that we showed you before. But the fact of the matter is in niche markets, where the TAM is small, but the market structure is also small, we believe that we have an operating model that we can extract significant profits out of those niches. It's complicated. I understand that. But if you just step back for a moment and just try to understand the operating model as opposed to trying to understand 18 market exposures. And if you believe that everybody else is trying to create simpler thematic stories, that leaves us a lot of ground where, quite frankly, we're just slugging it out with PE at that point. And in a higher interest rate environment, we think we've got a balance sheet that allows us to compete with most of them.

I think SWEP is a pretty good example of that. Maybe like a minute just on that story because I think that's a very good example of the types of stuff that you have in the portfolio that people like. It's [ not ] going to be a $300-plus million business, it's a decent size for you guys and it's going to grow like crazy for the next -- it's that heat -- European heat pump dynamic. I mean, it's really a phenomenal business.

Yes. I mean if we don't go down the rabbit hole of patents and IP for a moment and just say a lot of the components that we make, our customers could vertically integrate them if they chose to. The trick is for us to find key components where the demand by our customers is small where we can provide that same product at a lower cost because we're aggregating industry demand as opposed to single customer demand, meaning that because we've got the market exposure, we've got the exposure to all the IP of the broader market, what's going on in that market and then we can just turn around and deliver because we've got the production capacity, a niche product that is an argument that says, well, you're paying us 10 for this. And if you were to do it yourself, it's going to cost you 12 just because you don't have the scale to do it. And that applies to a lot of the products that we make. So there -- it's more a reflection -- sometimes it's very much a reflection of the IP that we have and patent protection. But a lot of times, it's just finding niches of broad market exposure, like HVAC. Our HVAC customers could make their own heat exchangers, they've got the capability to do it. But we make the argument of, you get exposure to global IP development in this particular component, and we're going to give it to you at a cost that is competitive to you vertically integrated.

Well, you guys are making -- I mean, the technology there has changed. And so when the technology changes, the guys with scale like you have, I mean it's coming -- the puck is kind of coming to you. So that sort of kind of stood out to me.

Well, look, I mean, if you look at what's going on with heat pumps right now, right, that is a significant change in the size and scale of heat exchangers. And if you were to try to tool for that for yourself, for your demand, it would be very difficult. We are tooling for HVAC global. As a matter of fact, we're expanding in Europe, North America and Asia on production capacity to meet what we believe is going to be secular demand in terms of heat pumps.

Right. So the algorithm here, I think in 2019, you said GDP plus revenue, not sure what the margin was. But is the algorithm kind of like GDP plus, as acquisitions roll in, there's another plus on top of that to maybe like mid-single digit? You add just from acquisitions alone, another kind of like 1, 2, maybe 3 points on the revenue side and then you convert it 25% to 35% going forward? I mean, is that the right...

That is the right. I mean I think the mistake that we made when we said, GDP plus back in 2000, the mistake I made -- back in 2018 was, number one, I didn't understand the portfolio that well. So I had to be a little bit cautious. But number two, we didn't put anything in there for the compounding effect in terms of the portfolio because at the time it was a bit of a turnaround story, and we were kind of inwardly focused. But if you look at our performance let's say, from '20 and model in what you see coming in '22, I think you've got a completely different algorithm. And I would say that GDP -- global GDP is a bit light, especially into the environment that we seem to be going into right now.

Well, every company that had a long-term Investor Day has said 6% to 8% growth now on organic. So that's the bar for you. I'm kidding, I mean, it's like it's crazy how people are getting kind of over their ski tips. So I think mid-single digit is...

Yes, look, I like mid-single-digit growth on the run. Forget GDP, let's not even bother measuring it anymore. I think that we got to be careful about the heady numbers you hear about organic growth now because there's a significant pricing element in there. And that's all well and good, but we don't want that to continue much longer because that level of inflation is going to be to the detriment of demand at some point. We're not there yet, but we're getting close to having to thread the needle here for sure.

Right. So this is a solid double-digit earnings and cash growth story, what I hear.

Yes, yes.

Okay. That's it.

All right, thanks, Steve.