Q2 2021 Vontier Corp Earnings Call
Please press Star zero.
Yeah.
Yeah.
My name is Britney and I will be your conference facilitator. This morning at this time I would like to welcome everyone to Volunteer Corporation second quarter 'twenty 'twenty..1 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.
If he would like to ask a question during that time simply press Star then the number 1 on your telephone keypad.
If he would like to withdraw your question press the pound key I would now like to turn the call over to MS. Lisa current Vice President of Investor Relations.
Current you may be you may begin your conference.
Thank you Brittany.
Everyone and thank you for joining us on the call with me today are Mark Morelli, our President and Chief Executive Officer and days net of 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 investors section of our website www Dot volunteer dot com under the heading financial.
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 or may occur in the future.
These forward looking statements are subject to a number of risks and uncertainty and actual results might differ materially from any forward looking statements that we make today and.
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 day that they are made and we do not assume any obligation to update any forward looking statements with that I'm pleased to turn the call over to Mark.
Thanks, Lisa and good morning, everyone. We're very pleased with our second quarter performance.
Thanks to our team's strong execution and rigorous application of the volunteer business system, we delivered another quarter exceeding our guidance on all metrics.
We achieved 33% core revenue growth 450 basis points of adjusted core operating margin expansion.
69% adjusted earnings per share growth.
The results were largely driven by growth in non <unk> solutions with better than expected growth in retail solutions and auto repair solutions.
Core revenue growth excluding E M B was greater than 35 per cent.
Orders were strong increasing nearly 40% year over year, our backlog remains high with nearly 50% growth year over year and 20% growth sequentially.
Our top operational priority has been navigating supply chain challenges I'd like to recognize the tireless efforts of our teams.
I'd also like to thank our network of supplier partners. Once again this quarter, we've leveraged the volunteer business system to successfully manage tight availability. We've also increased prices to more than offset inflation.
We continue to focus on our most critical profitable growth initiatives. In addition to our accelerated core growth we saw margin expansion across the platforms through better focus and prioritization and we are gaining momentum.
We're also making progress on the innovation front with new targeted high growth market offerings and macros launch of the Maximus 4.0 diagnostic software.
We've consistently made meaningful progress towards all of our operational and strategic goals since separation only 9 months ago.
In particular, we recently announced the acquisition of D. R. B, whose focus on technology and software solution complements our existing point of sale and payment offerings.
This also gives us critical scale, establishing a $500 million retail solutions portfolio.
The addition of Dr be enhances our growth and recurring revenue profile profitability and free cash flow generation.
This is an important first step in diversifying our portfolio towards long term secular growth drivers in attractive markets.
While the acquisition is subject to customary closing conditions, including regulatory review, we anticipate closing this transaction in the third quarter, giving us approximately mid to high teen cents per share accretion to 2022.
Over the years the volunteer team has done a remarkable job of strategically expanding our portfolio.
We've built a competitive advantage by offering a broader suite of products as we more deeply embed ourselves in our customers' workflows.
We focus these offerings on the highest value part of the workflows leveraging the more intelligent electronic components of the system and connecting the convenience store with the for court.
In the early 2 thousands we strategically focus on point of sales systems site control systems and software systems. In 2017, we acquired a leading provider of hardware and software solutions focused on retail and site systems automation.
Our systems are now more profitable and benefit from regular upgrade cycles.
The future of the convenience store is bright and transforming while operators will need to maintain fueling infrastructure for decades, it's clear that our customers will increasingly be investing in non fuel retail, including sustainable services like car washes.
But darby acquisition positions us well to continue to support our customers as they diversify their offerings.
So you can see why D or b fits our strategy.
I'm happy to share today that we plan to host a deep dive into retail solutions, including the RB This coming November.
Stay tuned for more details on this virtual event.
Moving to the outlook, we're raising our full year 2021, adjusted diluted net EPS guidance to $2.77 per share to $2.82 per share. This includes improved assumptions for high single digit core revenue growth and core adjusted operating.
An expansion of greater than 125 basis points.
This increase to our core growth outlook reflects mid teens growth at macko improved non ENV demand at G. V are in developed markets and includes a more favorable view of the 2021 and the headwind of $75 million to $100 million.
Excluding the MV impact core revenue growth is expected to be low teens, despite the challenging comps in the second half.
