Q4 2020 Vontier Corp Earnings Call
Yeah.
Ladies and gentlemen, thank you for sending by my name is Maria and I'll be your conference facilitator. This morning.
At this time I would like to welcome everyone to volunteer Corporation's fourth quarter 2020 earnings results Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
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If he would 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 you May begin your conference.
Thank you Maria good morning, everyone and thank you for joining us on the call with me today are Mark Morelli, our President and Chief Executive Officer, Dave Miller, Our senior Vice President and Chief Financial Officer, Bill says that certain non-GAAP financial measures on today's call information required by SEC regulation G.
These non-GAAP financial measures is available on the investors section of our website www Dot volunteer dot com under the heading financials. Please note that unless on whether unless otherwise noted the presented financial measures reflect year over year increases or decreases relative to the supplemental normalized.
Dana also posted on our website under the heading financials.
Supplemental normalized financials are adjusted for estimated Standalone public company costs.
During the presentation, we will describe certain of the more significant factors that impacted year over year performance its debt.
Momentum materials describe additional 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 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 on our SEC filings and subsequent subsequent annual report on form 10-K.
These forward looking statements speak only as of the day. 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 fourth quarter earnings call before we get to the results for the quarter I want to recognize our team's extraordinary performance, marking the end of a truly unprecedented year.
The COVID-19 pandemic caused considerable economic operational and personal challenges.
So I want to first thank our employees and business partners, who made it possible through their dedication and tireless actions and continue to do so with the ongoing pandemic.
Not only did the team worked through significant headwinds, we are making the most of the opportunities in front of us as well as posting excellent results on.
Our team delivered another quarter of double digit earnings growth and a strong finish to 2020 day.
On to your business system continued to drive outstanding adjusted free cash flow conversion of greater than 140 per cent core revenue growth of eight five per cent and adjusted core operating margin expansion up 240 basis points.
These top tier results underscore the resiliency of our portfolio as key secular drivers and market share grant gains drove outperformance.
A proof point of the quality of our business and strategic focus is that even when excluding the benefit of E&P in the quarter, we still delivered high single digit core growth.
Furthermore, we ended the year with backlog growth of 40%, reflecting accelerated E. M V adoption at Gilbarco veeder root as well as continued strong demand across the product lines at nacco.
Importantly, we realize these results while continuing to position our portfolio for the future and investing ahead for profitable growth opportunities not only were we able to deliver high single digit core revenue growth across the platforms, which exceeded our previous outlook. We also drove structural cost control and.
Working capital productivity, which will continue to provide benefits into 2021.
We're also making steady progress improving our innovation efforts.
By deploying lien portfolio management launching growth accelerators sprint processes to gain market insights and adding talent focus on growth and product development.
Our portfolio is strategically positioned across attractive markets.
Secular drivers evolved towards increasing regulation and the growing need for clean efficient mobility solutions, our enduring business model will provide even greater stability and growth through economic cycles.
We remain focused on building a better stronger bond here by utilizing our balance sheet and deploying our significant acquisition capacity.
With that we are initiating our full year 2021 guide, which includes our core revenue growth expectation ranging from a decline of 1% to growth of 1% and adjusted core operating margin expansion of greater than 25 basis points.
This core growth outlook includes a more favorable view of the 2021 M b headwind of $100 million to $150 million.
Excluding the impact of core revenue growth is expected to be mid single digits. Despite more challenging comps in the second half. Additionally.
Additionally, we anticipate full year adjusted free cash flow conversion of approximately 95%, reflecting the timing of tax payments and working capital headwinds, resulting from a very strong 2020 performance.
All of this results in our full year 2021, adjusted diluted net earnings per share guidance range of $2 35 to $2.45.
The guide amounts to a tale of two halves, reflecting the continued first half growth in demand for E. M. V ahead of the April adoption deadline in Q2, coupled with a favorable comparison due to the impact of the pandemic in the second quarter of last year.
We're in the second half we have basically the opposite dynamic as we benefited from the V shape recovery and accelerated demand for E N V and Mexico regulatory solutions in.
In sum this equates to expectations of first half adjusted earnings per share growth of greater than 20% and a second half decline in the mid teens range.
