Vontier Corporation Common Stock

Good morning, ladies and gentlemen, and welcome to the volunteer second quarter 2023 earnings call. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 3, 2023. and the replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman, Fortier's Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us on the call this morning to discuss our second quarter results. With me today are Mark Morelli, our President and Chief Executive Officer, and Enshuman Agha, our Senior Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the investor relations section of our website at investors.fonteer.com. Please note that during today's call, we will present certain non-GAAP financial measures. We'll also 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 risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. Before I hand the call over to Mark, I want to take a moment to remind everyone that beginning last quarter, we are now reporting and discussing our results in line with our updated segmentation. Additional information regarding our segmentation is included in the appendix of today's presentation. With that, I'd like to turn the call over to Mark.

Thanks, Ryan. Good morning, everyone, and thanks for joining us on today's call. Let me kick things off with some high-level commentary beginning on slide five. We continue to deliver on our commitments accelerating baseline growth and profitability in Q2 and demonstrating strong traction on our connected mobility strategy. We delivered another quarter of strong top-line performance above our expectations with baseline core growth of 9%. As a reminder, baseline core growth excludes the year-over-year impact from the EMV sunset, which continues to play out as anticipated. There is no change for our outlook for the EMV-related trough in 2023, which is setting us up for accelerating core growth in 2024 and beyond. All three segments contributed to the upside. First, mobility technologies reported low double-digit baseline growth led by double-digit growth at DRB and our alternative energy businesses. Second, in our environmental and fueling segment, we continue to see strong performance in our U.S. dispenser business driven by significant expansion, refresh, and rebuild activity. And in our repair solution segment, Matco continues to capitalize on a very strong in-market dynamics, delivering solid same-store sales growth and net franchisee ads this quarter. Supply chain conditions continue to normalize in Q2, enabling our teams to convert higher levels of backlog and exceed our top-line commitment, building on our record of strong operational execution. Recent channel checks and customer conversations indicate that the demand backdrop across our end markets remains constructive supported by strong secular tailwinds and the traction we're gaining and accelerating growth across the portfolio. Our book to bill was 0.97 in line with what we were anticipating and comes after a solid Q1 performance. Order activity and healthy leading indicators along with elevated backlog levels provides confidence in our outlook for the full year. Our reported operating profit declined versus the prior year as expected due to the sunset of EMV. Now, I want to share with you why I'm excited about the underlying performance of our businesses. Baseline operating margin expansion of 230 basis points demonstrates the power of VBS to deliver operational excellence and rigorous execution. as well as incremental progress on our restructuring actions. We remain on track to deliver the $45 million of in-year savings, which is at the high end of the range we committed to you earlier this year. I am confident in our ability to achieve our multi-year margin expansion target as we continue on the path of optimizing our businesses. I am pleased with what we've accomplished through the first half, and I'm confident in our outlook for the remainder of the year. Importantly, we're laser focused on executing on our strategic vision to accelerate growth. With the depth and breadth of our portfolio, we're uniquely positioned to capitalize on the strong secular tailwinds within the mobility ecosystem, and we're seeing those play out in our ongoing performance and outlook. As we will share with you over the next couple of slides, we're seeing strong traction on our connected mobility strategy. A majority of our end markets are experiencing a shared set of growth drivers. For example, side expansions, modernizations, and industry consolidation, increasing regulatory compliance, increasing site complexity, increasing car park complexity, and decarbonization. Underpinning these trends in the mobility ecosystem is a drive for greater productivity and automation, which means higher levels of capital investment by our customers. Turning to slide six, you may recall from our investor day and our first quarter earnings call, our connected mobility strategy is centered around driving operational excellence and accelerating growth through expanding our core businesses and gaining leverage through adjacent markets. We refer to these as our three pillars, optimizing the core, expanding the core, and leveraging adjacent markets. Starting with expanding the core, we recently announced a formal rebranding of our legacy GVR retail solutions business to Invenco by GVR, a significant milestone in a process that accelerated following the acquisition of Invenco last year. This is more than rebranding. This is about better positioning our convenience retail and fueling businesses for long-term success, providing greater depth to meet our customers' needs. Resegmenting our businesses gives us greater focus and transparency, both strategically and operationally, to truly accelerate growth for both businesses. In the case of InventGo by GVR, the creation of this platform enables us to better serve our convenience retail customers