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So, good morning for the first day of the Jeffries Industrials Conference. It's Lawrence Alexander with the Jefferies Chemicals team. It's my pleasure to introduce Rich Lewis, the CEO of Donaldson. And without any further ado, Rich, I'd like to pass it over to you. All right, thank you. Good morning, everybody. Welcome to the Donaldson presentation. As Lawrence said, my name is Rich Lewis. I'm president and CEO of the DonaldSON company. Looking forward to sharing our story with you today. So, we'll start with a safe harbor statement. I know everybody's seen this a million times. We released our fourth quarter fiscal year 26 and full year results two weeks ago to this day. So everything will be anchored back to the guidance and the results we presented at that time. I'll spend a little bit of time on this slide because I think this is the slide that gives you a little bit more intimate picture of who we are as a company. We are a filtration company, and we are a technology-led filtration company. So what does that mean? I'll anchor on the words technology and filtration and take you down a little bit into some more detail. So when we talk about filtration, filtration touches really every corner of our economy, every corner of our daily lives. it's pretty much present in all the business verticals in the industrial spaces and it's a really wide playing field the second part is technology we play where technology matters we've invested and built a capability around technology over a hundred years and so we're looking for applications, products, positions in the market where incremental investment in filtration technology provides more benefit to our customers. And so those are the two areas that we really play in. And so if you think about our customers, we're on mission-critical applications where technology matters, and we really do two things for our customers—we provide them greater peace of mind protecting their most critical assets so think about their people their products and their processes how they make money we protect those things with our filtration solutions we enable them to have greater levels of prosperity because when they use a donaldson product they can make more money than they can with the alternatives and that's through overall lower cost of ownership through higher levels of yield better uptime better reliability So it's really a wide market opportunity, and we focus on mission critical where technology matters applications. Over the century plus that we've been in business, we've built a set of capabilities foundationally that we leverage across these markets. So think about the technology base that we have is really unique, and мы can deploy it into multiple endpoints in the market. We also have a similar operational capability that we can deploy into all these different market segments. That gives us a reinvestment advantage to invest back into the company, continuing to set the bar for technology across all these market segments, and we've done that decade over decade over product life cycles for many, many years. That allows us to reinvest back into The Company, And if you think about our growth strategy as a company, it's really one of balance. First, we have a set of applications, product lines, markets that we participate in, and we reinvest into those to continue to maintain a leadership position. These are markets that foundationally are growing, and then you add in pricing and market share gains for our growth algorithm. We use the proceeds from that to broaden our technology base. So think about higher purity, lower, smaller contaminants, and this allows us to open up new addressable markets, markets that are in higher growth and higher margins. So continuing to grow our core while we expand our base to open a wider swath of opportunities for Donaldson. This is really who we are and this is how we've been successful in the company and why I think we're a great long-term investment opportunity. This is a good takeaway slide, 111-year-old company. We operate across three verticals, each with margin expansion opportunities and growth opportunities for many years to come. If you go back to technology, we have over 3,000 active patents, and a big part of our story is the resiliency and the reliability of our recurring revenue. Over two-thirds of our revenue comes from consistent, recurring, high-margin replacement parts. We deploy this across a global network, many different product lines, many different applications, and we operate globally as a company. This allows us the scale to drive efficiency, but also a local capability and a local touch. built sales engineering and operational capabilities to really support our customers where they need us which is in region and on different types of product applications 75% of our sales are built in region which gives us a robustness and reliability against some of the global economic challenges that we face every day and it really makes us a good trustworthy partner for our customers Our goal financially is very simple deliver higher levels of profitability on higher levels of sales. Fiscal year 26 which just ended at the end of July we had set records for sales operating profit margin and EPS. Now if we look to fiscal year 27 at the midpoint we're looking at a seven and a half percent top line growth. We'll set a new record on operating profit margin at 16.9 percent so a 90 basis point expansion and then we'll set uh growth for eps at eight percent and we're doing this through higher levels of replacement parts pricing excellence and then really driving expense leverage and operational excellence through every layer of our company this is a big part of who we are as a company and a big part of our success so we're really excited about fiscal year 27 we see a lot of opportunities ahead And I'll talk about some of the verticals here in a second. I want to spend a little bit of time on our competitive advantages. I think this is a tough one for people to digest, and so I want it to be a little more complicated. I want you to take a littlebit of time, because it actually is layers of advantages. It's not one individual thing, and it changes over time as we compete in markets. Generally speaking, we engage with our customers when they have a filtration problem that they need to have solved. So we're solving their toughest filtration problems. And a lot of times that happens at the very outset of a market that's being developed for the first time or at an inflection point where something is changing with our customer's technology that requires them to have a better