As I outlined in October we identified a number of profitable growth initiatives to help offset the anticipated impact of the E M B sunset.
These include simplification and productivity actions as well as further penetration in high growth markets regulatory and innovation strategic imperatives and continued improvements in businesses, such as Tennessee, and Telecheck NAV man.
We've made important progress advancing these initiatives and I'm confident we will deliver.
As such our guide reflects our ability to more than offset the top line and earnings impact from E N V and expectations of inflation.
Dave will walk you through the key drivers and assumptions of our full year 2021 Guy in his remarks, we're also initiating our first quarter adjusted diluted net earnings per share guidance of 52 to 55 cents, which includes assumptions of high single digit core revenue growth and adjusted core <unk>.
<unk> of greater than 200 basis points.
With that I'll turn it over to Dave to provide the financial results, Dave take it away. Thanks Mark.
Our adjusted net earnings for the fourth quarter were $147 million, an increase of 22% from $121 million in the prior year period. This translated to adjusted net earnings per share of <unk> 87.
Compared to <unk> 72 in.
In the prior year period, the double digit increase in earnings was primarily driven by volume growth with strong fall through which led to 240 basis points of adjusted operating margin expansion in the quarter.
Core growth in the fourth quarter was eight 5% driven by the continued strength of the ENV rollout in North America regulatory driven demand in Mexico and continued strong demand at Mapco. The strong recovery that we experienced in the third quarter continued through the fourth quarter with both <unk> and Mapco.
Book experiencing double digit core growth in Q4, and we also saw high growth markets returned to growth posting mid teens core growth.
On the full year, we had core growth of minus one 2%. However, we still continue to expand gross and operating margins for the full year underscoring the power of V. B S. The sharp recovery that we experienced in the full second half of 2020 reflects the resilient nature of our businesses and the markets they serve.
Serve.
Our adjusted operating profit for the fourth quarter was $201 million compared to $165 million in the prior year period, primarily driven by strong core growth and continued cost management on both cost of sales and operating expenses, we delivered gross margin expansion of 70 basis.
<unk> points, which contributed to the strong operating margin expansion similar to the performance that we demonstrated in Q3 and a function of the team's continued application of DBS in what remains a dynamic environment.
And although we have demonstrated prudent cost actions in this environment through the year. We've continued to fund our highest priorities to enable us to exit 2020, well positioned for more profitable growth.
Our earnings growth continued to translate through to strong cash flow performance with adjusted free cash flow of $207 million, a conversion of 141% in the quarter and while our performance in Q4 was strong it is in line with normal seasonality.
For the full year 2020, we generated adjusted free cash flow of $616 million or conversion of 147% of adjusted net earnings.
<unk> underlying factor driving this outstanding full year free cash flow performance was how well our teams executed in this pandemic environment ultimately the biggest lever and driving the free cash flow performance throughout 2020 was exceptional working capital management.
<unk> exited 2020 with working capital levels at a historic low and while we anticipate maintaining top tier working capital metrics, we expect to see some increase in inventory levels to pace with demand, which will likely increase working capital needs in 2021.
Further I will remind you that 2020 free cash flow benefited from only three federal income tax withholding payments whereby 2021, we will have five payments. This is a function of the timing of our spin and will create a headwind to free cash flow on a year over year basis. Nonetheless, we are extremely pleased with.
The work performed by many folks at the operating companies to leverage Bbs to drive this cash flow cash flow performance.
Looking at the top line performance of our two platforms mobility technologies had core revenue growth of eight 3% led by low double digit growth in G. B R, where we continued to see strong momentum from <unk> demand and high growth markets.
As anticipated we saw strong demand out of Mexico, driven by the physical security regulations. We have previously mentioned and continued sequential improvements more broadly in other parts of the business, including a return to strong growth in high growth markets.
Although overall, our high growth markets, which are historically, rather lumpy grew mid teens with India and Mexico being the main drivers.
In our diagnostics and repair technologies platform core growth was nine 2% and driven by the continued strong demand mapco.
Co experienced low double digit growth as we saw demand continued to accelerate from the strong performance that we saw in Q3.
The technician employment environment remains healthy and with new products coming online and having record net additions to our franchise base in Q4, we feel we are well positioned for 2021.
