Q2 2022 Vontier Corp Earnings Call
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Operator.
Hello, My name is Katie and I will be your conference facilitator today at this time I would like to welcome everyone to the volunteer corporations second quarter 2022 earnings results Conference call.
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I would now like to turn the conference over to MS. Lisa Curran, Vice President of Investor Relations Ms. Curran you may begin.
Thank you Katie good morning, everyone and thank you for joining us on the call with me today are Mark Morelli, our President and Chief Executive Officer, David <unk>, Our senior Vice President and Chief Financial Officer, and Ryan Edelman, our incoming vice President of Investor Relations.
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 volunteer dot com under the heading financials. Please note that unless otherwise noted are 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.
Formation 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 date. They are made and we do not assume any obligation to update any forward looking statements with that I would like to turn the call over.
Mark.
Thanks, Alicia good morning, everyone and welcome to our second quarter earnings call. Once again, our strong execution price cost performance and capital allocation drove double digit earnings growth more than offsetting supply chain inflation and other headwinds.
We delivered adjusted earnings per share of <unk>, 72, or an increase of 18%. Despite a challenging comparison year over year.
These strong results reflected positive operating leverage and a topline be.
The beat was driven by double digit growth at DRP and environmental more than offsetting underperformance in diagnostics and repair technologies, which I'll come back to you.
Darby delivered yet another quarter of robust growth highlighting the strength of our capital deployment and portfolio strategy to accelerate.
Business growth.
Furthermore, we leverage the strength of our portfolio is cash generation and balance sheet by deploying $14 million of capital in the quarter towards share repurchase and followed with an additional $17 million in early July .
Today's announcement of our bolt on acquisition of Invesco and further actions on the planned divestitures that Dave will discuss in more detail our important milestones towards building a better stronger more focused growth portfolio.
We're excited to acquire industry leader in Banco and expand our software enabled workflow solutions and subscription business model.
<unk> is a leading global provider of open platform retailing and payment hardware and software solutions.
It's disruptive edge computing technology, Roadmaps and modular solutions offer extensibility across other retail verticals.
This acquisition accelerates, our digital strategy and better positions us to serve our customers' growing demand for digitally agile software systems.
<unk> is one of the top suppliers of retailing and payment solutions to the convenience retail industry worldwide.
<unk> innovative secure solutions are well positioned to enable retailers to customized digital payments and consumer services as the energy markets evolve.
<unk> expected 2022 revenue of $80 million with mid <unk> gross margin Enhancers volunteers growth and recurring revenue profile.
The acquisition purchase price is $80 million and is expected to achieve a very attractive 20% return on invested capital in three years.
While we are still in the early stages of developing our M&A track record as a Standalone company.
Ari pleased with our results and return profile.
<unk> is pacing nicely towards delivering 10% ROIC within five years and collectively our $1 5 billion of capital deployed since separation is delivering double digit returns in approximately three years.
We're also continuing to advance our profitable growth initiatives and I'm encouraged by the progress and earnings potential in front of us, but we have more work to do.
We have a strong runway of opportunities, where we've made important early strides with strategic pricing and product line simplification, which is beginning to take hold.
As an example in GB our war on a multiyear journey to reduce our global dispenser softness from 32% to eight.
So far this year, we've eliminated six dispenser lines. This is indicative of the cost structure opportunities, we have to improve our efficiency cost position and follow on improvements to working capital.
Before moving to the outlook I would like to provide more color on the supply and demand environment and broader backdrop.
Incredibly pleased with our team's ability to deliver on profitable growth initiatives leveraging Bbs.
Strong price cost execution and the ERP performance resulted in an adjusted gross margin expansion of 100 basis points in the quarter.
Strong execution rigor enabled us to deliver nearly 30% incrementals in the face of supply chain and inflationary headwinds.
We expect supply to remain tight and not get worse in the back half of the year.
And while we are seeing deflation in some inputs like steel and aluminum were also forecasting higher freight net net we have taken cost measures to protect our margin expansion outlook for the full year.
