Vontier Corporation Common Stock

Good morning, my name is Pasha and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to the Bonsayer Corporation's third quarter 2020 earnings result conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the call over to Ms. Lisa Curran, Vice President of Investor Relations. Ms. Curran, you may begin your conference.

Thank you, Pasha. Good morning, everyone, and thank you for joining us on the call. With me today are Mark Morelli, our President and Chief Executive Officer, and Dave Nomura, Senior Vice President and Chief Financial Officer. We will present certain non-GAAP financial measures on today's call. Information required by SEC Regulation G relating to these non-GAAP financial measures are available on the Investors section of our website, www.vontier.com, under the heading Financials. Please note that unless otherwise noted, the presented financial measures reflect year-over-year increases or decreases relative to the supplemental normalized financial data also posted on our website under the headings Financials. These supplemental normalized financials are adjusted for estimated standalone public company costs. During the presentation, we will describe certain of the more significant factors that impacted year-over-year performance. The supplemental materials describe additional factors that impacted year-over-year performance. All references to period-to-period increases or decreases in financial metrics are year-over-year on a continuing operations basis. During the call, we will make forward-looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, and actual results might differ materially from any forward-looking statements that we make today. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available in our SEC filings and Subsequent Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date they are made and we do not assume any obligation to update any forward-looking statements. With that, I'd like to turn the call over to Mark.

Thanks, Lisa. Good morning, everyone, and welcome to our third quarter earnings call and our first as an independent public company. We're excited to launch the next generation of our business as volunteer. and while we have taken our first steps together amid unprecedented global circumstances, it's important to note that we do so with a strong, diverse and experienced team. We also have market leading positions in essential mobility technologies and a strong balance sheet. As you'll see as we take you through the results, we enjoy the benefit of a resilient portfolio that generates high levels of cash. Before getting to our third quarter results, I want to outline what we'll cover today. I'll start by giving you my perspective on our performance, including how the pandemic has affected our businesses and key market indicators for continued recovery. Dave will then go into more detail on the financial results, which, as a reminder, are presented on a normalized, standalone basis from Florida's historical results. Finally, I'd also like to highlight the unique opportunity we have to capitalize on the attractive $27 billion mobility market in which we operate. We have strong secular drivers in our core markets, and we have attractive adjacencies in logistics and supply chain, smart cities, and e-mobility that offer significant runway for disciplined M&A. I'll close by sharing some brief thoughts on what I've experienced since joining the Vontier team and providing a framework for our longer-term strategic direction. With that as a backdrop, let's move to some of the highlights of our third quarter results. Today, we reported adjusted diluted net earnings per share of 80 cents, an increase of 25% driven by strong fall-through on mid-single-digit core revenue growth. I am pleased with our double-digit earnings growth, which reflects the strength and durability of our portfolio. With a goal of continuing to maximize cash and liquidity, we leveraged a volunteer business system to drive substantial working capital productivity, delivering third-quarter free cash flow conversion of greater than 160% of adjusted net earnings. Our teams maintained the disciplined actions that we took in Q2 and continued to adjust accordingly in a rapidly changing environment. Additionally, adjusted operating margins expanded by more than 200 basis points to approximately 24%, reflecting gross margin expansion of 130 basis points to 44% and a reduction in operating expenses. Our guiding principle has been to manage the short term in a way that positions us to maximize long-term benefit as we pace ourselves to the market recovery. Since the beginning of the COVID-19 pandemic, we have remained focused on the health and safety of our employees, and this continues to be our highest priority, along with preventing business interruption for our customers. I'm incredibly proud of how the volunteer team continues to effectively address the challenges and opportunities in front of us. We rapidly embrace online collaboration and successfully converted to effective digital daily management, virtual Kaizans, and online sales meetings. We successfully addressed significant supply chain and product-related issues as global supply chains have been disrupted. Our teams instituted daily and weekly performance measurements and developed new data-driven demand scenarios. A standout example of the team's ability to monitor end-market health is at Matco, where we utilize our Maximus Diagnostics vehicle scan data to measure end-user service activity in the repair shop. These actions across the portfolio enabled us to adjust our supply levels and other resource needs to the rapidly changing environment. In this difficult environment, we also continued to execute on innovation. At Matco, we introduced numerous products through our distribution network to promote personal safety and protection due to the urgent need for PPE. The power of our model serving the last mile to the service technician has shown its relevance and resiliency through such a robust recovery. And at GVR, we launched several new products focused on meeting environmental regulations, including a central vapor recovery solution targeted to address India emission standards, including sensors to help customers comply with regulations. We prioritize investment in launching PN360, the new technology platform at Teletrak Navman. Feedback from our early adopter program has been overwhelmingly positive, citing speed, ease of use, and differentiation with our AI features. However, unlike the 2008-2009 recession, where our businesses were down only mid-single digits, this market environment is far different. At peak impact in April, the shelter-in-place mandates drastically and rapidly reduced miles driven by greater than 40% and severely restricted access to our end-user customers. Since then, we've continued to see improving demand dynamics play out within our mobility technologies and diagnostic and repair technologies platforms. In the third quarter, mobility technologies, or MT, continue to benefit from EMV and GVR's North American business. We also benefit from mandatory security regulations in Mexico, which we believe are driving market share gains. The initial impact of COVID was more intense in our Diagnostic and Repair Technologies platform, or DT, given the severely limited access to mechanics. However, macro sales recovered quicker than we had anticipated, as virus control measures eased, allowing increased franchisee activity. We believe we also benefited from the government stimulus programs. We exited the third quarter with positive markers for demand, including global miles driven rebounding to approximately 80% of pre-COVID levels. We experienced a V-shaped recovery at MACO on robust technician employment levels, and with continued regulatory drivers impacting GVR, we ended the quarter with a strong backlog across the portfolio. While the longer-term outlook depends on the phased approach in which global economies stay open or experience setbacks, we will continue to focus on managing what is in our control. We will maintain appropriate measures to adjust to the demand levels that we see while still investing in our highest growth priorities. With all that said, we expect fourth quarter core revenue growth of mid-single digits, adjusted core operating margin expansion of greater than 200 basis points, and an effective tax rate of approximately 23%. For the full year 2020, we expect core revenue to decline low single digits, adjusted core operating margin expansion of more than 125 basis points, and an effective tax rate of approximately 23%. We also expect adjusted free cash flow conversion of 130 to 140% of adjusted net earnings. With that, I'll turn the call over to Dave to provide the financial results. Dave?