Q4 2023 Vontier Corporation Earnings Call
Good morning, ladies and gentlemen, and welcome to the royalty of fourth quarter 2023 earnings call. At this time all lines are in a listen only mode. Following depressing.
They shouldn't be will conduct a question and answer session.
If at any time during this call you're quite immediate assistance. Please press star zero for the operator.
This call is being recorded on Thursday February 15th 2024, and the replay will be made available shortly after.
I would now like to turn the conference over to Ryan Edelman Volunteers, Vice President of Investor Relations. Please go ahead.
Thank you good morning, everyone and thank you for joining us on the call. This morning to discuss our fourth quarter results.
With me today are Mark Morelli, our president and Chief Executive Officer and in human <unk>.
Our senior Vice President and Chief Financial Officer.
You can find both our press release as well as a slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors Dot <unk> Dot com.
Please note that during today's call, we will present certain non-GAAP financial measures.
We will also make forward looking statements within the meaning of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future.
These forward looking statements are subject to risks and uncertainties.
Actual results might differ materially from any forward looking statements that we make today and we do not assume any obligation to update them.
Information regarding these factors that may cause actual results to differ materially from the forward looking statements is available on our website and in our SEC filings.
With that I'd like to turn the call over to Mark.
Thanks, Ryan and good morning, everyone. Thank you for joining us to discuss our fourth quarter results I'll start with some of the highlights of the quarter beginning on slide five.
Our teams delivered a solid finish to a year marked by strong operational execution and significant progress on our strategic initiatives and portfolio transformation.
Overall Q4 played out largely as we anticipated.
We delivered baseline core sales growth of 5% towards the higher end of our guidance range and strong performance on top of the 10% growth in the prior year.
We saw continued momentum across the portfolio, including strength within our alternative energy DRP macko use dispenser and fueling aftermarket businesses.
End market demand remains constructive.
Supported by continued investment in the mobility ecosystem, especially first solutions that deliver enhanced productivity and automation and multi energy solutions that enable de carbonization.
We continue to see evidence of these demand trends and our order funnel and in direct conversations with our customers distributors and channel partners.
Encouraging signs as we now moved past the ENV comparison issues and channel inventories continue to normalize our book to Bill will inflect above one we delivered another quarter of strong underlying margin performance, reflecting the power of Ebs and our culture of continuous improvement to drive.
<unk> productivity savings and execute on our restructuring initiatives as well as favorable price cost.
As in Sherman will share with you in a few minutes, we are initiating our 2024 guidance, which is the first time post spin we will be free from any ANV related adjustments.
After three full years of headwinds we are thrilled to have this comparison issue behind us and eager to demonstrate the strength of the volunteer portfolio and tangible shareholder value creation potential.
We are confident in our outlook not only for 2024, but also in our longer term financial targets.
I am encouraged by the trends we are seeing in our sales funnels, we're gaining significant traction on our connected mobility strategy.
We are well aligned with the secular tailwind benefiting our industry for the next decade plus.
Turning to slide six.
Frontier is well positioned to capitalize on underlying secular tailwind that are driving significant investments to modernize the infrastructure that enables the way the world moves.
We serve the mobility ecosystem, which as we shared with you during our Investor day last year unites all of the infrastructure are critical to the movement of people goods data and energy.
We size, our addressable market at approximately $30 billion, which is growing at a mid single digit rate over the next several years.
This ecosystem is evolving rapidly motivated by new technologies that enable more connected more sustainable mobility. We believe volunteer is uniquely positioned in this end market with a clear right to lead this evolution leveraging a large installed base and track record of innovation as.
The result, as we continue to execute our connected mobility strategy. We expect this tam to expand even further.
Our growth framework.
Supported by three secular tailwind that will positively impact our end markets over the next decade and cut across all three segments.
The energy transition influenced by more prevalent de carbonization and compliance increased complexity, driven by industry consolidation and changing consumer preferences and increasing regulation.
And global labor challenges related to the availability of skilled workforce.
These secular trends are already driving significant investment by our customers as the industry consolidates and the benefits are going to those that are more productive and better able to attract consumers.
We believe the solution to these challenges require outcomes that enhance productivity across our customers asset base as well as a multi energy approach to refueling all vehicle types.
While the secular trends cut across our entire portfolio customer needs are unique to the individual end markets, which underscores our rationale for aligning our segment structure to capitalize with the differentiated solutions.
On the bottom of the page our common set of end market needs for each segment, which highlight the necessity for more advanced technologies and solutions that solve unique challenges.
These needs have been identified by Years' worth of customer back market research and have been embedded within our engineering and product development process since shortly after the spin.
Mobility technologies represents just over one third of our revenue.
This segment focuses on integrated solutions for mobility hubs, including connected hardware and software packages tailored to specific mobility verticals that enable our customers to manage the complexities inherent in their businesses.
It also includes solutions that enable our commercial and industrial fleet operators and EV charging network operators to meet their de carbonization goals.