Reflecting the strength and resiliency of our portfolio. The overall demand environment remained solid despite some pockets of softening that Tennessee.
And while we always expected a decline in order rates this quarter given peak growth of over 50% for non E&P orders in the prior year period underlying quarter friends and elevated backlog levels position us well for accelerated growth into the back half of this year and into 2023.
That said the <unk> business has been underperformed against our expectations in the second quarter, even though demand remains above pre pandemic levels.
We did not reduce backlog for growth right macro franchisee count as planned primarily due to labor challenges and higher separations.
Importantly, we have developed countermeasures to address the challenges within BT, including ramping at company owned stores.
And looking into the back half of the year. We subsequently lowered our assumptions for DT and also cycle markets due to timing of large tender orders shifting out.
That said, we are still maintaining our full year core revenue growth outlook, primarily due to continued outperformance by CRB and expectations of improving backlog.
Moving to the outlook, we're holding 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.
Reflecting continued poor sales linearity and assumptions for increased working capital or expecting adjusted free cash flow conversion.
<unk>, 90%.
We're also initiating our third quarter adjusted diluted net EPS guidance of <unk> 85 to 90.
Which includes assumptions of low single digit core revenue growth and 20% to 40 basis points of adjusted core operating margin expansion.
Looking beyond this year I continue to have strong conviction in our ability to offset the peak E&P headwinds and delivered earnings growth and strong free cash flow conversion in 2023.
Dave will be walking you through a more detailed view of our assumptions to achieve this performance and our roadmap for accelerated growth that we introduced last quarter.
With that I'll turn the call over to Dave to provide the financial results Dave.
Thanks, Mark I'll get started with a brief summary of our performance in the quarter adjusted net earnings for the second quarter were $116 million, an increase of 11, 5% from $104 million in the prior year period.
This translated to adjusted net earnings per share of <unk> 72, and.
An 18% increase compared to 61.
In the prior year period.
Revenue grew seven 2% with core revenue up one 6% our non NBC core growth was mid single digits on a difficult compare particularly for our diagnostics and repair businesses, where prior year core growth was over 50%.
Growth was primarily driven by <unk>, which grew mid single digits on an overall core basis with growth in both developed and high growth markets.
<unk> growth was driven by environmental aftermarket and our CMG business, our compressed natural gas business has grown greater than 65% year to date offer relatively small base.
And although not core yet DRP continued to demonstrate strong growth of high twenties.
Adjusted operating profit for the second quarter was $167 million, an increase of 10% compared to the prior year period.
Gross margin expansion of almost 100 basis points reflects continued effective price cost management and the benefits of Derby and other higher margin solutions. These favorable items helped to offset production inefficiencies from a very backend loaded quarter, driven by timing of supply, which I will elaborate on further in a bit.
Sure.
The increase in operating profit and strong execution drove incremental margin of nearly 30% and modest adjusted core operating margin expansion.
Excluding the <unk> four 3 million dilutive impact of our energy transition investments our incremental margin is high thirties.
Looking at the top line performance of our two platforms.
In our mobility technologies platform core revenue was three 5% reflecting growth in <unk> and developed and high growth markets, particularly North America more than offsetting the sunsetting <unk> impact of nearly $15 million in the quarter.
Total growth in mobility technologies was 11% as DRP continues to increase market share and increase share of wallet, while benefiting from their industry, leading position and a very strong market backdrop.
<unk> has continued to outperform our expectations. During this first year of ownership and will become core near the end of Q3.
In our diagnostics and repair technologies platform.
Core revenue declined three 6% in the quarter as a result of both a difficult compare against the 57% growth in Q2 of the prior year and also normalization of macro to a more typical growth in operating profile.
Above pre pandemic levels, the demand backdrop remains healthy as technician employment and auto repair remain at high levels.
As Mark referenced we did experience some labor and other production challenges that prevented us from reducing backlog as much as we had anticipated which remains an opportunity in the second half of the year.