in new, more innovative ways by focusing on the outcomes that are most important for them. At the same time, we're better able to focus on and solve for the unique set of challenges our fueling customers are facing. Evenco by GVR brings together our core point of sale, payment, cloud-based analytic software, and side automation platforms with Evenco's payment technology and microservices software. The combination creates a portfolio of best-in-class automation technology and the next generation operating system that enables convenience retailers to increase productivity and drive better customer engagement. We are deploying a cohesive platform with increased agility in how we develop and bring to market connected hardware and software solutions. We're now better positioned to serve as the preferred technology provider for C-Store operators with a unified strategy and product platforms, leveraging global scale and delivering more flexible modular solutions. Last quarter, we announced the rollout of our innovative NFX solution to 13,000 shell locations. Another large-scale fueling and C-Store operator awarded us a project with similar scope, this time with an 8,000 store deployment set to begin in the third quarter. The recent NFX wins and growing pipeline of opportunities demonstrates the power of our differentiated automation capabilities combined with unmatched channel presence. The team is doing a fantastic job accelerating growth, and I'm excited about the path that we've laid out for this business. Let's turn to slide seven and focus on pillar three, leveraging adjacent markets for growth. Evolve, our business combining our drives EV charging network software with our Sparkion AI-driven energy management business enables us to better support EV charging providers and fleet operators in scaling their EV infrastructure. We provide an interoperable solution that simplifies and improves the customer charging experience. You're likely aware of the unprecedented level of incentive dollars for EV charging infrastructure across many parts of the globe. In the US alone, the bipartisan national EV infrastructure funding program established $5 billion in federal funds available to states that strategically deploy EV charging infrastructure and create an interconnected network through 2026. This is in addition to the billions available by way of tax credits for alternative fuels infrastructure under the Inflation Reduction Act. In Europe, investment in EV charging infrastructure continues to ramp, led by the European Investment Bank, the European Commission, and national governments. By some estimates, hundreds of billions of dollars of investment will be required to reach their target for expansion and reliability of EV chargers across the continent. Having doubled its ports under management in 2022, DRIVES currently manages more than 40,000 ports and is on track to double yet again this year, reinforcing the compelling value proposition of our DRIves operating system. During the quarter, DRIves signed a number of new Tier 1 customers who are scaling their infrastructure rapidly. At initial deployment, these recent wins will add more than 20,000 additional ports under management. From a quantity of ports on our management standpoint, the DRIVES platform is one of, if not the largest, managers of high-speed charging networks globally. Our current scale, rate of growth, and momentum is recognition that we have the leading operating system that allows interoperability. DRIVES provides the critical connective tissue between and amongst a rapidly growing and diverse number of global charge point operators. As EV charging infrastructure and utilization continue to expand rapidly, consumers demand a more simplistic, reliable, and accessible charging experience. DRIVE is in the pole position with hardware agnostic solutions that enable a seamless and more reliable charging experience, including with self-healing algorithms. In addition to leading productivity and automation solutions, our customers are also investing in a more sustainable future. This benefits our comprehensive multi-energy portfolio of solutions. Our alternative energy solutions business is a leading global supplier of compressed natural gas and renewable natural gas infrastructure solutions and an emerging leader in hydrogen. These are attractive growth markets where we have market-leading capabilities. Our sustainable fleet customers remain committed to CNG and R&G. They're continuing to invest in their own infrastructure build outs and we're seeing early demand for our hydrogen solutions. We recently completed our 100th R&D station with waste management, now WM, who uses landfill gas to fuel their fleet and supply the grid with renewable natural gas. WM has a network of over 22,000 trucks running on CNG and RNG in the U.S. and recently announced plans to expand that network even further over the next three years. We're incredibly proud to partner with them to support their infrastructure build-out. Broader industry acceptance and support for clean hydrogen continues to gain momentum. In June, the Department of Energy unveiled its National Clean Hydrogen Strategy and roadmap, which aims to increase hydrogen production from near zero today to 10 million metric tons by 2030 and 50 million metric tons by 2050 through the use of hydrogen hubs. The investment required to build up this infrastructure is anticipated to be nearly $10 billion, and we're well positioned to support this infrastructure build out with decades of domain expertise and a robust channel presence for fueling with high pressure fuels. We are shipping our first hydrogen units this month with key customers lined up to take delivery over the next several months. Now, I'd like to turn the call over to Ann Schuman to provide for more color on our financial results and update you on our outlook for the full year.

