Vontier Corporation Common Stock

My name is Ashley, and I'll be your conference facilitator this afternoon. At this time, I would like to welcome everyone to the Vontir Corporation's first quarter 2022 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 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 Kern, Vice President of Investor Relations. Ms. Kern, you may begin your conference.

Thank you, Ashley. 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 Nymera, 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 at www.vonteer.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 and 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 first quarter earnings call. Our continued successful execution and capital allocation drove strong earnings growth. We delivered adjusted earnings per share of 70 cents, an increase of 11% year-over-year and above the high end of our guide. Our team delivered another quarter ahead of earnings expectations, reflecting the continued progress and success of our profitable growth initiatives. And our DRB acquisition delivered robust growth in the quarter, highlighting the strength of our capital deployment and portfolio strategy to accelerate non-ICE business growth. Furthermore, we leverage our strong cash flow and balance sheet by deploying $442 million of capital in the quarter, including $257 million towards share repurchase with the balance towards energy transition acquisition investments. I'm extremely proud of our team's dedication and tireless efforts to deliver results and to continue to advance our multi-year transformation. all while successfully navigating an exceptionally challenging and dynamic environment. We've strategically optimized our opportunities and continue to reposition our portfolio while delivering impressive outperformance. We've invested to support our growth vectors, improve technology, and business model innovation, including ESG commitments. The success and runway of value creation underpins my growing confidence in our assumption for high single digit non-EMV core revenue growth and continued high return capital allocation. The acceleration in non-EMV core revenue is driven by further progress with our profitable growth initiatives and acceleration of our platform strategies. We're making important progress towards building a better, stronger, more focused growth portfolio. Before getting into the details of the quarter, I'd like to share some highlights from our recent CEO Kaizen event. As you are aware, chip shortages have stressed supply chains around the world, and we are navigating this challenge well. But in keeping with our culture of continuous improvement, we focus one of our six CEO Kaizen teams to dive even deeper to identify new insights and countermeasures. A cross-functional team leveraged the Vontir data and analytics hub to cross-reference thousands of component parts with third-party data to create a multi-year product health roadmap. The findings from this exercise will further enable us to proactively redesign our technology solutions to minimize component shortages and optimize continuity of supply. Ultimately, This smart, analytics-based approach increases our ability to serve customers and meet our financial commitments. We will continue to leverage Fonteer's capabilities to digitize our customers' workflows through connected hardware, software, services, and payment solutions. Moving on to the results for the quarter, double-digit revenue growth from both DRB and our core non-EMV businesses drove the operational beat. Robust demand, strong price, and cost actions combined with continued progress on our profitable growth initiatives more than offset the unfavorable mixed impact from a decline of nearly $60 million in EMV revenue. The rate of decline was greater than we'd anticipated as the well-documented availability of electronic components impacted us in the quarter. Subsequently, we now believe the EMV headwind for the full year will be closer to $50 million, the top end of our prior assumption. We continue to drive deeper deployment of VBS and build momentum with our profitable growth initiatives, which is driving the acceleration in non-EMV growth. We remain price-cost positive and delivered 80 basis points of gross margin expansion in the quarter. This performance and execution rigor enabled positive operating leverage with adjusted core OMX of 20 basis points and 30% incrementals, despite the challenging supply chain and inflationary backdrop. The demand environment remains strong with non-EMV total orders growth exceeding 20%. This robust growth reflects the resiliency of our portfolio, technology leadership, and secular growth drivers. as well as the continued momentum from the success of our strategy and initiatives since separation. We are more deeply deploying VBS to face continued headwinds and will remain agile with price and other actions to position ourselves to meet the ongoing strong demand for our solutions. We expect to remain price-cost positive and deliver margin expansion for the year. This is a critical area where our team has executed exceptionally well. and we've been consistently outperforming peers. Moving to the outlook, given our strong performance in the quarter and our previously announced 250 million accelerated share repurchase program, we're raising our full year 2022 adjusted diluted net EPS guidance to $3.20 to $3.30 per share. Our core growth and adjusted core operating margin expansion assumptions remain the same at low to mid single digits and 30 to 60 basis points respectively. Importantly, we're also maintaining our expectation for adjusted free cash flow conversion of approximately 100%. As previously mentioned, our core growth outlook now includes an assumption for EMV to be a full year headwind of closer to $50 million. That said, We don't have enough new information to warn an update to our 2023 EMV expectation, given the range we previously provided. I continue to have strong conviction in our ability to offset the EMV headwind and deliver earnings growth and strong free cash flow conversion in 2023. Dave will be walking you through our assumptions to do this in our roadmap for accelerated growth a little later. We're also initiating our second quarter adjusted diluted net EPS guidance of 68 to 72 cents, which includes assumptions of flat core revenue and adjusted core operating margin against a very challenging comparison in the prior year period, where we delivered 33% core revenue growth and 450 basis points of adjusted core operating margin. With that, I'll turn the call over to Dave for the financial results.