Looking at total company sales regionally North America core revenue grew low single digits due to <unk> growth and non E&P applications more than offsetting a decline in E&P.
What markets overall grew low single digits as strength in North America was partially offset by a mid single digit decline in western Europe .
High growth markets, which are typically lumpy grew low single digits with strong double digit growth in India.
Actually offset in other areas, including Eastern Europe and China.
We anticipate increased lumpiness in high growth markets due to the broader macroeconomic and geopolitical factors as well as timing of tender orders.
That may impact growth rates some in the near term, but overall, we remain confident in this profitable growth initiative in the middle and long term given the attractive long term secular drivers.
Moving onto the balance sheet, we ended the quarter with a cash balance of just under $130 million and $14 million of borrowings under our $750 million credit facility.
Our net leverage was three three times adjusted EBITDA at the end of the quarter and temporarily elevated due to the large cash outflows year to date related to share repurchase and acquisition activity and a temporary shift in the timing of free cash flow generation first half to second half of the year.
The quarter became significantly backend loaded given supply chain issues and this lack of linearity shifted free cash flow from Q2 to Q3.
Further we saw additional working capital build in inventory.
We maintain our commitment to investment grade credit ratings and expect that our leverage will end the year below three times net leverage with our targeted range being between two five times and three times net.
We will also have capacity for further free cash flow deployment deployment in 2022, which will fund the announced acquisition of <unk> and also additional share repurchase of approximately $100 million.
These assumptions of course are influenced by market conditions and further M&A opportunity.
In Q2, we refreshed our repurchase authorization back up to $500 million and subsequently have deployed $31 million against that.
Our total year to date share repurchase stands at $288 million as of today.
These assumptions on leverage and capital deployment capacity do not consider any additional capital raised through divestiture activities.
Today, we disclosed assets for sale and those being considered are the hennessey and GTT operating company.
These businesses comprise about $175 million of annual revenue at a combined growth rate that is below the non EMP fleet average.
The impact of selling these businesses will be accretive to enterprise gross margins and operating margins by greater than 60, and 40 basis points respectively.
We anticipate the proceeds from divestiture will be used for some debt reduction and then also provides a further available capital for deployment on M&A <unk> share repurchase which would more than offset the reduction in EPS, resulting from the movie in these businesses.
Full year 2022 guide, we have assumed approximately 12% to 13.
The contribution from these combined businesses.
Returning to adjusted free cash flow conversion on a year to date basis, our conversion is 23%.
We talked previously about the poorer linearity, we experienced in Q1, which is typically a low point for free cash flow generation and we saw further deterioration in Q2, we anticipate that this dynamic will normalize over the second half of the year.
But we also are seeing some upward pressure on working capital levels, mostly in inventory as we build start to satisfy demand.
We anticipate that the combination of these factors will have some impact on our full year free cash flow conversion.
And we will more likely be around the 90% range rather than the typical 100% portfolio generates.
Turning to the outlook assumptions for full year 2022, we are maintaining our core revenue guidance of low to mid single digit growth with non DMV growth of high single digits as EOG is still expected to be approximately a $50 million headwind.
We also continue to expect core operating margin expansion of 30 to 60 basis points, reflecting our leveraging of DBS to dynamically adjust our cost structure to effectively adjust to demand levels and offset inflationary impacts.
Our confidence in delivering these results reflects continued execution on our profitable growth initiatives and price cost management and the resiliency of our portfolio through the cycle.
The full year EPS guide is unchanged and adjusted earnings per share range of $3 20 to $3 32 and.
And does not contemplate the impact of noted divestitures.
We anticipate that the <unk> acquisition will close in Q3, and then it will be neutral to EPS in 2022 and accretive in 2023 by mid single digit cents per share.
Taking a closer look at some of our other assumptions. We now expect full year 2022 weighted average share count to be approximately 161 4 million, which reflects the impact of the share repurchase activity conducted to date in 2022, but not the additional $100 million that I previously referred to.