We also exited the year with strong backlog in both platforms order growth exceeded revenue growth for the second quarter in a row with Mapco orders growing in the low teens.
G B our orders growing in the mid teens and we continue to work through both the momentum at Mac Coke and ordering for E. M. B ahead of the upcoming deadline in April 2021.
I mentioned the return to growth in high growth markets and we generally saw sequential improvement in most of our significant operating regions North America grew high single digits as did our developed markets in total and high growth markets grew mid teens after declining mid single digits in Q3.
Last quarter, we noted that we would begin a series of restructuring actions in Q4 aligned with driving targeted operational improvements we.
We recognized a charge of $4 8 million during Q4, which was excluded from our adjusted net operating profit.
We anticipate additional actions over the course of 2021.
A total fool full year charge of around $20 million, which we will exclude from adjusted operating profit.
Before turning it back to Mark I will walk you through our 2021 EPS bridge as Mark mentioned, our profitable growth initiatives are a key driver of earnings growth.
At the midpoint of our guidance, we would expect these initiatives combined with an easier compare and price actions will more than offset an E. M. B headwind of about 38 cents also the impact of the return of the temporary costs that we took out in Q2 of last year is expected to be on.
Offset by the benefits of the restructuring actions in Q4 of 2020 and those that will be completed during the course of 2021, along with other cost measures, we expect currency to be about to be approximately five favorable.
Lastly below the line and other items are expected to be a headwind of about 12 to 13 cents, primarily reflecting a higher tax rate with that I'll turn it back to mark.
Thanks, Dave.
No question that 2020 was a historic year that presented many challenges.
<unk> of our team for rising to the occasion and delivering safe working environments for our employees substantial working capital productivity operational execution and growth as we continued to invest in our future.
Their ability of our business model through economic cycles was certainly proven out this past year, we realized sequential improvement since last quarter and nearly all metrics, creating not only momentum, but also high jumping off point as we head into 2021.
I'm excited about our path forward, including the progress we've made since separation towards building out and Resourcing, our ESG programmatic initiatives and strategy.
We're putting a lot of energy into this and we welcome the opportunity to engage with all of our stakeholders on these efforts and to partner with you as stewards of your capital.
To wrap up 2021 is an important springboard to our multi year transformation with a long runway of opportunities.
As Dave highlighted we are well positioned for the growth and comparison dynamics as we progress through the year.
And while there is much work to be done our teams are battle tested ready and believe that the best defense is a good offense, we will continue to invest in organic and inorganic opportunities and remain prudent and disciplined in our approach.
We're also well aware of the evolving secular drivers in our markets and recognize the value Optionality rapid decision, making and creative capital structures in this environment and.
And we remain hyper focused on unlocking shareholder value from the long term.
With that I'd like to turn the call back over to Lisa.
Thanks, Mark that concludes our formal comments.
Now ready for questions.
Thank you on the floor is now open for questions.
Just to ask a question at this time simply press Star then the number one on your telephone keypad.
If at any point. Your question has been answered you may remove yourself from the queue by pressing on the pound key.
Do ask that you please limit yourself to one question.
Our first question comes from line of Nigel Coe of Wolfe Research.
Good morning, everybody. This is Brian on for Nigel.
Maybe talk about G D R in the quarter, specifically in India, what drove that growth was it the new product introductions or just an improving macro backdrop and access to sites and things like that and then also how are you thinking about the outlook by geography into 'twenty, one that'd be great. Thanks.
Yeah happy to do so Brian Yes, India.
Turn to growth as you know it's been a lumpy business. There it's been impinged by a number of things COVID-19 being one of them for sure and certainly the access to the customer sites. As you mentioned is kind of a big deal. So we can do installations, but I think kind of that will even out but more importantly, we've got a great product there called latitude that's well positioned into the March.
Place, it's doing really well we've responded very well to the tenders in the market and we picked up tenders and so we've got a good backlog there to serve off as well so.
Our position in India is kind of unique and I think we're beginning to capitalize on that which is which is great to see to get to the second part of your question about the geography.
What when you walk around the World. If you look at the developed markets, we're looking at high single digits.