Thanks, Mark, and good morning, everyone. I'll start with a summary of our second quarter performance. Please turn to slide eight. Reported revenue for the second quarter was $764 million, down just under 2% from the prior year on both the reported and core basis. Excluding the impact of EMV, baseline growth was approximately 9%, exceeding our second quarter guidance and led by low double-digit growth in mobility technologies and high single-digit growth in our fueling business. Approximately 40% of this 9% growth was attributable to price, but importantly, we are getting good volume growth across the portfolio. As Mark mentioned, we are executing well on our strategic initiatives to accelerate growth, which is reflected in the healthy baseline growth we've seen in the first half. We continue to benefit from normalizing supply chain conditions in Q2, which allowed us to convert higher levels of backlog again this quarter. Total adjusted operating profit was $160 million, which was down roughly $7 million year over year, driven by the expected headwind from the EMV sunset. Adjusted operating profit margin was 20.9%, slightly better than our guidance range. Baseline margin expanded 230 basis points, benefiting from price-cost performance and improved productivity savings. We continue to gain traction on our restructuring activities, with most actions complete and savings ramping into the second half. Adjusted earnings per share of 67 cents was above the high end of our guidance range, supported by the higher revenue. Adjusted free cash flow for the second quarter was 77 million, with conversion of 73%, a significant improvement versus the prior year, the result of disciplined working capital management. Turning to the performance of our three segments, starting on slide nine. Mobility technologies' top line increased over 13%, with solid performance across the board. Core growth was approximately 5%, with baseline core growth of 10%. Our DRB car wash solutions business reported a low double-digit increase in sales, capitalizing on a market-leading solution in the attractive tunnel car wash space. Sales in our alternative energy solutions business were up over 40% this quarter, which comes after strong double-digit growth in the prior year. Demand for alternative fuels like compressed and renewable natural gas and hydrogen remained strong. As Mark noted earlier, we have an enviable position across the multi-energy landscape and remain optimistic about the opportunities ahead of us. In Venco by GVR, Teletrak and Evolve all performed well, benefiting from strong secular drivers and increased adoption of our connected solutions. Pegment operating profit of approximately $45 million increased 5% over the prior year and translates to 18.7% operating profit margin, down 150 basis points from the prior year, but in line with our expectations for the quarter. Mixed related to the Invenco acquisition, And ongoing growth investments are the primary driver behind the decline in profit margin as we continue to invest strategically across mobility technologies, most notably in Invenco by GVR and Evolve. Profitability for the acquired Invenco business increased to high single-digit margins in Q2, from break-even in Q4 and Q1, with synergy still expected to ramp later this year. Turning to repair solutions on slide 10. Matco revenue increased 6% to $158 million for the quarter. The demand backdrop remains robust, as technician employment, wages, miles driven, age and complexity of the car park, and demand for auto repair all remain at high levels. Top line growth was supported by a same store sales increase of mid-single digits, with solid growth across tool storage, hard line, and power tools, as well as positive net franchisee ads, a continuation of the strong growth we saw in the first quarter. Operating profit of 42 million is in line with the prior results, and operating profit margin declined 150 basis points, driven primarily by year-over-year reserve adjustments related to the receivables portfolio, as we previously communicated. Looking out to the second half, We do anticipate the largest headwind related to reserve adjustments in Q3 this year. This flips to a slight tailwind in Q4, which will benefit us on the margin rate. Matco's bad debt expense is normalizing back to pre-pandemic levels. And finally, environmental and fueling solutions on slide 11. Reported revenues declined about 10% to 339 million, a strong demand in our U.S. dispenser and aftermarket businesses was more than offset by the impact of the EMV sunset. Excluding the impact from EMV, baseline core sales growth was just over 9%. As we have mentioned, the U.S. dispenser demand continues to track ahead of expectations. Strength year-to-date can be attributed to increased investments by large national and regional operators to expand and modernize the installed base of fueling and C-Store sites. Given our leading share position with the large players and good visibility into customer project pipelines, we see this trend continuing into 2024 and beyond. Aftermarket parts was up high single digits as we continue to leverage a large and growing install base to drive results. Segment operating profit was $95 million and the operating profit margin expanded 190 basis points to 28.1%. Margin performance is the result of a previously announced restructuring actions and continued execution on price cost. Turning to slide 12, I'll cover our balance sheet and free cash flow detail for the quarter. In Q2, we repaid $100 million in debt, reducing our net leverage to 2.9 times, within our target range of 2.5 to 3 times. In early July, we paid down an additional $35 million of debt, bringing the total for year-to-date pay down to $200 million. We now anticipate achieving the high end of a prior debt pay down range or about $250 million for the full year. Additionally, we completed $32 million in share repurchases during the quarter for a year-to-date repurchase of $50 million or 2 million shares. Since we began a share repurchase program in 2022, we have reduced our outstanding share count by around 9%. at an average share price of just over $24 per share. Turning to the outlook assumptions on slide 13, we are initiating third quarter guidance for adjusted EPS of $0.65 to $0.69, which assumes a mid-single digit decline in core sales or an increase of mid-single digits plus excluding the impact of EMV. We expect adjusted operating margins to decline between 370 and 420 basis points and roughly flat on a sequential basis, just to provide a bit more color on margins. Third quarter margins last year were abnormally strong, underpinned by a few favorable items. You may also recall that fourth quarter margins were lower than normal seasonality last year. giving us an easier comparison and will allow for outsized margin expansion in Q4. Net-net, there are no changes to our planning assumptions for the second half profitability. For the full year, we are increasing the low end of our adjusted EPS guidance range to 279 to 287 from 277 to 287 previously. As Mark noted earlier, There is no change to our assumptions for the headwind related to the EMV sunset. As a reminder, this headwind ramps sequentially into the second half. No material changes to our other planning assumptions for the full year, which are now included as a slide in the appendix. With that, I will turn the call back over to Mark.

