Q1 2022 Vontier Corp Earnings Call
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Yeah.
My name is Ashley and I'll be your conference facilitator. This afternoon at this time I would like to welcome everyone to the Frontier Corporation first quarter 2022 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.
Like to ask a question during that time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key I would now like to turn the call over to MS. Lisa Curran, Vice President of Investor Relations. Ms. Curran you may begin your conference.
Thank you Ashley good morning, everyone and thank you for joining us on the call with me today are Mark Morelli, our President and Chief Executive Officer, Dave Nightmare, 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 at www Dot bond tier dot com under the heading financials.
Please note that unless otherwise noted the presented financial measures reflect year over year increases or decreases.
During the call we will make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future.
These forward looking statements are subject to a number of risks and uncertainties and actual results might differ materially from any forward looking statements that we make today.
Information regarding these factors that may cause actual results can differ materially from these forward looking statements is available in our SEC filings and subsequent quarterly report on Form 10-Q.
These forward looking statements speak only as of the date. They are made and we do not assume any obligation to update any forward looking statements with that I'd like to turn the call over to Mark.
Thanks, Lisa good morning, everyone and welcome to our first quarter earnings call our continued.
Successful execution and capital allocation drove strong earnings growth.
We delivered adjusted earnings per share of <unk> 70, and.
An increase of 11% year over year and above the high end of our guide.
Our team delivered another quarter ahead of earnings expectations, reflecting the continued progress and success of our profitable growth initiatives.
And our <unk> acquisition delivered robust growth in the quarter, highlighting the strength of our capital deployment and portfolio strategy to accelerate non ice business grow.
Furthermore, we leverage our strong cash flow and balance sheet by deploying $442 million of capital in the quarter, including $257 million towards share repurchase with the balanced towards energy transition acquisition investments.
I'm extremely proud of our team's dedication and tireless efforts to deliver results and to continue to advance our multiyear transformation all while successfully navigating an exceptionally challenging and dynamic environment.
We strategically optimize our opportunities and continue to reposition our portfolio, while delivering impressive outperformance.
We've invested to support our growth vectors improved technology and business model innovation, including ESG commitments to.
The success and runway of value creation underpins my growing confidence in our assumption for high single digit non <unk> core revenue growth and continued high return capital allocation.
The acceleration in non <unk> core revenue is driven by further progress with our profitable growth initiatives and acceleration of our platform strategies.
We are making important progress towards building, a better stronger more focused growth portfolio.
Before getting into the details of the quarter I'd like to share some highlights from our recent CEO kaizen event.
As you are aware chip shortages have stressed supply chains around the world and we are navigating this challenge well.
But in keeping with our culture of continuous improvement we focus one of our six.
Kaizen teams to dive even deeper to identify new insights and countermeasures.
Cross functional team leveraged the volunteer data and analytics hub to cross reference thousands of component parts with third party data to create a multiyear product health roadmap.
Findings from this exercise will further enable us to proactively redesign our technology solutions to minimize component shortages and optimize continuity of supply.
Ultimately this smart analytics based approach increases our ability to serve customers and meet our financial commitments.
We will continue to leverage <unk> capabilities to digitize, our customers' workflows through connected hardware software services and payment solutions.
Moving on to the results for the quarter double digit revenue growth from both <unk> and our core non E&P businesses drove the operational beat.
Robust demand strong price and cost actions combined with continued progress more than offset the unfavorable line of nearly $60 million.
And E&P revenue better than we'd anticipated at the well documented availability.
That's in the quarter.
Subsequently, we now believe that we'll be closer to $50 million.
The top end of our prior.
Our assumption.
We continue to drive deeper deployment of Bbs, and <unk>, which is driving the acceleration in non <unk>.
Growth.
We remain for 80 basis points of gross margin expansion in the quarter.
Institution rigor enabled positive.
So the operating leverage with adjusted core <unk> of <unk> 20 per metals, despite the challenging supply chain and inflationary backdrop.
The demand environment remains strong growth exceeding 20%.
This robust growth reflects the resiliency of our portfolio technology leadership and secular growth drivers as well as the continued momentum from the success of our strategy and initiatives since separation.