filtration solution that's been available to them in the past. We do that. We solve their problem. That starts to seed a foundation of trust that we build on. And we build on that by working back and forth with that customer many times over decades to develop a deep application expertise. So if you think about an air filter in the mobile solutions market, it's not one product. It's dozens and dozens of applications that require very unique engineering capabilities. And then if you look across all of our end markets, they require very Unique operational capabilities. The foundation is consistent, but there's bespoke capabilities required to serve each one of those markets at a leading level of service. We developed those two capabilities over decades of working with our customers, then reinvest to create other advantages through cost and efficiency based on that scale that we have built. And then we protect that with a relentless focus on continuous improvement. so it's really a technology application operational capability that all comes together to make our markets very defendable three segments we talked a lot about the markets at our last earnings call I'm sure there'll be some questions on this so mobile solutions business is performing quite well they've expanded profit margins they've continued to grow that business in spite of some of the end markets being in sort of downturns over the last two or three years we are seeing more green shoots across this space as we look into f27 we're really optimistic about the growth opportunities in this business the interesting part is they've continued to grow through a market downturn and the business has done quite well both in share gain and executing the strategy industrial solutions aerospace and defense power gen very strong secular tailwinds in that space we're starting to see opportunities on the non power gen capex side we're seeing some additional quote activity so a lot of opportunities in the industrial space and we're expecting a big step up on an execution in fiscal year 27 and then life sciences is anchored by our process filtration and disk drive businesses who have been doing quite excellently while we build out our technology base for high purity filtration so three segments all have really excellent growth opportunities and margin expansion opportunities capital allocation remains the same a very balanced disciplined approach to capital allocation our first priority our second priority is to invest back in organically we have a great business strategy a great business model we want to grow organically in our core businesses why we build out our technology foundation we will continue to do strategic M&A I'll talk about facet here in a second that was our largest acquisition in the company history we just closed that on May 4th and then we'll continue to disperse monies back to our investors through dividends and share repurchases we've been a proud member of the dividend aristocrat fund for 10 years it takes 20 years of increasing dividends to get into that fund so we've got 30 years in a row of increasing evidence it's a big part of our strategy so we're going to continue to be great cash generators and invest back into the business a little bit on facet so facet was our largest acquisition we closed on May 4th. We've talked a lot about this acquisition. It's an industrial business, but it has, I would say, life science attributes. Very high margins, very sticky customer relationships, all based on high critical applications in the aerospace and defense industries, and with expanding opportunities into power generation. Really good business, high margins about 2x our company average and seventy percent replaceable consumable parts really fits our strategy quite well and thus far it's performing exactly to the business case that we had put out there for this one so we're happy with the team they're very Donaldson like in their culture very customer centric and they have a great product in the market so I'll wrap up here just we're a filtration company we lead with technology it's a very wide market we have a lot of critical applications where we have opportunities we will continue to grow the company organically that's part of a big part of our balance or growth strategy while we build out our technology base and I think we're gonna have a great F 27 and the outlook for the company is quite bright for years to come with that I'll turn it over to Lawrence so please put up your hand if you have any questions But maybe just to start off you to unpack the growth algorithm for 2027 how much of that is share gains? And how much about you're thinking about is price mix and really on the price mix just to kind of put the lead out there Is are you seeing that you're being you know? Like there's a mix in your end markets that might reverse towards the end of the decade or do you see the price mixed? Dynamics is kind of sticky and stables the margin expansion. Sure Yeah So let's think about the seven and a half. We'll go to the midpoint. You can pick whatever end point you want. So two percent price two percent year-over-year facet Sales since we only closed them on May 4th One percent FX and then the rest would be market share gains So that's the algorithm for fiscal year 27 Of course as our OE markets come back on the first fit side we'll see a little bit of gross margin pressure but I would assume that the margins that you've seen will continue through the end of the decade so through other business initiatives and then with the share gains some companies in the industrials have been talking about as their end markets accelerate they see the rate of share gains also accelerating so there's a bit of an amplification effect. Do you expect that to happen in this market, in your markets? I think if you look across all of our markets, and you probably have to go market by market to really answer that question, there are some that we're seeing accelerating share gains. I would say others are pretty static with what we've traditionally seen. Share gains is a big part of our growth strategy, and it varies business to business. You can think about it in the 1% to 2% range overall. So a good example would be our mobile solutions business. These are sales cycles that are three to four years long. And then there's another three or four years before the service part revenue really starts to accelerate. And we can measure our share gains today and look at project revenue sometimes six to 10 years out. so we know exactly how much share we're taking today that will manifest in years to come so we're able to measure that pretty accurately in a market