As a reminder, this year's guide reflects a tale of 2 halves given the pandemic comparisons and ENV dynamics, we are initiating our third quarter adjusted diluted net EPS guidance of 71 to 74 cents.
Which includes assumptions of essentially flattish core revenue and core operating margin.
With that I'll turn it over to Dave to provide the financial results Dave.
Thanks Mark.
Adjusted net earnings for the second quarter for $104 million, an increase of 70% from $61 million in the prior year period.
This translated to adjusted net earnings per share of <unk> 61, compared to 36 in the prior year period.
The double digit increase in earnings was primarily driven by strong broad based volume growth, which led to 450 basis points of adjusted core operating margin expansion in the quarter.
Core revenue growth in the second quarter was 33% against the prior year Q2 declined 21% in the height of the pandemic impact.
This growth was driven by broad based non <unk> growth of greater than 35% and augmented by the continued strength of the M. D rollout in North America.
In GB, our core revenue and bookings grew more than 25% and more than 35%, respectively, while mapco had more than 50% core revenue and bookings growth.
High growth markets were also a significant contributor in the second quarter growing core revenue more than 25% year over year led by continued progress in India and Latin America.
Accordingly, we saw a strong Q1 end market demand continue in Q2.
Adjusted operating profit for the second quarter was $151 million.
Growth of 66% compared to the prior year period, primarily driven by strong core revenue growth.
Our teams.
Through our team's execution and poor execution.
Execution of portfolio of profitable growth initiatives and continued management of dynamic supply chain, an inflationary environment. We drove approximately 70 basis points of gross margin expansion and 450 basis points of adjusted core operating margin expansion more than offsetting.
Almost $20 million of temporary cost reduction actions in the prior year Q2 that a return to the business this year.
In the second quarter, we generated adjusted free cash flow of $45 million a conversion of 43%. This uncharacteristically low conversion rate, which is expected to be the low point for the year reflects 2 items, which we communicated on our call last quarter for.
We paid an incremental federal tax payment of approximately $30 million in the quarter, which was a dynamic from our spin in Q4 of 2020 and second we built approximately 30 million of net working capital, while continuing to satisfy strong demand conditions and run at outstanding working capital levels. We ended Q2 with.
Working capital dollars at 6.2% of last 12 months sales an increase for Q1 levels of 5.6%, but still a very low working capital level historically.
Adjusting for the impact of the extra federal tax payments, our adjusted free cash flow conversion was approximately 70% in the quarter.
Our year to date adjusted free cash flow conversion is 95% consistent with our communicated guidance for 2021. Additionally, our net leverage stands at 1.7 times adjusted EBITDA adjusted EBITDA down from 1.9 times in the first quarter and down from 2.6 times at the time of <unk>.
Our spin in October of last year.
This deleveraging has been enabled by strong earnings growth and free cash flow conversion.
Looking at the performance of our 2 platforms mobility technologies had core revenue growth of 26%, primarily due to more than 25% core growth in <unk> and GTT, partially offset by.
By low single digit decline at Tullow track NAV man.
The strength in <unk> continues to be multifaceted, we saw greater than 35% core growth in non <unk> sales driven by retail solutions aftermarket and environmental solutions and more than 25% core growth in high growth markets.
And we continue to see strong demand from E. N V in North America in the months immediately following the deadline as expected E. M. B dollars decline sequentially from Q1, but did grow on a year over year basis.
Yeah.
Core revenue growth in our diagnostics and repair technologies platform was 57% driven primarily by continued strong demand and macro on Hennessy mapco experience more than 50% for growth. This was driven by continued strong demand environment and a growing distribution base, reflecting our fourth consecutive.
For a strong net franchisee additions following the pause that we saw during the height of the pandemic.
Looking at total company sales regionally.
The growth was again truly broad based.
As I mentioned high growth markets grew core revenue more than 25 per cent.
On our developed markets in total had core revenue growth greater than 30 per cent led by greater than 35% growth in North America and in La.
Low double digit growth in western Europe.
We continue to make progress on our profit improvement actions that will better position the company in the back half of this year and in 2022.
We recognized a restructuring charge of $3 million in the second quarter. This was part of the approximately $20 million charge that we continue to anticipate for the full year discharge is excluded from our adjusted net operating profit. We continue to expect to have these actions substantially complete in the year positioning our exit rate to achieve.
