Vontier Corporation Common Stock

My name is Emma and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to the Volunteer Corporation's Third Quarter 2021 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks will be a question and answer session. If you would like to ask a question during that time, simply press the star, then the number one on your telephone keypad. If you'd 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.

Thank you, Emma. 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 Neumer, our 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 is available on the Investor 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. 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, and good morning, everyone. I'm very proud of our third quarter performance. The team is making significant progress towards our profitable growth initiatives and portfolio diversification through the course of 2021. The team's exceptional execution features continuous improvement and deeper deployment of the volunteer business system. We delivered another quarter exceeding our guidance on all metrics despite a very challenging backdrop. We achieved nearly a point of core revenue growth and nearly 10% core revenue growth excluding EMV. Given the supply chain headwinds that every other company is also encountering, I believe the real standout measure for Vontier this quarter is our margin performance. We drove 90 basis points of adjusted gross margin expansion and 70 basis points of adjusted core operating margin. This strong performance driving our earnings growth reflects the efforts by our world-class supply chain team and swift price and specific actions taken across the businesses to counter persistent inflation and worsening material availability as well as labor shortages. Demand for our solutions is solid with order growth excluding EMV up mid single digits and our ability to price continues to outpace inflation. We've managed positive price costs even in the face of dramatic cost increases associated with expedited freight, but it's becoming more and more challenging given the pace and Ray of the inflationary and logistics headwinds. And while we were able to reduce backlog during the quarter, levels remained elevated. And so at the end of the day, our ability to deliver growth really comes down to the availability of materials. As many of you know, the volunteer businesses are short cycle and we are continuing to de-risk our supply chain through our simplification initiatives and by leveraging local partners with a diverse network. We're hyper-focused on securing the supply base. Daily management, one of the hallmark fundamentals of our business system, is critical to our success in this environment. Global cross-functional teams are collaborating virtually in real time to navigate a multitude of issues. For example, procurement and R&D engineers dynamically problem-solve and rewrite software to accommodate alternative components. We are shipping by air when necessary. We operate with long-term value creation as our highest priority, and thus our mantra is delivery ahead of cost. To that end, we remain diligent in our efforts to capitalize on growth opportunities. This was clearly evident at our recent VBS Growth and Innovation Conference. We had nearly 70 of our senior commercial, product, and engineering leaders together to share best practices. Teams shared lessons learned ranging from Simplification to Improve Focus, and Lean Portfolio Management to Experimentation and Digital Transformation. GBR leaders shared how they utilize an agile development process to collaborate closely with customers and to accelerate new product time to market. The recently launched Vontir Data and Analytics Hub helped automate complex analytics to reduce cost and respond to customers much more quickly at GTT. There are many more examples like these to illustrate how we're building better innovation capabilities. Importantly, our efforts to improve return on every R&D dollar invested are gaining traction, and I look forward to keeping you updated on our progress. In September, we completed our annual strategic reviews for the first time as a standalone company. I've never been more excited about our organic and inorganic growth and portfolio diversification opportunities as these reviews highlight the strength of our positions and the runway potential in our markets. Our recently closed acquisition of DRB exemplifies the playbook importance of focusing on attractive markets and company characteristics that deliver value. The DRB team is making an immediate difference. I'm excited about the depth of experience they bring with predictive analytics and behavioral economics. They uniquely engage and understand the consumer and deliver solutions to their customers, solving high-value problems. They've invested wisely for growth, and you will learn more about their high-value workflow solutions and innovative business model in just a couple weeks during the Retail Solutions virtual teach-in. Moving to the outlook. We're raising our full year 2021 adjusted diluted net EPS guidance to $2.82 per share to $2.86 per share to include the impact of GRB. This represents year-over-year growth of 14% to 16% or greater than 20% excluding the expected impact from EMV. This includes continued assumptions for high single-digit core revenue growth, and Core adjusted operating margin expansion greater than 125 basis points. We expect free cash flow conversion of approximately 90 to 95% reflecting the lack of linearity due to the supply chain pressures on working capital. And just as we communicated at the beginning of the year, the tale of two halves comparison dynamics provide the best perspective for the second half growth rates. With that backdrop as a reminder, We are initiating our fourth quarter adjusted diluted net EPS guidance of 77 to 82 cents. This assumes a mid-single digit core revenue decline and 50 to 75 basis points of adjusted core operating margin contraction as we look to manage the decremental in the 30% range. We believe the unprecedented supply chain constraints limit upside opportunity, making the middle of the EPS range the highest probability outcome. With that, I'll turn the call over to Dave to provide the financial update.