like that other markets it's a little bit tougher but now you've commented um about how the businesses need to kind of earn the earn their place in donaldson correct um can you talk a little about what criteria you're using um and particularly when you identify a part of the business that needs to be upgraded how much time or what resources they're given to upgrade is it a is it the whip or the carriage or a combination well the criteria we're looking at is how attractive is the niche we're in from a growth how durable is the growth what position are we in can we be in a leadership position in that particular niche what's the ultimate financial performance of that industry as a whole and where can we play into that so most of our businesses we're looking for durable scalable growth with a path to operating profits that are in excess of of what we are generating today those are the ones that are barely being goosed and funded if they're on the side of they're below that there's a process we put in place to sort of manage that portfolio and the time frame varies so if it's a long-term investment and we're really seeding a long term market we'll give it more time if it execution problem than the expectations is one or two years it's fixed there's a good example where we had a business years ago that was underperforming profitability wise and it sort of was a little bit of a challenge we reshape that business turned it into actually one of the leaders in our portfolio and it took about five years on that one to get that exactly where we wanted it so it varies business by business but there are very specific criteria that we're looking for number one are we the best owner do we have a right to win and then can we get it to the levels that we expect the company to be it then I have a question which is more about how you manage complexity in the business but really around growth opportunities there's kind of a proliferation of strong secular trends in the industrial markets and each year there seems to be like a new one like data centers now is sort of the flavor but there's several others coming down the pike that seem to be emerging how do you allocate resources across those and are there any secular trends that you think will really change donaldson's growth algorithm over say five ten years and which ones are you just not playing in and you have no interest in yeah so if you think about we talked about this wide filtration market to markets that we typically don't focus on our markets that touch consumers so think about automotive and home HVAC where consumers ultimately making the last replacement filter decision those are not markets that which are traditionally focus on we were usually b2b where the applications are mission critical and we can help them make more money and if the overall cost the filtration system is relatively small to their operating budgets and the profits they generate from those secular trends of course we see a lot of opportunities in the aerospace and the data center side of things how long the data Center will go is you know anybody's guess but it's not months it's years but I'll you know that's one that we're well position for across multiple product lines so we're in a good spot on that one I think if you look at other secular trends that are out there it's sort of the ones we've always been dealing with sort of more income is driving higher levels of consumption of certain types of food products which has really been helping our food and beverage market data storage is driving our disk drive businesses more people put things in the cloud AI is driving that so there's a lot of opportunities but I would say our core business the foundation of that is still going to continue to grow and that'll be a big part of our focus because we want to protect those number one and number two positions and those businesses have a lot of opportunity in front of them and when you think about I'm gonna ask a broad question sure with three pieces to it and this is around automation one is I think your process know-how is often given short shrift so if you can talk a little bit about kind of your differentiate manufacturing process and how that's changing kind of with you know the ability to scale up and automate different steps and then also do you think about the end market implications you know I've always been curious about just how much human error contributes to kind of people needing to replace the filters I mean like is it better for you if you have a mining vehicle that is automated versus a human operator like it like this automation net benefit or is it going to turn into a bit of a smaller end market because there's fewer mistakes being made yeah I think if you think about let's just take automation for us because I think it's an important part of our story you know a lot of people think about the filter and the technology that we give to our customers and 3,000 patents and all of the IP around that, that's an important part of the story. But equally important is the advanced manufacturing group that supports that. A lot of our manufacturing processes are also trade secret IP protected because they're very unique filters that we're deploying. And so the automation in a lot of Our Manufacturing Lines has increased significantly over the years because the products have become more complex more challenging to make we have a factory in Indiana it's a very advanced line I think it has 30 25 30 robots on it so it's an extensive acceleration of a 10 or 15 year ago line that might have one or two robots so a lot of opportunities to continue to drive complexity and that's where the scale gets hard to replicate for people because we're setting those standards automation as a trend in our markets and the impact on us I think is relatively small whether there's an operator in the vehicle or not we don't play a lot in the cabin filtration space which obviously you would need less cabin filtration if there's no operator we're protecting the power unit and as long as those power units continue to be what they've traditionally been and we expect that to be that way for you know quite some time into the future they'll need the same level of filtration If anything, connecting the vehicles and putting more sensors on them makes for the changeouts to be more reliable. So that part of it has been very successful. We see a higher level of retention rate and a higher label of on-time changes when there's monitoring involved on the application. I was just wondering what your exposure is to, I think, this Hammer product at Seagate. Is that gross margin accretive or dilutive? And then in