The full benefit of these actions in 2022.
Before discussing our outlook and assumptions I want to provide additional color on the EBITDA outlook as.
As we have previously stated it is a very fluid situation and we continue.
To execute.
Extremely well powered by bvs and as evidenced by our continued backlog strength.
Bookings strength, and our agile ability to manage supply constraints.
We currently expect the headwind associated with <unk> to be in the range of $75 million to $100 million for the full year 2021 down from our prior estimate of $100 million to $150 million.
We will continue to assess the situation and provide updates as appropriate.
When we entered 2021, we highlighted that the quarterly trend of our year over year growth in the year would be impacted by the strength of the V shaped recovery that we demonstrated last year and the roll off of the N V. As we pass the adoption deadline. The tale of 2 halves as we referred to it.
The net impact of these 2 compounding dynamics is that we expect second half adjusted earnings per share to decline high single digits per cent compared to the prior year period. In contrast to the 54% of adjusted EPS growth. We just completed in the first half of 2021, having.
<unk> said that we expect second half revenue and earnings to be higher than our first half performance a seasonality that we would directionally expect to see in our business but.
But the growth dynamics are highly impacted by the comparison factors that I mentioned.
Taking a closer look at our 2021 the outlook assumptions, starting with the third quarter, we expect core revenue growth to be flat to slightly negative and adjusted core operating margin to contract by approximately 25 basis points.
This dynamic is primarily reflecting the difficult comps related to the strength of Mapco E M B and Mexico fiscal regulation in the prior year period consistent with the total 2 halves and translates into adjusted earnings per share of <unk> 71 to 74 cents in the quarter.
For the full year 2021, we are increasing our core revenue guide to high single digit growth compared to our prior outlook of low to mid single digit growth, which equally reflects the better than expected demand in non <unk> solutions and our favorable favorable revision to the ENV outlook. Additionally.
<unk>, we are increasing our core operating margin expansion target to greater than 125 basis points in 2021, reflecting continued execution on our profitable growth initiatives and cost management and partially offset.
By persistent but manageable inflationary pressures.
Supply chain constraints and mix all told this translates to $2.70.
For $2.82 sets of adjusted EPS growth of approximately 12% to 14% year over year, and an 8% raise at the midpoint of our prior guidance.
We continue to expect adjusted free cash flow conversion will be approximately 95%, reflecting continued working capital management with all time low levels and the low capital intensity of our business model.
Overall, the second quarter capped off a robust first half 2021 and supports another meaningful raise to our full year 2021 expectations for core growth margin expansion and earnings growth with that I'll turn it back tomorrow.
Thanks, Dave for.
A wrap up this quarter, we made significant progress on our critical priorities to drive profitable growth and on advancing strategically and financially beneficial M&A prop.
Profitable growth initiatives are delivering ahead of plan.
Our D R B acquisition Diversifies, our portfolio aligns with our retail solution strategy presents a compelling runway of expansion opportunities and offsets the ENV headwind now upon us.
We know our work continues we are building momentum and remain committed to disciplined deployment of capital driving accelerated growth and creating value as we continue our transformation.
Recognizing it's Friday at the tail end of earnings I'll turn the call over to Lisa So we can get to your questions.
Thanks, Mark that concludes our formal comments Britney we are now ready for questions.
And once again, if you would like to ask a question that is star 1 on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.
I'll ask that you. Please limit yourself to 1 question and 1 follow up we will take our first question from Andrew <unk> with Bank of America.
Hi, yes, good morning.
Hey, good morning, Andrew.
Just the question, we've been getting sort of headwinds this year ago from 100 to 150 to 75 to 100 million, but effectively does this mean that 2022, we'll face 20.
$25 million to $50 million greater headwind so on.
I appreciate that you're not providing 22 guidance, but should we think about better demand. This year is a pull forward of the same total opportunity or is the total opportunity is larger than your thoughts. Thank you.
Hi, Andrew its Dave just a couple of points you know generally speaking we do see the size of the pie increasing as we continue to take share and we're seeing favorable mix in how people adopt <unk>, we're seeing more dispenser sales unless just kit retrofits, having said that.
With our updated guidance for the year of $75 million to $100 million I think we said, we see the 'twenty 2 impact similar to that so the overall pie increasing a little bit but we've also said historically that we needed to get past the adoption deadline to see how the many many small customers would adopt <unk> and I think what you'll see is us.
