Vontier Corporation Common Stock

My name is Brittany, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to the Volunteer Corporation's fourth quarter 2021 earnings results 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 the star then the number one on your telephone keypad. If you would like to withdraw your question, please 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, Brittany. 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, our Senior Vice President and Chief Financial Officer. We will present certain non-GAAP financial measures on today's calls. Information required by SEC Regulation G relating to these non-GAAP financial measures is available on the investor section of our website, www.vonteer.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 the website under the heading Financials. During the presentation, Lily described certain of the more significant factors that impacted year-over-year performance. All references to period-to-period increases or decreases in financial metrics are year-over-year. 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 annual report on Form 10-K. These forward-looking statements speak only as of the date that 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. The fourth quarter closed out a defining year for Vontir. Our team delivered another strong quarter ahead of earnings expectations. Continued focus and execution positions us well for long-term success. Before moving into the details of the quarter, I'd like to review the important progress we're making to drive portfolio diversification and unleash earnings growth potential. I'm pleased to report that we've met or exceeded plan and 2021 expectations in all areas. The team delivered a strong finish to the year in the face of an exceptionally challenging environment and an EMV top line headwind of roughly $100 million. Full year 2021 adjusted earnings per share of $2.88 grew 17%, driven by 6% sales growth which includes 7.4% core revenue growth and 160 basis points of adjusted core operating margin expansion. Excluding the EMV headwind, core growth for the full year was approximately 15%, a testament to the team's unyielding execution. In addition to delivering double-digit earnings and top-line growth, we delivered adjusted free cash flow conversion of 96% for the year or 102% when excluding the extra tax payment related to the SPIN. Our cash performance is one of the financial hallmarks of our portfolio and merits recognition for its mid-teens free cash flow margin. Rigorous application and continuous improvement of the Vontir business system is advancing our profitable growth initiatives and enhancing our competitive advantages. We improved our return on R&D investment, more than doubling the gross margin contribution from new products. We gained share in core markets, drove continued Matco franchisee growth, and improved profitability by over 200 basis points at both Teletrac, Navman, and Hennessy. We successfully accelerated our portfolio diversification strategy and deployed $965 million with the successful acquisition of DRB. DRB's excellent performance will be highlighted later. We also established a $500 million retail solutions portfolio, which is accretive to our enterprise growth, margin, and software-enabled profile. As highlighted in the November keychain, this portfolio enjoys a long runway of attractive adjacencies for future M&A, compelling secular growth drivers. Adding to our key achievements this year, our ESG program continues to progress rapidly thanks to our recent commitments and accomplishments. In December, we made a commitment to reduce absolute Scope 1 and Scope 2 greenhouse gas emissions by 45% by 2030 from a 2020 base year, and a net zero goal by 2050 in support of the Paris Climate Agreement. We held our first Energy Kaizen at VitaRoute in Altoona, Pennsylvania, harnessing VBS to reduce emissions, drive cost savings, and develop and engage our employees. On the employee safety front, we held our first ever Vontier Safety Week and published our goals to achieve OSHA top quartile results in all of our businesses. We're also active throughout our communities. In addition to donations through the Von Teer Foundation, the Von Teer Scholarship Program awarded 10 new scholarships and six scholarship renewals in 2021 to the children of hardworking employees. Von Teer also recently received a number of inclusion and diversity accolades. These include achieving a perfect score on the Human Rights Campaign Corporate Equality Index and earning our status as a 2022 military-friendly employer. Our ESG efforts are critical to our corporate strategy and to the vitality of our organization, and I could not be more proud of our progress here. Now I'd like to spend a couple moments highlighting last week's energy transition investment announcement. We're committed to tackling decarbonization in transformative ways with our commitment to invest more than $500 million over the next five years. Vontyr is at the forefront of solving next-gen mobility and transportation challenges, and this investment advances our industry-leading efforts to address the global low-carbon energy transition. Part of this strategic pledge is the acquisition of drives. a leading provider of EV charging and energy management software. The acquisition accelerates our portfolio diversification and e-mobility strategies. It also positions us well to capitalize on global EV charging long-term secular growth drivers. Drives provides us with market-leading technologies within the highest growth, most profitable network management software market segment. While the transaction will be initially dilutive, We believe it provides a prudent opportunity to participate in an early stage growth technology company. Business models in this sector are still developing and continue to evolve with significant capital yet to be invested across the value chain. To that end, given our focus on the software segment, we chose not to exercise our option to buy Tritium, but we remain supportive and expect them to realize their value proposition of which we are beneficiaries. Given our 16% ownership position, this provides upside value to our stock and the potential to add further dry powder for capital deployment. These important outcomes demonstrate that we are realizing our vision of Vontyr as an industrial technology company focused on smart, sustainable solutions, and that we remain committed to building a better, stronger, more focused growth portfolio. The volunteer value creation flywheel is taking effect and we are well positioned to continue to post strong results in 2022 and beyond. With that said, we're initiating our full year 2022 adjusted diluted net EPS guidance range of $3.05 to $3.15, which includes our core revenue growth expectation of low to mid single digits, adjusted core operating margin expansion of 30 to 60 basis points, and free cash flow conversion of approximately 100 percent. Also included in our full-year outlook is the accretive impact from the acquisition of DRB, which will contribute high teen cents to EPS. Furthermore, driven by DRB's technology leadership and new site activity, we believe DRB will contribute more than 300 basis points to the top line or high single digit total growth at the enterprise level. Our core growth outlook includes a more favorable view of the 2022 EMV headwind of 25 to $50 million. Subsequently, we believe that 2023 will be the EMV sunset trough with a year over year headwind of 300 to $350 million. We are confident in our ability to more than offset these headwinds and expect earnings and cash flow growth through this period. Lastly, as part of our continued focus on creating shareholder value, we expect that we will be in a position to opportunistically purchase our stock early this year under our previously announced share repurchase program. We are also initiating our first quarter adjusted diluted net EPS guidance of 64 cents to 67 cents. In spite of the challenging comparison that resulted in a 14.3% core growth in the year-ago period, we expect first quarter 2022 total growth of mid-single digits or a flat to low single-digit decline on a core basis and flat adjusted core operating margin. Our first quarter outlook reflects continued supply chain impacts to backlog and sales conversion But we are encouraged that the supply-demand imbalance improves in the second half of the year. With that, I'll turn it over to Dave to provide for the fourth quarter results and financial detail. Dave?