general, it seems to me that you have a lot of end markets that have, at least on the OE side, have kind of troughed and should be heading upward. And so when you gave guidance for this next fiscal year, what were your underlying assumptions? And maybe you could just walk us through the big end markets you have and where you think you are in those cycles. Sure. Yeah, let's take the Hammer example. So Hammer is a new technology released into the disk drive market. it's it's really an important step for that market because they need to continue to stay ahead of alternative technology technology solid state and with the density of these new drives it requires a new manufacturing process for our customers and the level of intensity in the filtration is significantly higher than the prior generation and which was significantly higher than the prior generation so you know you're talking about the cost per drive infiltration has gone up significantly margin accretive for sure just generally that's a higher margin business for us and we're very well positioned for that technology shift I was just a quick side story I was at our disk drive facility in Thailand a couple years ago with one of our disk Drive customers trying to get that hammer technology up off the ground and it was pretty cool experience to watch our people working with their people that's when I really understood the depth of our technology capability in that business we were actually solving problems that had nothing to do with our product but was helping them solve problems with their drive and that's that stickiness we get from a technology based company on the OE side yes AG is troughed I think if you go back a couple quarters ago we were starting to see green shoots in ag but it was very selective where it was at certain size vehicles certain customers you fast forward to today and we just talked about this a couple weeks ago it is more broad the green shoots but not to the magnitude that we've seen other markets step up so we think we're in the early innings of that because these markets, when they come back, they come back usually 20%, 30% in volume. And so we're starting to see ag come back more broadly, but still not to those higher levels yet. So we'll see how the year goes on, but it certainly feels like it's starting to turn in ag. Mining's been pretty solid for the last two or three years. Construction has strengthened. We're seeing a lot of strength across our construction products. And then I say on road trucking, it's primarily been a U.S. story where we're starting to see that market really start to inflect through the end of this calendar year and then probably into the first half of next year. And then we'll kind of see what happens with the regulations and where the market's at. But, yes, they've all sort of inflected and they're all in positive territory. And I think if you go across our entire company, it's very rare to see all of our markets sort of moving in one direction. And I thing other than maybe one, they're all moving in a positive direction. Part of the guide was if you think about the split of first fit versus replacement parts in that OE business, that mobile business, we're very, very heavily weighted towards the service part side. and that business has been going very strong for now over a couple years so the first fit's going to inflect but it's still a relatively small part of that business yes yeah um so just touching on what you said in terms of like u.s trucking and yeah and those orders in general can we just walk can you just walk through a little bit about what you're seeing in terms of like the class a trucking orders like kind of at what point that sort of inflects how much like revenue and just like generally how that can contribute to you guys on a top line basis and then do you see that kind of contributing to aftermarket in like years to come going forward or will that sort of just these new orders will just kind of replace older trucks on the road and that like number of trucks would be relatively stagnant if that makes sense how do you kind of like see first fit and sort of general aid trucking orders contributing over time to the aftermarket yeah so the market has inflected specifically in the u.s we've seen significant uptick in build rates keep in mind that's still a very small percentage of our overall company on the first fit it does drive long-term revenue because we are layering in new intellectual property new technology to those customers and over time as those trucks get later in those years it gets a little bit harder to protect that so as they renew those cycles our retention rate goes up so i think from a overall standpoint continuing to turn over programs and continuing to see build rates improve will affect the long term probably more importantly we talked about this i think either one or two quarters ago we had a nice market share gain on the aftermarket side and a lot of that runs through both independent distributors and oe distributors so when we win these products from the competitors not only do we get on the shelves for that particular in customer but we're now on the shelf for all their customers they you know they sell to and so that gives us additional pull through so each incremental win there is a nice early revenue gain but it also provides longer-term revenue opportunities because now we're on the Shelf and when those customers come in they may not be on contract they can buy Donaldson product so really happy with the performance on the US truck business and where it's headed can you just give us a sense from a corporate planning perspective about the mining cycle it's been strong for a while is it a long cycle are you planning for that and you know would there be future acquisitions in that space thank you so mining specifically I would say it's not a target from an acquisition standpoint because we have pretty much a full product line portfolio we have global reach we have great dealer Network it's an area where we are really focused on organic growth and making sure we're touching those customers in unique ways from a product availability there's maybe one particular product line extension we could do in that space but it would be small in nature it wouldn't be the base business and the organic market is really what's gonna drive that in this and it has been pretty solid for a while we're still not back to levels we saw and let's maybe say 2012 I mean that was really peaked out back then but it's been pretty strong and I would expect that's going to continue for quite some time if you look at all the key statistics that we see and our customers talk