Getting to get some clarity or at least opinion at this point on how that will happen, which is which is probably a little more rapid than we had previously anticipated. Thanks for the question.
Got it really appreciate it and just a question for Balco can you just help us with.
50% on water growth in Morocco, but the guidance seems to imply mid to high teens growth in the second half.
You guys did highlight the fact that you have comps, but still this is a business where orders do turn on to sales I guess pretty quickly.
If you could help on score that thank you.
Sure I'll take that question Andrew look the there's no question there on a line of market conditions. There are strong and technicians continue to buy which is of course very encouraging a couple of things that really give us encouragement here and by the way. We think there continues to be some strength is that we continue to do really well on net.
Franchisee net franchisee AD and as you may remember about 30% of our territory on North America, and Canada are not yet penetrated with our our franchise distribution and there's a little bit unique to us in the market and we're doing just great adding the net franchisee add the other thing that's driving the sales is we haven't really.
Good vitality, we're offering new products for the market keeps customers coming back.
And keeping them really interested in our product lines I mentioned, 1 on the on the phone here today. We also had our Q2 macko Expo in in Q2 in person and so we think there is good demand there and we also think there's legs to it.
Okay.
And we will take our next question for Steve Tusa with Jpmorgan.
Hi, Good morning, Nick Good morning, Steve.
Can you just talk about maybe some other moving parts and in free cash.
Going forward in <unk>.
Yeah.
Just some of that some of those puts and takes.
Sure.
Steve It's Dave.
So kind of coming back to the second quarter a little bit.
We knew we had the extra tax payment in the year, we'll have 5 tax payments in 2021 person only having 3 in 2020. So we saw that $30 million incremental payment coming our conversion was a little low that were lower than we were thinking otherwise even with that tax payment given some build in working capital. So.
We were at 5.6% of LTM sales in Q1, which was just you know.
I think we had mentioned unsustainably low levels of working capital. So we bought back about $30 million. We saw part of that comment it was probably a little bigger than we thought but the real mover for the rest of the year will just be working capital on our ability to hold these levels I think we're materially can be around kind of that mid <unk> range here.
And that's ultimately what will drive free cash flow conversion for the second half first half as I was saying in the prepared remarks, 95% conversion. That's what we're anticipating for the year. So we would anticipate the second half being around that level as well, which contemplates us doing a good job continuing to maintain these historically very low levels.
Working capital.
Yes makes it makes total sense.
Can you talk about what's going on in the in the telematics business just trend wise.
Certainly this is mark.
We continue to make progress in the telematics business 1 of the areas that we've been focused on that we make good.
Progress on is on the reduction in churn.
We're also measuring a RR, which of course is annual recurring revenue and we're on a 5 month growing trend of IRR, which is a pretty big departure in the past as we continue to build out our 10.360 offering.
At the same time, we're reframing the business to focus more on profitable growth, because we think that our ability to scale this business and reframe it in that light and pick up some margin opportunity is pretty important for us we've added a new president and his name is Atlanta, some aha he's an industry veteran.
That has years of driving.
Software business expansion and organic growth as well as M&A. So we're really happy to have him on board and he is just now getting settled but we're going to keep you posted on this what we believe is a very attractive space and we believe the turnaround continues.
Thanks, a lot I appreciate it.
Thanks.
We will take our next question from Nigel Coe with Wolfe Research.
Good morning, everybody. This is Brian Lau on for Nigel So maybe first just wanted to talk about the backlog a little bit so it's up 20% quarter over quarter and flattish year over year sales guidance for <unk> and imply maybe high single digit growth quarter over quarter and I think the last couple of quarters. The backlog has been more weighted towards the macro build I'm. Just curious are you baking in some concern.
Chisholm for maybe some unforeseen supply chain headwinds or can you just reconcile the backlog versus kind of quarter over quarter implied revenue growth.
Yes backlog is definitely high right now I would say that we entered the year high and we've continued in the first half to see bookings outpace revenue. So we are at a very high level right now and we anticipate that that will moderate as the year goes through it will bring backlog down to the levels at which.
Approximately we entered this year, so again still high levels, but.
We see that reduction back to where we ended the year over the course of the year.
You know there is definitely some supply chain constraints that we're building in but I don't think its conservatism I would call a balanced I think were pretty realistic that we continue to manage it in the second half as we have in the first.