Interest expense is anticipated to be $68 million, reflecting an increase in interest on the variable portion of our debt. Our guide also reflects the current foreign currency translation rates and the strengthening of the U S. Dollar since our last guide, which has had a <unk> <unk> dilutive impact to the full year since our last.
Our assumption on the full year effective tax rate remains at 23%.
Moving on to the third quarter of 2022, we expect core revenue growth of low single digits with non <unk> core growth of high single digits. This contemplated.
Supply environment similar to what we experienced in Q2 still not normal but more stable to what we experienced in previous quarters.
Adjusted core operating margin is expected to be 20 to 40 basis points.
As Mark stated this translates into adjusted earnings per share of <unk> 85 to 90.
In the quarter.
Before turning it back to Mark I would like to call your attention to slide eight.
Presented this slide last quarter to better Dimensionalize, our conviction and our ability to offset the impact of the <unk> decline in 2023, and most importantly, how we expect to have a re baseline core revenue growth rate of mid single digits at accretive margins post the <unk> Sunset, which we continue to expect.
Completes in 2023.
Our conviction and accelerated growth and returns has not changed and we continue to make progress on many fronts.
The profitable growth initiatives and platform strategies continue to progress we.
We have deployed further capital to share repurchase and announced the acquisition of <unk> demonstrating progress on the capital deployment section of this slide.
Also the disclosure of our plans to divest, Tennessee, and GTT demonstrates progress on the continuing evolution of our portfolio towards markets with attractive growth and margin profiles.
With that I will turn it back to Mark.
Thanks, Dave as Dave highlighted we're continuing to evolve the portfolio towards attractive markets and growth characteristics.
And as we potentially enter a slower growth macroeconomic environment I think it's worth reminding you of our portfolio's low cyclicality is best demonstrated in 2008, 2009, where sales were down only mid single digits.
We have a highly resilient portfolio of businesses not correlated to PMI, but rather tied to a steady wave of regulatory drivers.
The economy of convenience expansion of digital workflows modernization and build out of retail fueling infrastructure and increasing complexity of the car park are attractive secular drivers of sustainable growth.
And as the 2023.
<unk> roadmap and slide eight also illustrates we're taking advantage of the resiliency and strategic Optionality inherent in our business is to build a better stronger more focused growth portfolio.
I wanted to underscore once again that while we believe continued M&A will be a part of our strategy to continue our multiyear portfolio transformation, we're not dogmatic in our approach.
Given the strength of our cash generation, we will balance investing in organic and inorganic opportunities along with returning capital to shareholders. They are not mutually exclusive.
We will continue to align our capital allocation priorities to the benefit of our shareholders as we.
Execute on the initiatives underway to drive further portfolio diversification profitable growth and increase returns.
We are driving the value creating growth agenda.
We're making meaningful progress on our most important priorities and shareholder commitments we.
We are demonstrating strong execution and successfully delivering our profitable growth initiatives.
We're showing we will make acquisitions and carry only assets that maximize value even at the expense of near term earnings.
Bottom line, we are focused on long term shareholder value and we're accelerating returns.
And lastly, before turning it over to Lisa I'd like to thank her for her important role in the successful launch of volunteer as a public company, especially for her professionalism intellect and Investor Relations expertise. We are fortunate to have Lee sustained on long enough to help ensure a smooth transition.
With that I'd like to welcome Ryan settlement to the team I believe many of you already know Ryan and his prior roles in both IR and the sell side, Brian brings deep experience in our sector and a clear understanding of market dynamics. We are very excited to have him aboard.
With that Lisa I wish you all the passing your next chapter and I will turn the call back over to you.
Thank you for the kind words, mark after the pleasure of working with Brian in the last month I am confident that you all are in the best you can with one.
We are now ready for questions.
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Thank you. Our first question will come from Andrew Open with Bank of America. Your line is now open.
Hi, Yes, good morning, Mark Dave.
Lisa Thanks, very much we'll definitely Miss you and Brian welcome and look forward to working with you.
