Vontier Corporation Common Stock

Good morning ladies and gentlemen and welcome to the volunteer third quarter 2023 earnings call. At this time all lines are in 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 November 2nd 2023 and a replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman One Tears Vice President of Investor Relations. Please go ahead.

Great. Thank you, Operator. Good morning, everyone, and thank you for joining us on the call this morning to discuss our third quarter results. With me today are Mark Morelli, our President and Chief Executive Officer, and Anshuman 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. Please note that during today's call, we'll 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. With that, I'd like to turn the call over to Mark.

Thanks, Ryan. Good morning, everyone. Thank you for joining us to discuss our third quarter results. I'll start with some of the highlights of the quarter beginning on slide five. We're incredibly pleased with our performance in Q3, which reflects progress on our connected mobility strategy year-to-date and the strength of our differentiated portfolio. I want to take a second to recognize our employees around the world for their continued dedication to driving operational execution, delivering for our customers, accelerating growth, and demonstrating the power of the Vontir business system. We delivered strong top-line performance again this quarter ahead of expectations with baseline core revenue growth of 10%. As a reminder, baseline core growth excludes the year-over-year impact of the EMV comparison. The fourth quarter marks the end and also the peak of the EMV headwind, and we look forward to finally removing this comparison from our lexicon beginning next year. Both mobility technology and environmental fueling reported low double-digit baseline growth in the quarter. Within mobility tech, sales in our alternative energy solutions business grew over 20%, with DRB up low double digits and Invenco by GVR also up low double-digit baseline. Environmental fueling continues to benefit from the robust demand in our U.S. dispenser business, which has been consistent all year. Our leading share with large national and regional C-Store and fueling operators puts us in a position of strength to capitalize on their strong reinvestment in expanding or modernizing their store footprints. Our customers are enjoying strong fuel margins, in-store sales growth, and healthy balance sheets. Year to date, retail fueling site refresh and rebuild activity has exceeded our expectations, coupled with continued strength in new build activity driving higher equipment demand. The benefits of this broader reinvestment trend cut across many parts of our portfolio, including C-Store, forecourt and underground equipment, as well as car wash. Looking ahead, we're confident this will continue, given our strong visibility into customer project pipelines. Repair Solutions delivered 5% growth this quarter, supported by strong end market dynamics, including healthy technician employment and wage growth. We are also benefiting from a strong product lineup, and this is a result of our industry-leading product vitality. Our book-to-bill ratio was stable in Q3 at 0.97, relatively consistent with the trends we've seen year-to-date and in line with what we are anticipating. Demand across the mobility ecosystem remains constructive, supported by continued investment in connected solutions that deliver enhanced productivity and automation. Leading indicators across the majority of our businesses remain healthy and our backlogs remain elevated versus historical levels. Additionally, our customer channel checks have been encouraging. Recently, we conducted a survey in conjunction with NACS, the National Association for Convenience Stores, which showed that 85% of retailers are projecting flat to higher CapEx spend as a percentage of their net profits in 2024. This reflects the underlying resiliency we would expect of these end markets and gives us more confidence in our outlook. Excluding the year-over-year EMV compare, baseline operating margin expanded 40 basis points, demonstrating the power of VBS to deliver operational excellence through rigorous execution. Additionally, we generated incremental savings from the restructuring actions taken earlier in the year and we're now tracking above the high end of our $45 million target for savings in the full year. We're still in the early innings of our self-help optimization initiatives as part of pillar one of our strategy, Optimize the Core, which over the next several years provides ample opportunity to expand margins in line with achieving our target of 150 plus basis points by 2026. Based on the strong results in Q3, we are updating our full-year adjusted EPS guide, moving towards the top half of our previous range, which Ann Schuman will explain in more detail in a few minutes. Let's turn to slide six for a couple examples of how we're executing our connected mobility strategy. Demonstrating our continued commitments to decarbonizing fleets and mobility in general, we continue to accelerate the rollout of our hydrogen technology offerings. Last month, we unveiled the next evolution in our product roadmap with the first orders for our state-of-the-art turnkey hydrogen refueling station. This station is the first of its kind, a modular solution that enables fleet operators to scale their stations as they grow and transition to zero emission vehicles. We are leveraging our longstanding partnership with the Trillium Loves Company, having provided them more than 40 compressed natural gas stations for fleet refueling. With them, we announced the first order to deliver our hydrogen fueling station. This includes a uniquely configurable solution of hydrogen dispensing and compression technology, as well as integrated cloud-based software. This system is going to Santa Clarita Transit in California to support the transition of their bus fleet to zero emission hydrogen fuel cell buses. Cloud connectivity ensures best in class performance and uptime through remote monitoring and preventative maintenance, further backed by our extensive network of service technicians. Santa Clarita Transit's transition plan is further supported by the U.S. Department of Energy's commitment of $1.2 billion in federal funding to the state of California as one of seven regional hydrogen hubs under the $7 billion bipartisan infrastructure law. California is targeting 200 hydrogen stations across the state by 2025. Our alternative energy solutions business leverages our leadership in compressed natural gas substation design and production, which positions us well to benefit from the build out of clean hydrogen infrastructure. This is not only in the state of California, but elsewhere in the US and all parts of the world. This build out is still in the early stages, and we see a multi-year opportunity for growth. On the right hand side of the chart, We're excited to show you that we have announced the commercial launch of our first dispenser unit to integrate the Invenco payment terminal at the NACS trade show in early October. As you may recall, part of the synergy opportunity with the Invenco acquisition last year related to vertically integrating our own payment technology into our dispensers. Now, the FlexPay 6 lineup expands upon the industry's leading connected cloud-managed payment systems capable of over-the-air updates to meet ongoing regulatory changes, enhance cyber protection, and maximizing asset uptime. It is also compliant with the latest payment card industry transaction security standard, or PCI-6, and offers a flexible solution for maximizing consumer engagement at the pump customizable user experiences, and contactless payment. The integration of the FlexPay 6 into our energy delivery system is core to the Invenco deal thesis. It is a significant milestone on our product roadmap as we deliver end-to-end cloud-enabled payment and workflow solution to convenience retail for energy delivery and in-store management. We've already seen significant orders in just our first month. The rollout of our NSX platform with both Shell and Chevron is going extremely well. Through the end of October, we deployed over 15% of Shell's 13,000 planned sites and are on pace to reach 20% of their sites by the year end. As a reminder, These first two wins cover over 20,000 sites combined, which equates to about 15% of all C stores in the US, illustrating the differentiation of this offering. Additionally, the commercial pipeline for NFX continues to build with high levels of interest from our major customers across the mobility ecosystem globally. We continue to capitalize on the secular trends across the mobility ecosystem. The most important themes underpinning all of these is the need for greater productivity and automation, and the need for multi-energy technologies to address the energy trilemma. We see an unparalleled opportunity for us to not only meet the demands of today, but lead and shape the future of mobility. FONTIER is enabling the way the world moves, and that couldn't be more evident in our continued strong financial performance and key customer wins here today. Now I'd like to turn the call over to Ann Schuman to take you through the details of our financial performance and provide an update on our outlook for the remainder of the year.