Thanks, Hans Schumann. FONTIER is a company in motion, transforming and aligning our portfolio to deliver sustained, mid-single-digit revenue growth, industry-leading profitability, double-digit earnings growth, and significant free cash flow. We're executing our connected mobility strategy, leveraging our market-leading positions to capitalize on robust secular tailwinds and unique growth drivers benefiting the mobility ecosystem. The most prominent theme underpinning these growth drivers is the need for greater productivity through automation across the mobility ecosystem. FONTIER is well positioned with unique domain expertise and the ability to offer differentiated solutions to deliver on this theme. Let me spike this out by segment. In mobility technologies, our customers are rapidly adopting connected cloud-based solutions and are seeking to significantly improve asset and labor productivity. We're leveraging digitally-enabled technology to connect and optimize the management of our customers' assets. We provide differentiated operating systems for C-stores, car wash, fleets, and EV charging networks that solve our customers' high-value challenges. In repair solutions, the need for greater productivity driven by the energy transition, labor shortages, and an aging car park are driving significant opportunities for Matco. The repair-rich segment of the car park is expected to grow at a 3% TAGR through at least the next decade. Drive train complexity and increasing technology content is driving further growth to mid-single digit due to the size and makeup of the toolkits that technicians and shops need to carry. MACO is well-positioned to respond to these secular trends and equip the garage of the future through its agile business model providing higher product vitality. In environmental and fueling solutions, the need to comply with increasing regulations, address labor constraints, and managing expanded site footprints increasingly requires connected devices to improve asset efficiency. A great example of this is our automated tankage system in our environmental business. This system recently received California Air Resource Board certification, making it the most modern certified solution in the market, complying with the highest standards of vapor recovery in California. With its remote connectivity and expanded capabilities, while ensuring the highest level of compliance, it is well-timed as we're in early innings of a significant underground upgrade cycle in the U.S. Across all of our segments, we're capitalizing on the need for increased productivity and automation, and we are positioned for future growth with a robust and growing pipeline of opportunities across the mobility ecosystem. As we progress through the multi-decade energy transition, our portfolio is uniquely positioned with broad multi-energy solutions to address the energy trilemma facing the world, the need for sustainable, secure, and affordable energy. We are a global leader with a comprehensive suite of solutions for petrol-based fueling, including environmental technologies, CNG and RNG fueling systems, hydrogen fueling infrastructure, and EV charging solutions. Different modes of transportation, industries, and geographies will require a range of energy solutions, and Von Thiers' portfolio is poised to capitalize on the changing mobility landscape. Through our clear vision, expansive channel presence, and leading technological capabilities, we are enabling the way the world moves, driving smart, safe, sustainable solutions for our customers, employees, and shareholders. With that, operator, we're ready to open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the two.