First question on working capital and.
Guys are considered to be some of the better operators out there.
And I appreciate the shift in free cash flow story.
What are you looking for.
So sort of.
<unk> posted we look forward for the industry.
For your supply chain to normalize.
This is a bigger picture question right.
Taking a beyond volunteer.
What's your best guess as to one thing to normal and if they don't what structural countermeasures.
You take do you need to carry sort of more buffer stock going forward do you need to rethink their supply chains from 12 months to 24 months, just more of a 30 or 40 or so.
<unk> on supply chain. Thank you.
Yes, Andrew Thanks for the question look.
There is no question, we've all been wrestling with the supply chain issues now for a while and I would absolutely say that we have taken measures already anticipated the supply chain just to be different one of the things that we've talked about is the simplification program that we've engaged in that will flow right through to your suppliers. So I think thats.
Really the starting point, because if you can kind of consolidate and figure out and particularly figure out what region you get supply chain from.
But going back to the first part of your question there.
It's continuing to be challenging and there is no question about it I couldn't be more proud of what our team has done to be able to once again faced some pretty significant issues and deliver on our commitments, but at the same time I anticipate we will be in this situation for a little bit longer.
And.
Hopefully into 2023.
We will be able to see some of these things get better clearly we are seeing some things getting better on the semiconductor side and electronic components side, but thats actually where most of the stuff still resides so Dave do you want to any comments there, yes, I'd just add Andrew you made a great point about the linearity.
When we look at what happened in Q2 and Q2 it was really.
Bbs at its finest when we look at the.
How supply pushed production to the backend usually as overall with chip, maybe 40% of the quarter in the third month that.
That was well up over 50% when you look at our biggest factory.
He comes out of actually half the quarter was shipped in about the second half of June .
Little under half of the quarter was shipped in the second half of June .
That was really DBS, which is fine, but I think it puts a sharp point on some of the challenges that we fielded.
Roll through.
In our shorter collection type region to pushing receivables and free cash flow out of the quarter. So.
Just to put a highlight on that.
Yes, and the other question I have just one follow up on M&A.
I think.
Our recent acquisition.
Is sort of more.
Middle of the Fairway complex is it for you, but would you say that the M&A funnel is skewed more towards software solution. When I drive was early stage high growth and Banco de scale to a decent level of profitability do you have a philosophy on whats the better time to acquire software firms because since Thats, where the company is growing.
Yes, I definitely wouldn't say that we're looking for software companies. So far I think there is a mix of things that are in our pipeline and and you can expect us to execute and cultivate.
Our pipeline accordingly, because I think there are great returns that can have some embedded hardware into it as well as software and if you look at companies like <unk> and you look at companies like CRB.
Has a combination of those are not just software now granted some of the alternative energy stuff that we did earlier in the year what drives with the embedded technology Sparky on those those can be more software oriented, but once again our mix.
Thanks, so much.
Thanks, Andrew.
Thank you. Our next question will come from Nigel Coe with Wolfe Research. Your line is now open.
Good morning. This is Ryan <unk> on for Nigel Coe, Thanks for taking my question.
Just wanted to ask about gas station investments and if you could provide some color on how you typically see that tracking with higher gas prices.
Yes.
Yes, so that the industry is actually going through a very interesting not only investment.
As you transition perspective, but also the sophistication of the retailing environment.
And so you do see some really interesting formats being advanced by your local.
Neighborhood store as well as your truck stop and so we are there is no question that we're seeing that I've just come back from Norway, where we are.
Looking at a company that is electrified a lot and they do a lot of home charging but at the same time, you see those investments going into that format.
And with higher gas prices, if there are multiple national oil company or they are backward integrated into the supply.
Gas, then theyre going to have more margins here.
We see the energy companies with higher margins.
<unk>.
<unk>.
The key thing is that.
Companies like 711 that have a very sophisticated set of offerings.
To see them, making those investments and that energy transition in that retail environment. So I think it is.