So, but clearly the demand profile is strong and macko, and particularly with <unk> and other parts of G. B are kind of across the board. So it's pretty broad based the order build on the backlog build and we have plans to reduce debt as the year progresses.
Great and then just briefly touching on the franchisee mapco so.
Could you just give us an update on how that where that number is year to date on percentage basis. And then also how are the ramps tracking kind of for all the franchisees you've added during the pandemic having to.
Onboard virtually are.
Their kpis trending on how you would've seen it historically.
Yeah, well I'll take the first part and hand it to Mark. So we're at about I think we're 38 through the first half for the year net franchisee additions and that's important for a few reasons..1 we had positive franchisee additions in the first quarter and if we were to see that's usually a quarter, where you see a little more attrition than ads. So that's really great and then and then we had the <unk>.
<unk> second quarter as well if we look back over the last 4 rolling quarters. We're at 94 additions for the last 12 months, which is very strong.
We usually target kind of 50, plus in a 12 month period. So we see that as a very very strong result.
Ill pass it to mark for the other half yeah. So part of your question. There was how do we work on building that out and we've actually had to change that quite a bit you can imagine going into this virtual environment, we used to sit across the kitchen table and sign up franchisees and so you know the issue is is clearly that it has had to deploy to a more.
Virtual format and given that it's more virtual.
We've had to be able to make traction there are more digitally but we think it's a very effective model and we're deploying that on the growth and it's really working out for us.
Great. Thanks.
And we will take our next question from Andy Kaplowitz with Citigroup.
Hey, good morning, guys.
Hey, good morning, Eddie.
Mark you mentioned that you're profitable growth initiatives are ahead of plan, maybe you could give us for more detail around what you mean by that I know you already mentioned improving businesses such as Telecheck NAV then, but what is actually ahead of plan across the portfolio and then you obviously delivered low 30% Incrementals. This past quarter, even if temporary costs came back. So when you think about your longer term.
Incrementals.
You said, it's closer to 30 per cent do you think at this point on tier has the potential to deliver consistently better than that.
Yeah. So let me take the first part on I'll turn it over a day for the second part so.
Thank you for that question by the way we have a very down selected what we say is our critical few growth profitable growth initiatives.
And a lot of that Youre seeing kind of read through 1 of those.
Really pays off actually a couple of those really pay off on the non E&P growth, which I think if you also compare historically is clearly got some momentum behind it but really specifically to your question. It's on retail solutions and how we build that out high growth markets as well as in the diagnostic.
And repair both at macro on Hennessey and Hennessey is reframing their business has seen some strong growth and as you know is a is.
Is below sort of fleet revenue and margins and so we're seeing really good traction there.
We also have a critical initiative around gaining share with <unk> and I think we're doing.
Pretty well on that 1 as well.
Andy you know on the Incrementals in the second quarter, we had low incrementals because of the onetime cost take outs, obviously in the prior year for you to review were to kind of normalize for that you would've seen incrementals kind of on that.
Closer to 40% right around 40%, where we've historically run.
Okay.
I think we've talked about this business kind of being in that mid to high Thirty's Incrementals right.
And we can push a little higher than that when we get a lot of progress on this profitable growth initiatives and I think that is sustainable for the longer term, particularly as we continue to be accretive and do deals or sorry, acquisitive and do do deals and contribute to continue to add to the kind of the financial metrics for the company I think we will see sustainability or improvement there in the future.
That's helpful guys and then Mark can you give us for more detail on how fast the RB is growing and the margin potential of the business. I know you said EPS accretion in the mid to high teens for 'twenty, 2 but to get to Rois fee of 10% by year 5 I think Gary B would have to grow decently faster in the shorter term <unk>.
Have high Incrementals. So maybe you can give us some more color regarding how the business is growing in 'twenty, 1 what kind of incremental margin could this business does generate over the next few years.
Yeah. Thanks for that question. We believe there is a high single digit plus growth rate. That's in place and we think that really that's built out around a couple of things first of all their primary business is putting in a point of sales system leveraging off of controls infrastructure. That's there and then they layer on to that.
Embedding into customer workflows that includes digital data analytics around workflows for customer retentive type initiatives and what they really talk about there are sweating, our customers' assets, where they drive more productivity through that through recurring business models and they have a layer where they arrange for payments which is all.