On the Macko and G. B are in North America growth grew high single digits as well as Western Europe had a mid single digit growth and that was a sequential improvement and then when you look kind of about the developing markets is as David said that also had sequential improvement you know mid teens growth.
Co also grew because there was a great secular driver there thats played through that's continuing to play through in Q1, India was up sequentially in China was a little bit down so with that Dave do you want to talk about 2021, yes, that's great.
We've talked about some of the dynamics with <unk> and frankly some of the compare issues that we will have next year or this year 2021 compared to 2020.
Those really are.
North America, driven with both <unk> and some of the strength we saw it on macko and so when we look forward. We think most of the growth in next year will be driven outside the U S and we'll see some of those headwinds on.
Set but.
More of the growth coming from outside the U S from from those the headwind to <unk> in the compare being North America centric with that we do anticipate growth on high growth markets and continue to see recoveries in other areas, including developed markets outside the U S as well.
Yeah.
Great. Thanks, everybody.
Our next question comes from the line of Andy Kaplowitz of Citigroup.
Good morning, guys on Andy.
Mark or Dave could you update us on your work on business simplification using V. B S and whats baked into 'twenty. One guidance you, obviously reported strong incrementals in Q4 and didn't look like they were closer to 50%, which seems like you're guiding to again in Q1, I think you've told US before you know to think more about 30%. So are you find.
More opportunity than you thought to increase productivity as you reduce complexity have you increased profitability faster than some of your smaller businesses does that mean, we can start thinking about higher inherent incrementals going forward.
Andy I Love that question you know, what we really found through digging into our portfolio here is that we have more opportunities.
This simplification initiative really is about how we kind of fare it out the areas, where we can do better and I think the separation really shows that focus works and the deeper application of DBS here and the tools that we're using is really uncovering I think you're beginning to see some of that coming through I think I'm very encouraged by.
By what we see into next year as we get our backs fully behind some of these opportunities on.
In terms of the total guidance of I think I'll leave it to the guide numbers, we put out there, but net net I just I'm very encouraged on what we're seeing and I think there is an excellent runway of opportunities ahead.
Easy enough thanks, Mike.
Our next question comes from the line of Julian Mitchell of Barclays.
Hi, good morning.
Maybe just a question around.
The narrowing of that ENV headwind versus what you'd said before you know what drove that.
And do we just assume a sort of bigger headwind in 2022, and also I think you'd said.
He had a high 30 cents headwind from E. N V. This year in 'twenty, one that implies I think a very very high decremental margin maybe.
Maybe 50% plus just wanted to double check if I misheard that.
Yeah, Let me I'll.
Start with the question and I'll turn it over to Dave to.
So first of all I think we get a little better visibility so for us to kind of narrow that range on.
On a bit of an improved.
Outlook to the Hunter on to 150 is certainly good news, but I think this is the difficulty that we're up against one is the adoption rate is really hard for us to tell.
So the other two is we had a better jumping off point you know it was a lower number in terms of a jumping off point I think we have built a better backlog and part of it too is we were gaining share and then the other thing that's kind of difficult here is that you've got a mix between what's called ENV kits and dispensers and that's also hard to call and then you've got the.
The smaller network retailers and there's thousands of these folks that sell through two step distribution and so it's a bit of a called in terms of the total adoption rate on net so I think what we're doing is we're working through this problem is.
As much transparency as we can we're updating you on where we are and what has changed in terms of what we're seeing and then what our outlook is so it's pretty hard to call. Even what happens after April but you know I think we're doing the best we can I think we're confident in what we see but as we get smarter as some of these dimensions become better known than we'll certainly update you as we go.
Through a day do you want on anything on that yeah, I think on the decremental margin piece Julian I think your.
Youre right around it there are about 50%.
These these products in the U S with a reasonably higher technology component to them to come off at a little bit higher rate, but also as we said in the guide our profitability actions our growth initiatives and collectively.
Collectively our offsetting that impact so we feel pretty good about that.
Thanks, and maybe just a follow up around sort of broader portfolio thoughts I guess in two respects. One is maybe some of the markets youre looking to buy in.
And he vs on telematics very very frothy valuations. So are you kind of changing at all how you think about acquisitions and also then on that point on electric vehicle related valuations in the market.