Really good growth.
And forward looking way.
Building out the mobility infrastructure. So we're we're pretty pleased on the position that we're in to be able to take advantage of those investments.
Okay. Thank you that's very helpful. And then I also wanted to ask about the E mobility space and see if you could provide some details surrounding the drives investments.
And I guess, just how we should be thinking about those sort of investments moving forward.
Yes, I'll turn it over to Dave, but let me just given the opening on that.
The bigger picture here is that we can play in and the opportunity. We believe in the Petro based infrastructure, particularly in high growth markets growing out but at the same time.
If you look at the energy transition, we're actually very well positioned to take advantage of that investments like thrives with embedded technologies like sparking on give us a great platform for investment because it's the operating system for the electric charging network that needs to be managed and if you think about.
The bigger issues here about range anxiety. This is a huge growth space and were exactly at the right part of the value chain to not only grow but to grow profitably.
Then I'll go back to my Norway visit all the major players out there in the market and electric charging has subscribed and are subscribing to that drive operating system I think it's a real testament to how we position ourselves for growth and so.
A great position to be in right now.
Great I really appreciate that thank you.
Yes, I would just point out to.
To that we have for Natus closers sizing.
The dilutive impact of Advair.
Investments in our supplemental slides in slide 15, and 16 of the presentation.
Heard you asking for that information and we provided that disclosure.
Great. Thanks, Keith back to you.
Thank you. Our next question will come from Andy Kaplowitz with Citi. Your line is now open.
Hi, This is piyush on behalf of Andy Thanks for taking my questions.
So <unk> is growing nicely Kenny talked about will be for the remainder of the year.
This business and I think when you guys announced BRB, you've talked about high single digit growth over longer term. So maybe provide some additional color on what's driving the double digit growth you saw in the quarter and how being following <unk> brokerage.
So I think.
You broke up a little bit at the beginning of that question I think what you asked was what's driving the growth rates for Derby, Yes, correct, yes.
Yes.
So I think first of all it goes back to the strategy around M&A, we've picked the right property and we carefully did this I think it shows the discipline around our M&A. This is by far the market leader in the space as a combination of hardware and software to deeply embedded.
End to end point of sale system, where we layer on top of that workflow software solutions that really are high demand for customers and inherently it's in a growth space and so that's the first reason. The second reason is just our integration plan I think just hit the right level. This is not a hard integration because it's a growth in <unk>.
Type thing, we've done significant amount of high level changeover management, there I think we've executed really well on that <unk> taken advantage of a lot of the expertise already in the business. So I think the overall.
Strategic path and the execution path has worked incredibly well.
Got it very helpful and my follow up question is like in the stock.
Leverage here like I think you expect leverage to be under three <unk> by the end of the year can you talk about how youre planning to balance continued deleveraging worsening driving incremental capital requirement in the second half and maybe into 2023.
Yes, sure I mean I think.
We have a target range of below three times kind of that two five to three times net leverage that I talked about.
Our free cash flow generation profile.
And EBITDA growth should facilitate that with additional capital to deploy.
This is always dynamic M&A opportunities, we don't always get to pick when those come we've talked about deploy.
Deploying additional capital $100 million over the second half of the year into share repurchase.
Timing of which will depend on market conditions, but when competition to write will be more aggressive. So we have to look the year develop and we will also said I would remind you that at times would be above three times with line of sight to coming back.
Below that in a reasonable period of time, so I think our current profile reflects that and frankly to three three times net leverage is a reflection of the opportunities. We've taken to date over 201 $288 million of capital deployed to share repurchase.
Deals we did in the first and then funding and then co deal that we just announced.
Very helpful I'll pass it along and good luck on these and welcome Brian .
Thank you.
Thank you.
Thank you. Our next question will come from Julian Mitchell with Barclays. Your line is now open.
Hi, good morning.
Yes, Thanks, Lisa for all the help family is.
Just wanted to follow up on the in Vanco.