We are more deeply deploying bbs to face continued headwinds and we will remain agile with price and other actions to position ourselves to meet the ongoing strong demand for our solutions.
We expect to remain price cost positive and deliver margin expansion for the year. This is a critical area, where our team has executed exceptionally well and we've been consistently outperforming peers.
Moving to the outlook given our strong performance in the quarter and our previously announced $250 million accelerated share repurchase program, we're raising our full year 2022, adjusted diluted net EPS guidance to $3 20.
To $3 30 per share.
Our core growth and adjusted core operating margin expansion assumptions remain the same at low to mid single digits, and 30 to 60 basis points respectively.
Importantly, we're also maintaining our expectation for adjusted free cash flow conversion of approximately 100%.
As previously mentioned our core growth outlook now includes an assumption for <unk> to be a full year headwind of closer to $50 million.
That said, we don't have enough new information to warrant an update to our 2023 <unk> expectation given the range. We previously provided.
Continued to have strong conviction in our ability to offset the E&P headwind and deliver earnings growth and strong free cash flow conversion in 2023.
Dave will be walking you through.
Our assumptions to do this and our roadmap for accelerated growth a little later.
We're also initiating our second quarter adjusted diluted net EPS guidance of <unk> 68 to 72.
Which includes assumptions.
And adjusted core operating margin against a very challenging comparison in the prior year period, where we delivered 33% core revenue growth and 450 basis points of adjusted core operating margin.
With that I'll turn the call over to Dave for the financial results.
Thanks, Mark adjusted net earnings for the first quarter were $116 million, an increase of seven 6% from $108 million in the prior year period. This translated to adjusted net earnings per share of <unk> 70.
And 11% increase compared to 63 in the prior year period.
The increase in earnings was driven by five 7% revenue growth.
<unk> revenues were higher than expected and contributed.
The high teens non ENB total revenue growth that more than offset the supply chain impact to sales conversion.
Core revenue growth was essentially flat as continued supply chain challenges and component shortages constrained E&P sales by over $25 million in the quarter.
This shortfall was offset by the <unk>.
Core growth as we saw solid demand in other developed markets strength in alternative energy driven by CMG and ongoing strong demand in diagnostics and repair.
Adjusted operating profit for the first quarter was $164 million, an increase of 8% compared to the prior year period.
Gross margin expansion of 80 basis points reflected our ongoing effective price cost management and the benefits of Derby and other higher margin solutions, which helped to offset the mix impact of the decline in E&P and production inefficiencies related to supply chain constraints.
The increase in operating profit and strong execution drove incremental margin of 30% and adjusted core operating margin.
Expansion of 20 basis points, despite flat core growth, reflecting continued benefits from our profitable growth initiatives and early price actions.
Looking at the topline performance of our two platforms and our mobility technologies platform core revenue declined two 4%, primarily reflecting lower <unk> volume. It was compounded by the impact of supply chain constraints. In addition, the prior year Q1 benefited from the previous Mexico regulatory driver.
On a reported basis mobility technology grew five 5% due to the impact of DRP, which does not become core until Q4 of this year.
<unk> delivered growth well above expectations and continues to benefit from their technology and consumer data thought leadership and market leading position in a very strong end market demand environment.
In our diagnostics and repair technologies platform core revenue.
The first quarter was driven by strong demand at both Matt Cohen Hennessy the demand backdrop remains healthy which was emphasized by Matt Coss annual Expo meeting in the quarter, where we saw record order levels. We also saw momentum driven by our new product offerings, particularly in <unk> diagnostics offer.
Yeah.
Looking at total company sales regionally North America core revenue was flat as non DMV revenues offset the substantial decline in E&P sales that mark referenced and developed markets globally grew core revenue low single digits.
High growth markets, which are typically lumpy declined low double digits due to the Q1 impact of the prior year, Mexico regulatory driver and a continued soft environment in China.
Overall, we continue to anticipate mid single digit core growth for high growth markets for the full year.
We remained focused on our profitable growth initiatives advancing our efforts on simplification, new products and platform strategic growth areas, including retail solutions and alternative energy. The benefits of these actions will continue to accrue as we evolve the portfolio over the coming years.