So our high growth very sticky and very margin accretive business.
Thanks, guys.
And we will take our next question from David Raso with Evercore ISI.
Hi, Thank you for the time I was curious the incremental E M. The opportunity Youre speaking of a larger pie how is the profitability of that business versus some of the early part of the E. M D.
Sector.
Yeah. Thanks.
Thanks, Dave.
It's similar.
Cases, maybe even not better.
As we move through the adoption obviously some of the largest customers that have adopted earlier, you'll have some better volume based agreements. So as we move through this on average the customer profitability.
It remains solid.
As you know as the pie increases that we work through this kind of the latter parts of adoption here, let's say the profitability is the same if not a little bit better than what we experienced in.
In the earlier stages.
2022 that decline being similar to 'twenty one's a pleasant surprise, but I'm just trying to understand the way it plays out quarterly.
Next year's 22 sales are they almost.
They re accelerating but the masking almost get there.
From what you expect on the second half of 'twenty, 1 day E M B sales.
Our steady through 'twenty, 2 or even pick up a little bit sequentially.
Yes, David I think we're not in a position here at this stage in the game to give you the shape of <unk> within the year next year I think.
<unk> gotten past the deadline I think we have a good feel for the behavior of the smaller customers. So I think we're able to kind of call next year as best we can at this stage, we look forward to in the second part of the year coming back and giving folks an update but I think we wouldn't dimensionalize. It further than that at this stage.
Okay, and lastly on D. R B for next year.
Just looking at the credit agreements last last night and kind of what the margins came in at this was obviously more of a growth acquisition debt of margin improvement, but just to be clear. It does seem like you're assuming similar margins next year for D. R. B.
Equal to what kind of came in right. So this is not about margin expansion next year on Dear DRP is just top line because that's how you can get to that accretion number.
You don't need margin improvement to do yes, I think youre right in the near term Dave We see this as a good growth opportunity. This is a growth play but over time is as kind of had been mentioned before as well we do see good margin expansion opportunity here.
As a growth playing on synergy play, but there are some benefits from that and with the good growth that this business should put off we should get some margin opportunity as well I think on some exciting new products and capabilities that will help us out as well. So all of those things conspire kind of over time to help us in kind of that 5 year window deliver a pretty nice resolved we think.
Thank you for the time thanks.
Thanks, David.
And we will take our next question from Julian Mitchell with Barclays.
Hi, good morning.
Maybe just a question on capital deployment on acquisitions post Dr. B, maybe give us some thoughts as to what kind of leverage level, you think you'll be at pro forma with that and on how comfortable you are doing acquisitions.
In the 12 months following the close of DRP.
Hey, Julien, it's Dave So post ERP, assuming it closes as we anticipate here in the third we should be around 3 times net debt.
<unk> net leverage.
Within kind of the metrics that we've talked about and without further M&A, we would continue to delever and be you know.
Below 3 times again by year end.
But having said that we would have capacity to do additional M&A within the existing balance sheet here. We've always said that we could go above 3 times clearly.
Within our stated objectives with line of sight to come back below 3 times in a reasonable amount of time, we've also talked about doing.
Different types and sizes of deals and we continue to cultivate that remains to be a decent pipeline out there. So we're not out of the market by any stretch.
There's a number of attractive properties of different types and sizes that we continue to work through.
And for the right deal we would we would we would get it done having said that we're thrilled to have deployed this amount of capital on this on this asset and we think it's a great start and very consistent with how we've always talked about starting something thats accretive diversifies the business, but it is in a space that's kind of known to us in a near adjacency.
Yeah, Let me just jump in on that 1 too I think what this really shows this is really on our sweet spot on what we've been telling you about you know its near and it fits our strategy. It's got great financials, and I think that you know if anything we're we're continuing to build out our pipeline here I think it's indicative of that.
We have things on our pipeline and I think theres other good things on our pipeline that we continue to cultivate and we continue to work on it but keep in mind. It is strategy led and and I think that we're just.
We're just building off some momentum here that we kind of have in the business all along and have to kind of reinvigorate, but we're we're very pleased on the progress we're making here.
Thanks, very much and then set.
Secondly, just on the sort of base business.
Diagnostics and repair technologies overall, and I think you had 40% growth also in the first half year on year.
And maybe just clarify for me sort of that that piece overall.