Do you maybe help us understand recent organic sales growth rates in that business.
What youre thinking about the top line growth outlook, there and then when we're looking at earnings accretion.
<unk> next year.
Thinking sort of single digits.
Of EPS accretion is the right sort of ballpark for that.
Yes, So let me let me jump in on this one so their.
Our organic growth profile is something that it's kind of flattish, but it's something that we can really take advantage of it. So let me just describe that give a little color on that I will turn it over to Dave on the accretion side. So first of all this is an excellent strategic fit for us and it really fits our portfolio diversification and particularly the nature of this.
This agile software that customers are really looking for it really enhances our workflow solutions and the key thing here is that not only is it a platform that is building out with some of our key customers. We had excellent leverage with our sales force, particularly at ads feature rich environment for our high growth market and we can leverage.
Our existing sales force to be able to do that and so we think that on the growth side. This is really it's a rare opportunity for us to be able to leverage what we've got and what they've got to really have growth and there's also a cost synergy side to it wasn't your question, but there is also costs, including happy to go there go ahead David.
About accretion.
So.
First highlight what Mark said.
<unk> synergy rich deal great channel synergies the cost synergies as well.
With the.
Newer stage product they have on the software side fits hand in glove into our existing channel. So we're really excited about that so its an interesting deal and that it has attributes of a bolt on which helps us drive returns.
They're very synergy rich, but also on point strategy with.
With there.
Newer product and you saw on the software side.
As far as accretion, we're looking at kind of mid single digits.
<unk> per share next year.
Beyond that moving up high single digits <unk> per share.
That's very helpful. Thank you and then maybe just my second question would be around the.
Any update on sort of that <unk>.
Outlook, I think maybe a big a headwind kind of third quarter than we thought and then a bigger step up perhaps in the fourth quarter would that 30 million number.
Maybe help us understand kind of where are we on the overall transition and kind of penetration of the installed base and.
Amidst the sort of quarterly moving parts and maybe supply chain disruption any changing perspectives on that <unk>.
<unk> next year or over the next 12 months.
Yes, Julien look good question so really.
Say nothing overall in the Big picture has changed I think what we're seeing in most years that we actually satisfied more E&P demand in the second that we had anticipated. So if you think of an additional $10 million to $15 million that was part of that late June push got satisfied and that really pulled in from the third which which kind of.
Add to that step up.
We're still satisfying a lot of demand in a pretty uncertain environment.
So.
It'll move around some and we try to keep you guys updated as we can.
We probably get to year end before we update the penetration numbers, but as far as we think of we've talked about still being at about $50 million headwind through the year in our view you can next year no no update to that.
That's great. Thank you.
Sure.
Thank you.
Our next question.
Come from Rob Mason with Baird. Your line is now open.
Yes, good morning.
I wanted to see if you could just elaborate mark on some of the challenges you talked about at <unk>.
And how do you see those playing out in the second half and then.
Specific to thought I heard a comment around investment in company owned stores weather.
How new of a dynamic is that what <unk>.
Level of investment are you talking about and perhaps the timeframe that we would.
See that materialize.
I'm happy to so first of all I think the backdrop here for macro is up pretty strong.
The macro environment for them.
Mission continues to be a <unk>.
High employment, they're getting paid well theres robust shop.
<unk> activity.
So that all of those things, they're really well and then the backdrop for complexity to repair is also really good too. So I think I think thats, great. I think one of the biggest issues were running up against is first of all year over year compare is pretty significant macro had more than 50% organic growth in the prior year period, and we knew that the quarter was going to be challenging because.
The timing of the macro exco.
It was in Q1 this year in Q2 until we get a lot of bookings according to that but at the same time, we experienced supply chain disruptions and some had some labor issues associated mostly with our Jamestown factory that we build the toolbox is on and so we currently have a remedy plan in place for that.
That I feel confident in and.
And at the same time I think.