Moving on to the balance sheet, we ended the quarter with a cash balance of $145 million and had no borrowings under our $750 million credit facility. Our net leverage stands at three three times adjusted EBITDA at the end of the first quarter temporarily elevated due to the timing of large cash outflows.
Related to our $250 million accelerated share repurchase program as well as the acquisition of drives during the quarter.
We maintain our commitment to investment grade credit ratings and expect that our leverage will remain at or below three times net leverage by the end of 2022, while also having over $400 million of further capital to deploy towards additional share repurchase and or accretive M&A.
We have about $240 million remaining under the previous share repurchase authorization that was put into place in 2021 and as Mark noted, we anticipate ongoing deployment as market conditions warrant.
These assumptions on leverage and capital deployment capacity do not consider any additional capital raised to any divestiture activity or monetization of any of our 16% stake in tritium, which as of quarter end had a fair market value of $215 million.
Our adjusted free cash flow conversion during the quarter was 34% historically, we would have anticipated conversion of around 40% to 50% in the first quarter, but this quarter was made worse by unusually poor sales linearity from the impact of the supply chain constraints.
Had we achieved sales linearity similar to what we averaged in the prior year free cash flow conversion would have been greater than 50%.
We expect to see the conversion rate increase over the remaining three quarters. Despite our expectations that linearity driven by supply chain uncertainty will be a continued challenge, particularly in Q2.
Regardless, we still anticipate adjusted free cash flow conversion for the full year of around 100% and we continue to have ample liquidity to execute on the capital deployment priorities that I previously mentioned.
Turning to the outlook assumptions for full year 2022, we are maintaining our core revenue guide of low to mid single digit growth. Despite our expectation that <unk> will be closer to the high end of the range or a 50 million headwind in.
And core operating margin expansion of 30 to 60 basis points, our confidence in delivering these results reflects continued execution on our profitable growth initiatives and price cost management, partially offset by inflationary pressures ongoing supply chain and logistics constraints and mix driven.
By lower <unk> and other regulatory driven sales.
We are raising our adjusted earnings per share range to $3 20 to $3 30.
Reflecting our updated share count continued execution and growth in our core non <unk> business.
Taking a closer look at some of the other assumptions. We now expect full year 2022 weighted average share count to be approximately $163 million, which reflects the expected impact of the $250 million accelerated share repurchase.
Our assumption on the full year effective tax rate.
<unk> at 23%.
Moving on to the second quarter of 2022, we expect core revenue growth will be flat as the strong demand environment is offset by lower conversion of high margin sales, resulting from ongoing supply chain constraints and component shortages.
Adjusted core operating margin is expected to be flat, reflecting growth investments and inflationary headwinds versus a tough comparison in the prior year as mark referenced.
As he stated this translates into adjusted earnings per share of <unk> 68 to 72 in.
In the quarter.
Overall, our teams delivered an impressive start to the year and positioned us well to deliver our full year expectations for core growth margin expansion and another year of double digit earnings growth.
Before turning it back to Mark I'd like to call your attention to slide eight.
We previously provided a view of the 2023, E&P impact and where we see the offsets and that view has not changed however in order to better Dimensionalize our conviction in our ability to meet the 2023 growth outlook, we provided last quarter I'd like to walk you through a more detailed view.
Our key assumptions.
We believe that the traction we have demonstrated on our profitable growth initiatives, coupled with our platform strategies and retail solutions digital technologies and alternative energy collectively provide us with high single digit non ENB core revenue growth, which will offset a significant amount of the 2010.
<unk> revenue headwind.
This is consistent with the non <unk> core growth that we've demonstrated in recent quarters and should be further aided by Darby when that becomes core in Q4.
Any remaining growth gap would require only a modest amount of inorganic contribution to offset.
Most importantly post this ENB period, we expect to have a re baseline core revenue growth rate of mid single digit plus at accretive margins and continued strong cash flow, which positions us well to deliver compounding earnings growth ahead of revenue growth with that I will turn it back.
Tomorrow.
Thanks, Dave I'm extremely proud of our employees and encouraged by our ability to deliver against our most important strategic and financial commitments for.