Does that change how you think about the stakes in things like tritium and drives them on how to crystallize that value.
Yeah. So first of all we couldnt be more excited about these.
Very growth market as fragmented as many of you know it's about a $27 billion Tam that we operate in and we are excited about the portfolio opportunities around smart cities around telematics and Adjacencies in logistics and supply chain and building out the portfolio around.
The convenience store and truck stops because as many of you know we're not just a fuel dispensing business, we've gotten into kind of the retailing side with point of sale and with SaaS opportunities there.
As well as in the E mobility, I think represents an opportunity. So I don't think theres any sort of new updates there where we're certainly in the market doing strategy work. We've got a full strategy team now engaged in working on that stuff and.
Very exciting to kind of Peel the onion on that and then as we kind of move forward.
The continued cultivation and the M&A is pretty much the same and we're looking at bolt ons near in Adjacencies strategic acquisitions, and we've got a great balance sheet to be able on tap that I think the the thing that you mentioned there about EV and the valuations I mean, certainly we're seeing evaluations and we're obviously paying attention to what's happening.
And in the marketplace.
The great thing is that we've got these two minority investments one in tritium, which as many of you may know is a DC fast charging company there and the other is.
And drives which is a software company around managing energy management in this space too and so that provides us really a front row seat, where we're able to really learn and keep in mind, it's very early innings in the market.
Great. Thank you.
Our next question comes from the line of Jeff Sprague of vertical research.
Thank you good morning, everyone.
Two from me, please just perspective E M D.
Understand the whole kind of rental or question on where adoption ends up but.
Based on where you ended the year and what you have on backlog and backlog, which we would assume would obviously be delivered where does that roughly leave adoption assuming nothing else happens.
When we look at our installed base, we had converted about a little over 70% about 71% of our installed base. We would count we would then count the backlog in next year's activities. So we'd be over 80, probably the mid <unk> exiting 2021 based on kind of the midpoint of the range, we put out today.
Great and then just to follow up on the minority Stakes and again, it's a.
Nice to have kind of a little.
A little play there but.
What's the what are the dynamics.
Around those businesses.
The majority owner wants to kind of go elsewhere.
The risk of these things may be like trading away from you so to speak.
It's unclear if your ambition is to ultimately buy these things outright or Theyre, just kind of channel and partner plays right but.
Back to the earlier question some of the stuff is Super Hot.
They just see this going elsewhere at some frothy valuation.
Yeah.
It's called hypothesize here Jeff.
The terms of the actual terms of these agreements are confidential confidential, but we also have.
Commercial arrangements with these folks that are outside of the existing maybe in terms of our our ownership. So its hard to hypothesize, particularly in a market. That's this early stage and frankly, this kind of exciting, but having said that I understand that I think we all agree on the dynamic that we're seeing we're seeing a lot of activity in this space and ultimately.
We like our Optionality and we like our position being in these assets.
The other thing there I'll just throw in that is our revenue that we actually sell for EBIT.
<unk>, what we call E mobility, which is mostly electric charging of trading in products today, and it's mostly southern Europe is about $25 million. So it's grown a lot. This past year and it's really represents excellent learning and I think that's kind of the best way to describe at this stage is that we're learning a ton of the market's evolving quickly.
<unk>, it's an exciting market and we're looking for the best ways to Untap that.
Great. Thank you for that color I appreciate it.
Yeah.
Our next question comes from the line of John Walsh of Credit Suisse.
Hi, good morning.
Good morning.
Maybe circling back to the question around capital allocation just wanted to get your sense on how you're balancing kind of being able to find these deals where you can kind of hit that 10% ROIC threshold.
Versus you know share repurchase it looks like you are guiding for some dilution in the share count in 2021 relative to at least what you did here in Q4 on a on an average diluted basis.
Yeah.
We are part of that is a little more impacted by the spin where now we're seeing the impact of stock based compensation.
Come in just beginning.
From the spin date.
The dynamic that you see there but.
When when.
When we think about capital allocation I think it's fair to say that M&A debt.
<unk> remains our highest priority ultimately John we're focused on shareholder return and we think M&A is our preferred vehicle to.
Together, having said that.