Dialed in for the second half the year on year on.
How are you thinking about that pace of sort of growth normalizing.
Maybe second half revenue versus 2019, and how you're trying to think about those types of dynamics when you're when you're forecasting it.
This is where we really saw a good part of the V shaped recovery last year, Julian, particularly a Mac coat, where they really snapped back after a tough second quarter.
Turning to growth of the third quarter and really high single digit growth for the fourth quarter and this was set of businesses, where we haven't historically seen obviously.
Obviously high single digit growth, let alone what we saw on the first half of this year, having said that the end market is very strong we look at the number of distributors on the road and it is greater than ever not only are we adding franchisees, but the number of distributors that are that are out there working as is very high and the credit metrics with our end consumer is very good.
Well, so we round trip that very difficult compare but we still anticipate some decent growth in the in the fourth quarter, even against those tough compares but I think over time.
We've always said that these businesses were kind of low to lower mid single digit type growth businesses, and I think will normalize back to that.
But I think this strong end market will continue and that's what we're anticipating for the year and frankly growing off of last year's very strong second half.
Great. Thank you.
Thank you.
And we will take our next question from John Walsh with Credit Suisse.
Hi, good morning.
Hey, good morning.
Hey.
Wonder if we can come at the mobility Tech question, a little bit differently. As we look forward. So you talked about the strong non <unk> orders. So just wanted to understand a little bit better about how that order conversion to sales looks for for that part of the bid.
And then as we look to next year I appreciate the update on the ENV headwind are there any countries. Obviously this year, we've had Mexico create.
Create a comp issue is there anything outside of <unk>, we should think about as we're modeling next year.
Yes, a couple of points there John so.
I think this is a very broad brush, but when we think non ENB within <unk> within mobility tax. So, let's just talk about kind of G. B R. I think we will see a little faster conversion of backlog.
And that has to do with probably the place where we have the most activity given given.
Yeah advent of <unk> is here in North America. So I think outside North America will be able to turn backlog a little bit faster than than we otherwise would as far as compare items.
You know, it's just that last year at least in 2021, 2020 had a pretty odd shape to it and it's a bit varied by region. So we saw on North America come back very fast both with <unk> and macko and that creates kind of a lot of this tale of 2 halves dynamic that we've talked about we then saw on the fourth quarter, some emerging market or high growth market.
Activity come back quickly, particularly in India. So you've got Mexico to kind of flow through Q3, Q4, and again Q1 of 2021as we shipped that out you had very strong recovery.
In India in the fourth quarter of last year, where we had I think about 80% core growth, which saw some pent up demand flow through and.
And then of course, the overall <unk> dynamic is going to have its own shape I think those within the mobility Tech arena are the big compare items, we need to think about.
Great. So if you put them all together I mean should we expect mobility to be up next year.
Well look I I don't want to hold off on getting too far into next year and until we've dimensionalize the nature of <unk>.
So more to come on 2022, as we get into towards the end of the year here.
Great.
Shot and then maybe you talk about price in excess of inflation. When you think about the pricing actions. You're taking are these is this like strategic pricing you think you'll be able to hold is it more of a surcharge related to you know some.
Some type of commodity inflation or component inflation that you might have to give back how should we think about the price capture you know when hopefully we get some deflation from the levels. We're at today. Thank you yeah. Thanks for that question I think it's very much strategic pricing.
What I think we've gone out with and by the way. We started in Q4 of last year, because we saw a strategic pricing activities. Even before we started saw this sort of big inflationary thing really gain some headwind to it or excuse me tailwind to it. So I don't there's not actions that we're taking out there.
Or just sort of spot related I think this is absolutely thought through strategic and Theres been a couple of ways as we've seen sort of more inflationary pressure increase but I think what's here is pretty responsible very strategic and I think quite appropriate. So I would imagine there's a fair amount of stickiness to it.
Great. Thanks for taking the questions.
Thank you.
And we'll take our next question from Rob Mason with Baird.
Hi, Yes. Good morning, just to follow up on that last question around price I'm, just maybe I missed it but did you quantify what price contributed.
In the second quarter, and what that curve looks like.
We go through the second half.
Yes, let me begin on me.
Comment on the pricing for full year and then we'll give you the quarterly number here on a second.
Currently forecasting greater than 2% price for all of 2021 and this is up about 50 basis points based on our last guide of 115%.