We're continuing to build upon our track record of strong execution by focusing on our critical few priorities and our profitable growth initiatives are showing up and robust non E&P core revenue.
And bookings growth as well as margin expansion.
Our portfolio diversification strategy is underway and Derby, which is delivering highly profitable growth is a great example of our disciplined capital allocation.
This positions us well to be at the forefront of solving next generation mobility and transportation infrastructure challenges.
Our results and momentum show the runway of opportunities inherent in our business given the attractive secular drivers underpinning long term growth.
And as the growth roadmap that Dave outlined demonstrates we are taking advantage of the strategic optionality inherent in our business is to build a better stronger more focused growth portfolio.
Further to that point as I said before we view successful portfolio management as both addition and subtraction.
We regularly evaluate our market exposure and how each of our businesses is positioned within those markets.
We have subsequently identified some areas that are not aligned with our long term strategic direction and or they are dilutive to volunteers performance and we have initiated the process to potentially divest these assets.
Given the timing and other uncertainties of such transactions, our 2022 guidance assumes we own them for the full year.
Ultimately, we expect the combination of these portfolio changes will be accretive to our core revenue growth and operating margin profile. Furthermore, we expect to redeploy the divestiture proceeds to more than offset the related earnings per share dilutive impact.
To wrap up I want to reiterate that while we believe continued M&A will be part of our strategy to continue our multi year portfolio transformation, we're not dogmatic in our approach given.
Given the strength of our cash generation will balance investing in organic and inorganic opportunities along with returning capital to shareholders.
Our view is they are not mutually exclusive.
We will remain nimble and act when we see opportunities to generate strong returns.
Im confident in our growth and transformation strategy towards solving nextgen mobility, and transportation infrastructure challenges and I have great conviction, we're on the right path to unlock significantly more value.
With that I will turn the call over to Lisa.
Thanks, Mark that concludes our formal comments.
We are now ready for questions.
Thank you and at this time, if you would like to ask a question. Please press star one on your Touchtone phone.
And by pressing the pound key.
Morning.
Once again that is star and one from Julian Mitchell with Barclays. Please go ahead. Your line is open.
Carrying on for Julien.
So just looking at the E&P Edwin I know you sized it for Q1 is nearly $60 million headwind.
How should we think.
Think about the cadence of.
That had a $50 million headwind overall for 2022.
The biggest headwind will definitely be in the first quarter and I think as the compare gets much easier in the second half.
Half of next year.
In the second half of the year, we might even grow.
In the third.
In the fourth a little bit so it really kind of flattened will be the first.
That's helpful. Thank you and then.
One follow up I had was.
Looking at the slide where you talked about profitable growth initiatives.
What are the when you listed a bunch of them simplification and restructuring strategic pricing et cetera, what are they kind of main buckets that we shouldn't focused on.
Within that.
Thank you for that question, let me give you a little bit of color. There. We've got some great traction of our simple is centered off.
Alex <unk> simplification.
And just to give you. An example on that we've got 32.
Fueling dispensers worldwide as part of DVR, and we have a program to bring that to eight.
And we will make measurable progress on that this year as well as the strategic pricing that we started actually.
More than a year ago and this was before inflation had really taken off and we had had developed strong momentum on pricing even in a very low inflationary environment. So we don't anticipate getting back on that strategic pricing, while we've added onto that quite appreciably with more structural pricing and.
Of course surcharges on top of that but it's clearly an area that we have I would say early innings in both of that.
Another category to key off and we've been discussing is the growth in high growth markets, we think that our offerings pertain, particularly well as we move up the technology stack and folks in high growth markets look at more benefits due to automation and environmental concerns regulatory drivers.
Those will drive us in high growth markets can be lumpy in the near term, but it certainly is paying off for us in terms of that focus on the longer term matched macko franchisee growth as part of our profitable growth initiatives. As you know we've got about 30% of our territories in North America that are not penetrated.
Our distribution coverage and that represents pretty good runway of opportunities for us that we're going to continue to mine and then another area for you to kiosk is the turnarounds in tow truck now managed Hennessy, where theyre below fleet margins and growth, we're making really good solid traction on that good traction.