There could be times when share repurchase makes sense, but I think the right way to think about us as M&A.
Definitely remaining our priority in terms of adding shareholder value.
Great and then maybe as a follow up a lot of focus on M V. Sorry, if I missed it.
How what did the point of sale.
Business do within <unk> in the quarter and then how are you thinking about the growth for that part of the business into 'twenty one.
Yes, we didn't talk specifically about point of sale as you know we have a good position in the U S and I think we did well there I don't have the exact.
Percentage growth on that product, but when we were talking to you on b just to be clear, we're talking about the dispenser and the payment system embedded into the dispenser. So outside the thing you put your credit your credit card in.
We like we like our point of sale position, we like our position on the U S, which is strong and I knew we grew well there.
And outside the U S. We have some new products coming online. So it's an exciting space force, but I think to the heart of your question point of sale is not considered part of this <unk> dynamic.
Great. Thank you.
Our next question comes from the line of David Raso Evercore ISI.
Hi, Good morning, my questions are about the guide.
On the backlogs up 40% you mentioned at the end of the year.
Backlog growth rate ex E M D.
I'm trying to figure out.
Growth for non E. M D, who was up high single digits in the fourth quarter, but youre expecting this low to mid single and I'm just trying to figure out that dynamic and then second on the guide for EPS. It seems like youre, implying the back half of the year is about $1 40.
Which means that the first half of the year as a dollar and giving you gave first quarter EPS youre, implying the second quarter EPS.
Below the first quarter.
And I'm just trying to make sure that's what you're trying to imply.
And then lastly, the balance sheet usage cash flow is there any balance sheet uses cash flow really in the guide.
Thank you.
Going back to these these components, maybe maybe starting with your point around the guide David.
So look we we talked about the tale of two halves in the first half is going to be.
Quite a bit stronger here.
On the easier compare but also because we're seeing the E&P volumes come through and note that.
That we'll see some permanent costs come back in the second quarter. So theres still some puts and takes and we're not guiding EPS by quarter beyond the first but there are some dynamics that that probably impacted the second a little worse than.
That arent necessarily there during the first.
And the volumes coming out of your backlog kind of tying that to your first point are ultimately, we'll see a lot of that strength coming through the first the first quarter. So the first quarter is definitely going to be going to be.
It's going to be very strong to your point.
Now the point about backlog.
That you point out.
He was a big driver of the significant growth in backlog.
But we had good growth in Mexico, we had good growth on other parts of <unk> well not U S related so I think.
I think that.
Without having the exact number parsed out in front of me.
It's pretty fair to say that we're seeing growth in backlog, albeit not not.
Not at that rate so.
There's also some other timing effects you are happening in the first half that's really a little bit due to the pandemic. Historically, we would have our expo at Mapco, which is frankly, a big driver of demand and cost we would have that in the first quarter and we're moving that to the second I don't think all of the revenue will necessarily moved to the second because we will still do a lot of that online, but it is a very.
Important event for that organization that pulls along a lot of cost and that'll be in the second.
The second quarter as well so.
So.
I think directionally, you're you're correct without trying too.
Necessarily put a dollar on it.
I'm just trying to and also the third question about the balance sheet cash flow usage whats implied in the guide or is it more just.
Usage implied and you can do what you want with through the lower net debt and your model I'm just trying to figure out what's in the guide from the balance sheet usage.
Yeah. So we talked about Mark talked about conversion free cash flow conversion of about 95% next year and we had a big working capital tailwind this year and we anticipate as I was saying a little bit of a headwind next year. So we anticipate a little lower significantly lower free cash flow convert.
Year over year, but as you know we tend to point people towards about 100% conversions will be around that so we see things kind of normalizing with some trade offs from some of the benefits in 2000 2020 as far as capital allocation for M&A, we are not implying anything in our guide around doing any deal. So this would be kind of a purely.
On the guide M&A would be upside to this like it like it always is force.
No repo no M&A, just simply the 95% cash flow conversion and whatever that cash would bring on interest income or.
Or whatever from short term debt reduction there's no active use of the cash flow our balance sheet for M&A or repo.
That's right that's right all right I appreciate it. Thank you so much yeah sure David Thank you.
Our next question comes from the line of John inch of Gordon Haskett.