to us about it certainly feels minus some sort of global economic shock that this thing has legs for quite some time and it's a great market for us that mining market that's where technology matters probably more than anywhere in the mobile space the quick question just 30,000 foot I mean the move in general we're moving to electric and is there filtration you know how does that create some sort of existential risk to your company yeah no to the existential risk obviously if you go back five or six years ago this was a fairly discussed point I think we have a very extensive electrification model it's it's quite elaborate and it very it manages a lot of inputs and helps us predict what's going to happen in that space plus you have all sorts of external inputs as well at this point our position has never changed I think the world sort of came to the same conclusion that we were at which is this thing is way out there just to give you kind of an antidote we did a deep strategy review with our board in January. We had two large OE customers present electrification at that meeting. The message across two completely different markets was this thing is significantly further out in the future than we anticipated. And if anything, they have a bunch of investments they've made that they're not really getting leverage on to date. So long term, we can't ignore it. I would say if you think about the next 15 years it's in material and then after that I think it will drive probably opportunity for about 15 years the technology that wins in the end will dictate how much filtration so if it goes more fuel cells there's more actually more content and filtration on a fuel cell than a diesel engine if it goals battery there's less we continue to diversify into high purity filtration in our industrial business so it'll never be an existential question or just be how important is that vertical versus the others. I would say for the next 10 years, think about mobile being very critical to the company. I do believe this market will consolidate eventually. There's a highly fragmented 50% of the market where I believe the competitors will really struggle to try to maintain because they're very exposed to automotive, which is going to electrify faster. And without that base of business, I'm not sure how they're to fund themselves so we believe that we'll be a consolidator of choice in this space and there'll be a lot of opportunities to sort of pull that together and get more scale over time but long term we're continuing to diversify into other places uh strengthen the company in other ways but you think about that as a 15 20 year problem not a five year to ten year problem semiconductor capacity going forward yeah you guys benefit from that we do yeah so we have a micro electronics business that we just folded in with our food and Bev to call process filtration and we are on all the lithography equipment inside these clean rooms so the clean room has a filter the lithography equipment has a better filter and that's the one we provide it's not a huge business it's a niche but inside those same fabs are lots of liquid opportunities and the technology we sell into food and Bev and pharma actually is very similar to the technology they use on specialty chemicals and some of their liquids so that's why we combine the two businesses we have a great robust sales force and our food and Bev we have a great market reputation with the one product we have on lithography equipment we want to combine those two and expand our product line to press into the liquid side and get even more exposure to the microelectronics that's a great space for us so when you think high purity everybody a lot of times goes all the way to pharma biopharma but it's these advanced industrials there's a large market share opportunity there as well and high purity filtration, microelectronics and food and bev probably being at the top of the list. And then just very quickly, can you touch on the strategy going forward for life sciences and also can you talk on kind of do you have the right assets to be competitive in fluid or do you still need to scale up there? So on life sciences, Lawrence, if I don't answer your question correctly, let me get another shot at it. the way I understand your question is what does life science look like for us going forward so the base in that business right now is disk drive and process filtration and you would ask well what does this drive have to do with life science as well it's a high purity filtration solution the solutions we deploy for hammer is actually very very small contaminants sometimes even gases that to be absorbed and so that technology is part of the high purity space that we're in our food and bev business that we've renamed process filtration probably 15 of that business is actually pharma and so the same products that are used in food and beb can be used in pharma they're also part of our data center cooling product offering so it's a broader process filtration business we see a lot of opportunity to grow that business we've invested in for bio processing products these are all early stage sort of disruptive type products so time will tell how disruptive they're going to be we've commercialized a lot products across those four businesses and market receptivity will be judged over the next couple years but the goal getting customer access and then we'll continue to build out our technology foundation think about that as a long-term seeding effort to get access into that market it's not a meaningful contributor for the next two or three years the bio processing but it's an attractive market over time that if we can find the right access point we believe will be a meaningful part of the company further down the road so we like that market we think filtration matters in that space our ability to access it is what we're working on right now okay thank you very much or if very very quickly you're gonna earn like three bucks this year and next you've got into like 330 or something but it would it look like less than 10% EPS growth yeah yeah I think if you deconstruct that the acquisition of facet and the debt financing and the amortization costs or what's putting pressure on that Brad if you strip that out EPS would be the dilution from facet this year's 12 cents so think about tacking 12 cents on to give you a sense of the organic growth so now you're you're in that nine ish percent range and we'll crank that debt down over the next couple years so yes that's that's the immediate pressure from that acquisition we just closed on May 4th a hundred million plus 120 million give or take so okay thank you