Also in Q1, and we will continue to make progress there. So when you when you add those up I think you've got a portfolio of what we call profitable growth initiatives that have been demonstrating a good pay off and we have more and more confidence we will continue to do so.
Got it thank you.
And we'll take our next question from Steve Tusa with Jpmorgan. Please go ahead. Your line is open.
Hey, guys. Good morning, good morning.
Thanks, Steve.
So on like supply and all the constraints that are out there maybe just talk about how you guys are managing those perhaps.
Differently and if there are any items that stand out that are a little more tight outside of the normal semi if at all.
It's mostly centered on the semi area and I.
I would definitely say this environment going back now for quite some time has been challenging we have been really on it with deeper deployment of Evs, we use a lot of visual metrics and that as you can see we continue to have <unk> on it we talked about our CEO kaizen that I participated in.
Last month in net <unk> is really focused on continuous improvement I think we're we're facing some of the same issues that everybody else is facing and we've just been really pushing hard with the teams to make sure that we get in front of it.
And we're going to continue to be committed to doing so and I couldnt be more proud of the team's performance there. Its a tough environment. There is no question about it but we're we're doing well and we're committed to doing so.
And then when it comes to pricing any further increases couple of quarters are you now.
Devin what do you expect.
Okay.
Yes, okay.
The pricing is dynamic.
<unk>.
This inflationary environment like most of us would moderate a bit going to continue to be nimble on the pricing.
In France, we've layered onto our strategic pricing initiatives from last year into like I said more structural and also <unk>.
Happy to add surcharges tobacco.
The pricing element, which has positioned us well, but you can't you can't.
Our where we are in and coast I mean, you just got to be dynamic.
Yeah.
Got it and then you guys mentioned alternative energy in the slides what do you mean there.
Yes. Thanks for that question, we had a press release.
Where we discussed our alternative $1 over the next five years.
Three years on organic as well as organic opportunities and our drives acquisition was part of that so let me just highlight two aspects really quickly for you.
Drives is centered on the electric or for Bill.
Bill.
Delivering a a cloud based operating system software for highly recurring revenues at excellent margins and a very growth space. So we think we parked ourselves.
And really a great part of the value chain.
The other element of this is about dispensing things other than petrol we actually are making great progress with our CMG dispenser business called Angie as you might imagine in this backdrop and environment, it's getting quite a bit of growth and we also anticipate that to grow out as part of the alternative energy.
Structure and the great thing about that is it higher pressure can excellent lead in for us on hydrogen we think we have a right not only to play but also to win and hydrogen because of the infrastructure basis of it and the technology, that's really close to what we already do so.
When you think of alternative energy you need to think of all all of those elements.
Alright, alright, congrats on really good execution. Thank you.
And we will take our next question from Andrew <unk> with Bank of America. Please go ahead. Your line is open.
Yes, good morning, just going back to slide eight.
I guess a couple of questions what is the base here for slide eight.
The issue by our math.
The $250 million buyback alone adds 15 to EPS.
And the slide assumes spending $750 million. So we're just trying to figure out why do you only get an incremental.
Tom It sounds from a further $500 million in spend that the framework, we have I want to make sure it's correct, but thats sort of where we come out.
Hey, Andrew.
It's Dave so.
22 would be the base year here. So the benefit to 2022 from the Q1 ASR that we did would be in the face what's assumed here in capital deployment.
Okay.
That makes a lot easier so pivot on top of that that tax line and just on diagnostic and repair attack backlog almost doubled year over year, but do you expect to be able to work the backlog down in 'twenty two.
Comment on supply chain specific to that and also pricing there.
Sure.
We've certainly I'll take the last part we certainly been pushing the envelope there on pricing will continue to do so obviously our backlog being up is something that's got our attention and we're working on a set of countermeasures to bring that down.
We are continuing to work through a tough environment there but.
The great thing about that backlog is and we think it's pretty sticky.
We just had our Expo in Q1.
<unk>, which was very well received and a lot of folks in attendance, there and I would say the strength out of that has also led to our backlog increase and so we're going to continue to push every envelope we have here to work that down.
Okay terrific. Thanks, a lot.
Thank you.