One moment, please, for your first question. And your first question comes from the line of Jillian Mitchell from Barclays.

Please go ahead.

Thanks and good morning. Maybe just the first question around environmental and fueling solutions. That business, the core sales are down 8%, 9% in Q2. Just wondered how you're seeing the exit rate from this year in terms of fourth quarter organic sales. And any initial help you could give us on thinking about the pace of sort of cyclical recovery into next year in EFS when you're thinking about sort of customer replacement rates, baseline demand, if there's any sort of destocking going on in that business right now that reverses next year. Any help at all on that point, please?

Yeah. Julian, good morning. This is Mark. Look, we're it's a little early to get into guidance for 2024, but let me give you some color in terms of what we're seeing and how we see it playing out. So first of all, what's essentially happening is that we are sunsetting the EMV strong secular driver that we experienced a number of years. And that is, there's no change to that whatsoever. And so what we're seeing this year is certainly that year over year compare, but the underneath baseline You know, growth is very strong in that business. And what's driving that is that we sell our products to predominantly the larger players in the industry and they're doing an industry consolidation. They're doing refresh and rebuild. They're doing new acquisitions of sites and and many of these folks have announced plans that go out well into the future. And when we do our conversations with our customers and our channel checks, we see that that driver is not only intact, you know, for this year, but that driver is building out into next year. Yes, interest rates have gone up, but a lot of these folks have great access to capital. They're getting outstanding returns on building out their formats and that refresh and rebuild. And we're very well positioned to experience that growth. So I don't know if you want to add any color there, Inshuman.

I think the secular drivers, the industry consolidation that Mark talked about are very important and that are continuing to help drive this industry forward. This business, from a C-store perspective, has been resilient through economic cycles in the past, and we're seeing continued investment. So we feel good about this business.

That's very helpful. Thank you. And then just maybe shorter term, you have that steep year-on-year margin decline in the third quarter, and then it sort of eases with the comps into the fourth quarter. Maybe help us understand if we're thinking by segment, anything major to sort of call out as we go through Q3 and Q4 in terms of the margin development. Maybe an easier way is to look at it sequentially. It looks like you've got flattish margins sequentially in Q3 and then they're up maybe 100 points plus in Q4. Do we see kind of all three segments moving similarly with that sequential change in margin?