And then.
The quarterly pricing here, we'll get to you in a second.
Yes, it was it wasn't too dissimilar there.
In that trial to 2.5%.
Okay.
Okay. Okay.
Just a.
Follow up question around DRP, Marc as you went about doing your work due diligence work there I was just.
I wanted to see if you could speak to how you define the motes around that business and.
Perhaps the competitive landscape and how they're positioned within that that industry share.
Sure.
They're very strong they're the market leader of about a $900 million Tam about 20% share and the number 2 player is a distant number 2 and what really does build a moat specifically to get to your question is that they get in there with a point of sale system, which is very sticky to have.
And there if you look at their brand their the kleenex brand and what they do in the industry. So and then what they do which is really excellent as they layer on to that and they build out on to that the digital offerings that I spoke about whether they'd be related to analytics customer retention, how they make the assets more.
October current revenue as well as arranging payment. So it's a it's a great business model.
Yeah.
Yeah.
And we will take our next question from Andrew <unk> with.
For your line is now open.
Good morning, guys.
Good morning.
To achieve your 10% return on invested capital with CRB are you, assuming you're going to have to make is that assume M&A.
No that would be just from the purchased asset as opposed to incremental M&A within that asset.
Okay.
To be clear, it's also on calculated without using the debt.
The piece that we're carving out for the value of the tax asset that we get.
The total purchase price of 90.65 less of 130 for the tax piece. So you've got the residual of 835, which is what we consider the investment to measure ROIC.
Okay.
And then.
Obviously, this business fits quite well with your existing.
Pos business.
Can you talk about some of those synergies.
Some of the bigger 1.
And then maybe how does this business compared to that number 2 player in Edinburgh will you be competing on deals.
Yes.
With them.
Yeah.
Sure.
The leverage we get from our existing business is that 1 you see the convenience store building out in terms of services like I spoke about on the prepared remarks and 1 of those is in car washes. So we sell to some of the same customers you can imagine in the car wash Bay in the convenience store space on car.
<unk>, so you get some sales.
Sales synergy there. There's also you know.
Some cost synergies, but the thing that really excites us is not just the synergy piece, which I think is there but fairly light, but there's also a capability a springboard us into the tunnel carwash, which is growing even faster and it's the kind of infrastructure play that we really like in the sense that it's out there it's.
It's in your local neighborhood in the kind of transactions that we're used to in terms of a convenience store and so that this play is a very very familiar to us and it's something that we can work with Alan exercise on growth. So.
So we like that a lot in the second part of your question.
Can you remind me what that was please.
Oh just.
Yes.
That compares to our sorry.
Yes, how it compares to your competitor.
And then and then whether you can get it be competing on deals with them too.
Yeah. So first of all as a competitor you are going to certainly compete on the marketplace, but what makes US unique is that since we are a controls and specifically hardware agnostic, which means we put our controls and capability and software regardless of the hardware that's in a car wash and when you look at the hardware think of the garage.
As I think of the automation, there's folks that go out there and do that our number 2 competitor on the market actually is owned by somebody that on hardware and software. So we think this makes us quite unique for us. So that we can sell out there more broadly speaking to the general market and also of course a lot of this is based on the scale that you've got capable.
Bill you've got we've got an outstanding product offering and we have a new cloud based offering that they are currently launching called Patheon, which we think is also unique for the market. So there's a lot of good things happening at the RB.
And when you say tunnel those tunnel losses, Youre, just talking about the on like automated car washes and that's the driver there is it more technology upgrades and sort of an archaic industry.
It is yes, but the total specifically as a total carwash that as a standalone footprint that you might.
Recognize you would drive 2 which is like I said standalone not part of any other format like a convenience store on that that format is actually growing more in the United States faster and we have a very strong leading position. There. There is also consolidation in the car wash industry, which is kind of similar to what we see in the convenience.
Store, where some of the larger more strategic players are buying up some of the smaller more fragmented 1 and this actually place the derbys favor because they're even more strongly positioned with the stronger players on the market.
Got it alright, thank you.
And we have no further questions at this time I will turn the program back over to Mark Morelli with any additional or closing remarks, yes. Thank you Brian I appreciate it I just wanted to thank the volunteer team for our strong momentum and for embracing our core value driven a win certainly appreciate your participation today.
And have a good weekend bye now.
Okay.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
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