The build out of the of the franchisee, which is a real opportunity for us and it goes back to your question on company owned stores as well is that it's not something that we focus on a lot historically, but I think some of these underserved geographies and territories, where we have a real advantage because about 30% of our territories are not yet penetrated.
But sometimes you have to jumpstart that a bit with our company owned store you might get that routes started and then it's easier to hire some somebody into that area that would be able to take that on so it's kind of a transition plan for us.
Not necessarily a permanent plan.
We think that we've got to be creative.
Particularly in these rather underserved geographies.
How to build that out, particularly with the labor constraints, it's harder to attract maybe labor in some of these opportunities. So I think we've got an excellent value proposition and it's just our effort here to be more creative.
I see and.
Dave could you just give a little bit of color on how you see growth in the second half of the core growth in the second half of the year between the two platforms.
Yeah. So we I think we continue to.
Track after a reasonably slower start in the <unk> side of the business.
We'll continue to track in the second to get to more of a low kind of a low single digit core growth for the full year.
And then I would say overall and in in the.
<unk> side of the house, we're still tracking to that mid single digit.
To get to the full year guide that we articulated.
Excellent.
<unk>.
Thank you again as a reminder, if you would like to ask a question. Please press star one now to join the queue again that is star one to ask a question. Our next question will come from Kai Hartwig with credit Suisse. Your line is now open.
Hi, good morning.
I wanted to ask a question about in Franco.
Is it correct am I understanding it correctly that it takes a little bit beyond the gasoline for core financials or the broader convenience store market.
I don't see the.
Jack Ryan sorry, good morning.
James could you cite what the contingent consideration is based on.
Yes.
Yes, so if I understood. Your question Youre trying to understand how that's positioned.
I think it's a great question because the key thing here is it is it does take us beyond the traditional C store with our retail solutions platform. So if you think about what's happening here. This is a micro services software offering that offers a lot of modularity and customer choice and youre seeing that in other type.
Retailing venues that have not shown up into the.
The verticals around the retail spaces that we serve and so not only this is great for the convenience store. There's other things part of the mobility infrastructure that we're very interested in namely Carwash is another thing that repair solution side. So it's a very contemporary modular tech.
Technology that customers are very interested in because it drops our cost as well as lead time with offering solutions that they can pick and choose from so it's a really big step up if we were to do this development ourselves it would take US a couple of years and there is nothing available in this space, which you can actually go out and develop solid.
A great position for us to pick up did you build on that a little bit.
Just making sure I am not sure I got your words right, but you talked about moving from the forecourt into the into the C store and I would just point out we're already well into the C store with our existing retail solutions and as Mark pointed out.
This really fits hand in glove with that and can take us into other verticals as well.
The contingent consideration is based around our revenue performance in the first kind of year year and a half.
Okay. Thank you and just as a follow up could you talk tell us what pricing was in Q2 and I expect price cost to progress through the rest of the year, yes. So look we again.
Pretty strong price.
We were price cost positive and we offset the margin impact from from cost as well. So so in other words. It was margin neutral. So we did more than offset it just on a dollar basis.
Been running really well on a year to date basis got off to an early start last year as most people know but.
The.
For the year, we still anticipate in the second half be price cost positive as well and also offsetting the <unk>.
Margin impact.
So for the full year, we would anticipate the margin margin neutral margin neutral as well.
Okay. Thank you and we did come in almost six points of price and mix.
Quarter end, yes go on.
Track for kind of that mix.
And range quite a year.
Thank you.
Thank you.
Thank you. It appears we have no further questions at this time I would now like to turn the program back over to Mark Morelli for any additional or closing remarks.
Thank you Katie.
Couldn't be more encouraged in that track record that we're establishing in the runway of opportunities in front of us at volunteer I'm, particularly thankful of the team for continuing to step up and work through challenges in this dynamic market environment and I think our work is resulting in a stronger more growth oriented portfolio and couldnt be more encouraged by all this so thanks for joining us on <unk>.
<unk> call and have a nice day.
Thank you ladies and gentlemen. This concludes today's event you may now disconnect.
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