Yeah, Julian. On the margins for Q3, we had a tough compare year on year because last year we benefited from a few items. But when you start thinking of margin sequentially from Q2 to Q3, relatively flat, flattish across all three segments, give or take, And then really the ramp into Q4 driven by a few things. One, the seasonality of volume, Q4 being our strongest quarter at good incrementals, that's going to drive higher margins for us. Second thing is the ramp of Invenco synergies. And when I talk about synergies, it's both from a revenue perspective with some of the great wins that we've announced, plus also the cost benefits. For example, Invenco payment on our dispensers going through the certification, which will start in Q4 shipments. And then finally, the restructuring savings, which most of the actions have been completed, there's some ramp into the fourth quarter. So all of that helps our margin rate for the fourth quarter.

That's very helpful. Thank you.

Thanks, Julian.

Thank you. And your next question comes from the line of Andrew Obin from Bank of America. Please go ahead.

Sure. This is David Ridley-Main on for Andrew Obin. I'm wondering if you did see any impact from the stocking, and is any included in your forward guidance?

Yeah. David, this is Mark. Good morning. Look, the destocking is not a big issue for our business. We've certainly seen some pockets of businesses overall sort of post-COVID where some inventory has been built out. But if you look in our businesses and certainly at the platform level, we're seeing a strong underlying growth that is reading through and I think is quite evident. So I think it's indicative of our positions in the market, our product lineups that we have and we're continuing to see really solid demand.

Got it. So you're not concerned about inventory levels at distributors currently?

It's, you know, there are smaller pockets of that, but I think the overriding, you know, sentiment that we have is the basic strength that we have in the businesses. So it's not something that's a big part of our business.

David, just to add, importantly, the areas where there could be some destocking and there's nothing that is unanticipated, it's less than 15% of our total revenue. So not a material part of a business where

We would get impacted by any de-stocking everything's playing out as expected no surprises And just a quick follow-up How do these recent winds change kind of your your growth trajectory of in Vinco? You know, how do you think about growth over kind of a longer term three-year plus type time horizon?

Yeah, I think What we're seeing with Invenco by GVR and these recent ones that we have is just builds off the momentum that we've previously announced. And I think it's just an outstanding growth platform. Mobility technologies is a set of businesses with leading operating systems that serve the mobility ecosystem. And whether you're talking about the convenience store where we're getting outstanding traction as this industry is consolidating, they're trying to get operational productivity of their assets. They're having to deal with, you know, ongoing regulatory changes and they need the software to be able to operate that and be more productive. And so we're seeing, you know, Invenco by GVR and those recent wins clearly building some really significant momentum there. And then that also links with the other operating systems in the space, whether it's the car wash systems or electric charging network build outs. And we think that over a longer period of time that accrues to a very solid growth rate, which gives us confidence in our mid-single-digit growth for Vonture overall.

I'll also just add that really when you think of the business model, not only do you get the initial hardware sale because these are intelligent hardware plus software devices, you also get the recurring revenue, which gives us long-term traction and visibility into our revenue out there.

Perfect. Thank you very much.

Thank you. And your next question comes from the line of Nigel Coe from Wolf Research. Please go ahead.

Thanks. Good morning, everyone. Good morning, Nigel. DRB remains very strong double-digit growth. I think last quarter it was plus 20, if I'm not mistaken. How does the second half look? What have you got baked in for DRB and The spirit of my question is that your major competitor called out some weakness in that car wash business. So just curious how you see this second half developing.

Yeah, so Nigel, we still see really solid growth in this business. I think what you're highlighting is what we've been talking about is that we see slowing growth, but still really high growth. We believe that this is going to normalize into a high single-digit growth rate. And the reason being and the reason why it gives us confidence is that we see a lot of folks in the space that are consolidating the industry and they're continuing to build out their footprint and they need the tools to be able to manage that more effectively. They need the software to make that more productive. They need the software and capabilities through connected hardware to provide for a better consumer experience. They need to know how to price accurately in this environment. And we provide the tools and capabilities to do that. We don't make the rollers. We don't make the brushes. We don't make the hardware. We make the intelligence to enable folks consolidating the industry to be more productive and be better to attract their consumers. And that's exactly where we think the market is going, and that's why we're seeing good growth out of that business.