And we will take our next question from blockbuster <unk> with Citigroup. Please go ahead. Your line is open.
Good morning, everyone. Thanks for taking my call.
Good morning, Glenn.
Okay.
So.
Just wanted to get.
Some comments from you on how you've seen.
Production trend through the quarter and here into April .
Core revenue basically flat in <unk>, which was kind of at the upper end of your range.
Despite what we know was wondering.
Macfarlane challenges early in the quarter and then just ongoing supply chain volatility. So can you just talk about how you saw production trends through the quarter and what youre seeing into April .
And then whether you're seeing any impact from the China Covid lockdowns across the business more broadly.
Let me, let me start and then hand it over to Mark in Q1, we definitely saw.
Linearity shift towards the latter part of the quarter. So that's something we did pretty well in 2021, even managing through the difficult environment, we were able to improve linearity and that really read through was a lever helping cash flow over the course of that year. So when we talked about free cash flow being a little lower the conversion in the quarter, even from what we would historically see on seasonality.
Perspective is really driven by that linearity and you named some of the big pieces early in the quarter, we saw some <unk> impacts for sure.
Like everyone else, we saw that abate as the quarter progressed, but then really the supply chain challenges, becoming a little more challenging than issue specific to us in the second half of the quarter, but ultimately the effect was to move sales later in the quarter and frankly more to come on Q2, but.
Out of the shoot I think we're going to see an environment not too dissimilar when they worked through it like we did in the first quarter.
Okay.
That's helpful. Dave.
Appreciate the color just one follow up for me.
You talked about.
The potential exits of some smaller businesses.
Product lines.
You're able to give us any color on sort of the scale.
Parts of the portfolio Youre looking at as.
As well as any commentary on kind of the.
Timeline that youre thinking about in terms of Actioning any exits you do ultimately decided to move forward with.
Yes.
It's too early to characterize sides here.
I think there is a handful of things. We're looking at is mark characterized as we've worked through a set of priorities identified some things that.
Maybe don't meet the appropriate strategic profile going forward it might be more successful.
We're also I think from a timing perspective.
Really second half of 2022, beginning in really carrying into at least the first half of 2023 as we worked through some of these but as notes. It's a lot of work and as Mark noted, we're just commencing so definitely more to come in the coming quarters.
Alright Thats helpful. I appreciate it I'll hop back in queue.
And once again as a reminder to ask a question today that is star and one and we will take our next question from Andrew Buscaglia with Bahrenburg. Please go ahead. Your line is open.
Good morning, guys on that on that potential divestment.
<unk> side of things.
Do you care to talk about which segment that would fall under or characterize what.
The other detail.
What.
I guess youre not as committed to.
Yes, I can't give it kind of color on that obviously, we want to get out ahead of any announcements here, but I would say.
When we the company's bond respond with what we had and as we've been working through our our profitable growth initiatives, where we can get traction in areas as we sort of indicated in our prepared remarks that we think.
Better belong somewhere else and not part of our portfolio I think thats, a little bit of what Youre seeing here is that realization in that work kind of reading through.
So I think it's important for us.
Indicate and Dimensionalize that.
In a way that we believe is both critical sensical.
And.
But it's about as far as we can go in terms of how we can eliminate that but more to come for sure.
Okay and.
No maybe im reading too much into this but you're kind of the language used in around the <unk> stake.
Kind of offering out there that is an option to monetize I guess thoughts on why you'd want to monetize that and then realistically.
Realistically, if thats something youre looking to do.
I think we talked about it is if we monetize.
So some portion of so I think remains to be seen but obviously, it's an alternative thats out there for us are slowly to lock up into the summer.
But it's an opportunity for us going forward I think that was helpful.
If we do okay.
Okay. Thank you.
Okay.
And we'll go next to Nigel Coe with Wolfe Research. Please go ahead. Your line is open.
Thanks, Good morning, everyone. Good morning Nigel.
Good to hear from you.
So the acquisition in the quarter I guess that was drive.
Was that without the entire 105.
On drive and I think it was maybe just talk about that business in terms of where that is today.
What do you think that can go.
<unk> margin profile over the next sort of the medium term.