Thank you and good morning, everybody.
I'm wondering if we could talk a little bit about just M&A process I know you've talked about this in the past and you've talked about this.
Kind of as a volunteer was going public but.
I just wanted to maybe maybe you could lay out a little bit more on the process on how this is working I know you have a couple of senior folks driving this.
I know one of you mentioned you know the smart cities initiative, but.
How are you if you think about X I know, obviously, you can get into some adjacencies into C suite or C stores and.
Other things with respect to gas stations, but how are you thinking about the world of like you guys have a pretty blank canvas right. I mean, it strikes me that you have a very wide on.
The opportunity to look at a number of different things and criteria.
Even a little overwhelming how are you how are you narrowing. This just maybe you could talk about that please.
Yeah. So it is a pretty exciting field I mean, if you think about our penetration in some of these GTT all small business. It still puts us in the 90000 intersections in the United States.
In terms of fleet monitoring management, we're on half a million vehicles that are being monitored and then if you you spoke about the convenience store with.
260000 refueling sites globally with on the average of every three to four dispensers for fueling side. So there's a lot of data coming in and the ability to sort of monetize that is also pretty exciting, but I think you brought it up right I mean, it's it's growth. These are fragmented there on.
All very excited and then how do we narrow the field is something that we wrestle with a lot. We've got team of folks working on this bubbling up priorities and as you know.
Bob you want to be convinced that the strategy in this space as well as you want to be looking at whats in those spaces in terms of properties and M&A can be quite episodic. So theres a number of factors that we look at the good news is that they're all relatively near in like we have a reason to be in these places we have something to leverage.
And these places and we have something to leverage across these spaces too which is also very exciting. So I think that does give us optionality.
We will absolutely say that we have a disciplined rigorous approach when we think through these things and through capital allocation as well, it's a bit of the heritage that we get both through the cultivation aspect as well as the executives that we have on board that really think through these kind of things and we like to say no a lot in this process to that means we're just figuring out the best of the best.
Opportunities at this given time.
What would you say are volunteers core competencies that would lend themselves to you targeting future acquisitions that are not immediate or obvious adjacencies to both macko and GTR.
Yes, we have an excellent core competency in solving high value problems with customers in this space. Our brands are well recognized we've got a lot of depth and how we serve our customers. There and then when you look across the businesses are pretty significant scale that we can also leverage.
And then the other competence. We have also is on this sort of M&A allocating capability.
That is deeply entrenched in the business and also the application of DBS and how we can apply that to new acquisition. So we've got a lot to work with here and so I'm excited to leverage it.
Thank you.
Okay.
Our next question comes from the line of Julian Mitchell of Barclays.
Thanks, a lot. So he just one follow up I didn't hear much mention of telematics, maybe I missed it but just wanted to check how did that perform in Q4 and also what's embedded in that guide.
This year.
Relative to the mid single digit growth ex CMV.
Julien it's Dave.
In the fourth quarter I think we saw the progress we were looking for and we remain on track as you know, it's a SaaS business and it was down in the fourth quarter, but it was more a function of kind of flushing through some churn revenue in the prior year and as we've talked about earlier, we've seen churn moderate it's SaaS business. It takes time to change.
Change, but what we're looking at is before before the indicators of the rate of churn in some of the operational priorities. We're looking to make we've talked about.
We're really starting to see that flow through the P&L more on the second half of next year. So it doesn't have a big effect on the guide next year because it moves slowly.
But I would say, we're definitely still focused on the operational priorities, we've talked about and feel like we're on track with those.
Thank you.
Thank you.
Ladies and gentlemen that was our final question I'd like to turn the floor back over to Mark Morelli for any additional or closing remarks, yes. Thank you Maria I'm incredibly proud of this team's ability to come together and execute with these headwinds and more importantly take advantage of these opportunities have been in front of us and I'm also very excited about.
This road ahead this ability for us to springboard into this multiyear transformation is very compelling to us as a management team. We're very engaged on it and couldn't be more excited to see what happens on the road ahead. Thanks folks for joining us today in today's call and have a good day bye now.
Thank you ladies and gentlemen, this does conclude today's conference call you may now disconnect.
Okay.
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