That's great. And then my follow-on is on the U.S. dispensers. It seems like you track pretty much online with the $80 million headwinds. That's more or less what you reported, I think, this quarter. We normally see some seasonal build in that business in the second half of the year, and it doesn't look like your guide embeds that. But yet the commentary sounds pretty bullish. So just to try to square the circle there, any help?

Yeah, so what we said in the prepared remarks, the $300 million, which is the EMV sunset, there's no change to that. So putting that aside, The underlying business, which is the U.S. dispensers for new to industry or site refresh rebuilds, that is actually trending better than our expectations were at the beginning of the year. And we're seeing strong growth in that business. So there will be a ramp in the baseline U.S. dispenser business driven by new to industry, site refresh, site rebuilds, where we have a good market share with the large

regional national and regional players that are building out but what we also said is the 300 million peak to trough for emv there's no change to that okay that's great and then just uh it might be helpful to to maybe just unpack the margins by segment for 3q um you know the former base points of contraction but i'll leave it there and pass it on thanks

Yeah, I think the best way to think about margins by segment for the third quarter are relatively flat, give or take, you know, 50 basis points plus or minus to Q2 of this year, so sequentially flattish. You know, last year we had a few items that made compares a little difficult, but really start thinking of margins sequentially from Q2 to Q3 by segment, and that will be more helpful to model out. Okay, thank you.

Thank you. Once again, should you have a question, please press star and 1 on your telephone keypad. And your next question comes from the line of Sahil Munaka from CDE. Please go ahead.

Hi, good morning. This is Sahil for Andy Kaplowitz. Good morning.

Good morning, Sahil. Hi, Sahil.

Hi. Just to follow on to a previous question, Volunteer is targeting 35% recurring revenue in the next three years, 40% by 2028. With 30% currently, and you called out key wins in INX and EV charging, would you characterize yourselves as ahead of pace in achieving the near-term goal?

Yeah, I think the recurring revenue theme is no question building some momentum here. Not only did we talk about the build-out of the operating system for electric charging networks, but Also, Invenco by GVR and InFX solution, that is predominantly all SAS software. And this is cloud-based software. That is, there is a connected hardware component, but that's a relatively small portion of that sale. These are multi-year contracts, four or five-year contracts that provide SAS offerings. So I think you can really see many parts of our business building on that recurring revenue theme.

Awesome, great caller. And my follow-on is, you're shipping your first hydrogen units this month, and given the nascent hydrogen infrastructure in the United States and the projected $10 billion in hydrogen-related spend by 2050, do you have a sense of how big a driver hydrogen can be for the energy business long-term?

Yeah, you know, it's a great stepping stone for us because we're experts in dispensing at high pressure, you know, predominantly LNG, RNG, you know, requires that. It's difficult to do given the reliability and safety concerns and regulatory concerns around that. So for us, it's a very natural stepping stone for our Angie business. As you can see, Angie business is experiencing very high growth now, and the business is approaching about $90 million at the end of this year at a very strong growth rate. And we can build off that platform with hydrogen and we see an excellent pipeline of folks that are really lined up to be able to benefit from that. It's not just dispensing, it's the entire turnkey solution for hydrogen. So we definitely see that as a growth driver building off the ANG business base.

Thank you.

Thank you. Mr. Morelle, there are no further questions at this time.

Please proceed.

Yeah, thank you, Yana. Before we close, I just wanted to thank the teams across one tier. I'm incredibly proud of the performance and dedication of our teams that really enable us to deliver top-tier financial performance. And I think that benefits not only all employees, but all our stakeholders. So thank you for joining us on today's call, and we look forward to catching up with many of you soon. Have a great day.

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may all disconnect.