Yes. Thanks for that question look we're very excited about this space. Because this is the operating system software for electric charging as you see and just off that last question on drives.
Is is really a white label software opportunity.
We have about 20% of the share to relatively small.
The offering right now, but having 20% of what's called a white label software market is a leadership position in that marketplace and what we believe is that folks like charge point operators like folks on the go or a destination, where youre going to see lots and lots of Chargers are going to have to man.
<unk> this network of Chargers.
And not everybody is going to want to write their own software, they're going to want to license it from somebody and that's exactly the position that drives. It then so we think.
A great great asset for us and we think we can see strong growth over the coming years.
And we think it positions us well not only gives us a right to play in this market. We really believe it gives us a right to win.
Great. Thank you and my follow on is you've maintained the.
The 300 to 350 of <unk>.
Headwind from ENB, just curious how does this business tend to track.
Is there any any kind of sort of dislocation will benefit from higher gas prices or.
Is it sort of irrelevant from a retail perspective.
No.
It's interesting now when gas prices go up folks that are in convenience retailing that are also backward integrated into the <unk>.
The petrol supply chain actually benefit from that and you can see more investment dollars coming into how they build out their infrastructure. So.
I don't I don't think it's necessarily a bad thing.
So, but as we go to the right here. There's no question. There is strong demand for that footprint as it continues to build out.
Nigel one point.
As we see petrol prices increase we definitely see some momentum in our <unk> business and Mark talked about that as a key focus area as part of the energy transition. So we definitely see that and then with maintenance of gas prices you do see profits get get captured at the C store and <unk>.
We've seen robust demand is probably helping that as we work through 2023, you noted the headwind, which is kind of the sunsetting of the ENV tailwind. So we'll get through 2023 and higher gas prices are probably helping fuel that demand.
And then a quick one maybe just a quick update on territory.
That's one of your.
Initiatives to offset that headwind next year. So just wondering where we are in that.
<unk> continued to make good progress there.
Management team has added some important additions, which continue to build out our offering with <unk> 360 is gain some strength in the market.
Continuing on working through.
The churn and so yet steady improvement as we go good Opex excuse me all mix improvement in the quarter too.
And we're continuing to book, a really solid for that business. So I.
I would say not real step change performance quarter to quarter, but continued steady improvement.
Okay. Thanks, a lot.
Yes.
We will take our next question from Joseph Donahue with Baird. Please go ahead. Your line is open.
Hey, guys. Thanks for the question could you talk about how private private market valuations are working for you.
I'm sorry can you repeat that question again could you talk about how private market valuations are working.
In relation to our acquisition funnel was up.
Yes, exactly we've heard some commentary people aren't seeing them coming down yes.
Look I think its dynamic right I think I think that's fair on average to say that there is still pretty high expectations out there but.
We'll see how we'll see how it evolves.
So it's.
It's still a dynamic environment, but I think with the interest rate environment and other uncertainty in the markets. It's definitely an evolving situations, we're keeping a close on them.
Got it okay.
Kind of following on to that would you say that.
Room for you to fill some gaps in your portfolio solutions for EV.
Yes, the <unk>.
<unk> market is so nascent and you look at the penetration four edits.
In many markets, it's hardly off the ground and as you know range anxiety out there for <unk>.
For mobility infrastructure because of the changeover.
For energy, particularly electrification as well as gaseous.
It's clearly a big opportunity as we run that out over time.
We'll consider that but I think what we did was we put in place a parameter of our $500 million. So you can kind of know how we're thinking about our organic as well as inorganic.
And so.
We love our position of drives and there's clearly opportunities.
Around that but nothing nothing more at the moment, we've got a lot to work with I would say is this.
Got it thank you.
Okay.
And it appears that there are no further questions at this time I will turn the call back over to Mark Morelli for any closing remarks.
Thank you Ashley look our combination of solid execution through profitable growth initiatives as well as the disciplined capital allocation really gives us greater confidence in the path that we're on we're committed to building a better stronger more focused growth portfolio solving nextgen mobility and transportation infrastructure challenges. So.
Thank you for joining on today's call.
Thank you and this does conclude today's program. Thank you for your participation you may connect at anytime.