Repair solution is incredibly well positioned for the energy transition with an agile business model capable of providing tools for any vehicle type while also focusing on developing advanced tools to deal with the increased complexity of repair and manage the widening technician shortage and skills gap.
Environmental and fueling solutions, where we have significant competitive advantages in above ground and below ground equipment is capitalizing on the build out and modernization of the global convenience retail and fueling footprint as well as environmental sensing and monitoring devices to achieve regulatory compliance.
Our connected mobility strategy on slide seven provides us with a clear template for how we deploy resources to capitalize on the customer needs. We just discussed.
When combined with unmatched portfolio depth, and breath and deep domain expertise our strategy to connect manage and scale assets across the mobility ecosystem represents a unique value proposition for our customers who are dealing with a number of challenges that are increasing their operating cost and the complexity.
Of managing their assets.
What they're looking for is a way to keep their operations running smoothly, while maintaining high asset uptime at the lowest total cost of ownership, while optimizing revenue and profitability.
Our strategy strikes at the heart of this challenge by connecting the physical infrastructure managing it through our leading digital platforms and then scaling it through high valued applications.
Ultimately most value delivery happens through physical systems, because our incredible installed base interacts with a vast majority of the mobility ecosystem, we were able to create customer benefits through network effects.
Decades of established domain expertise in the verticals, we serve unmatched breadth and depth of the portfolio and the fact that our growth strategy is well aligned with the largest enterprise customers are all keys to our sustainable competitive advantage.
By combining our domain knowledge with agile digital platforms.
We have an opportunity to disrupt our markets evolving from historically siloed systems to an integrated architecture.
When we apply connectivity and digital applications, we can fundamentally change the way our systems utilize and interact with their infrastructure.
Some of the more common outcomes, we can deliver with our solutions are listed here on the page I won't go through each of these but the key message is these outcomes would not be possible without digital platforms.
This strategy is the culmination of several years of increased focus post spin.
On slide eight through focus engineering, and R&D rigor and Bbs, we have flipped our spend profile doubling the amount spent on new product development since 2020.
The result has been a six times increase in the number of new products launched since then with 20, new to market products or solutions launched in 2023.
This is giving us an ability to capitalize on secular drivers to improve organic growth.
Let me turn the call over to Ann Sherman to walk you through the details of the quarter and chairman.
Thanks, Mark and Hello, everyone.
Let's start off with a summary of our fourth quarter results on slide nine.
Sales of $789 million in the quarter declined 7% on a core basis against the peak headwind related to the year over year <unk> compare.
On a baseline core basis, excluding the ENB compare sales increased approximately 5% for the quarter towards the higher end of our guidance range led by low double digit baseline growth at mobility technologies.
For the full year 2023 total company baseline core sales grew approximately 9% as our teams capitalized on solid end market demand leveraging our leadership positions and robust new product pipeline to deliver value for our customers.
Price contributed a little above three points of that growth demonstrating solid underlying volume performance as well.
Adjusted operating profit for the fourth quarter was $174 million down versus the prior year as anticipated given the E&P related headwinds.
Adjusted operating profit margin in the quarter was 22% up about 20 basis points as a result of our ongoing restructuring and productivity savings.
As well as positive price cost offset in part by <unk> headwinds.
Additionally, Q4 was negatively impacted by an FX transaction impact related mainly to hyper inflationary economies, which equated to a headwind of about $6 million or about 80 basis points of margin for <unk> in total.
On a year over year basis, the FX transaction impact was about a 5 million or a 60 basis point headwind.
Baseline core margins expanded 380 basis points during the quarter and for the full year 2023 improved over 180 basis points.
Adjusted EPS at <unk> was slightly above the high end of our guidance range.
Operationally results were in line.
The approximate three <unk> FX impact I mentioned was more than offset by a pick up below the line from lower tax expense.
The lower tax rate in Q4 is the result of proactive global tax planning actions executed in the quarter, which included a catch up benefit for the full year going forward, we expect our effective tax rate to be between 21, 5% and 22%.
50% to 100 basis point reduction from our prior rate.
We will spend more time on free cash flow in a few slides, but we closed out the year on a strong north of 122% conversion in the fourth quarter.
We are incredibly proud of our performance this year as our teams executed extremely well leveraging the volunteer business system to continue to unlock value from our operations, while navigating the end of the <unk> cycle.
We delivered on all our financial commitments for the year, continuing our track record of strong operational execution.
Moving on to slide 10.
Our mobility technology segment performed well through the fourth quarter with mid single digit core sales growth and baseline core growth of 12%.
All operating companies within the segment reported sales growth in the fourth quarter led by alternative energy solutions up over 20% in the fourth quarter and up over 30% for the full year.
Increased adoption for low carbon fueling solutions spanning compressed natural gas renewable natural gas bio fields and hydrogen continue to drive growth.
<unk> also reported a solid fourth quarter with mid single digit growth and anticipated moderation from well above fleet average growth on a difficult comparison with the prior year, where sales grew over 40% in the same period.
CRB continues to see a build out of new tunnel carwash sites, gaining share, but good traction from the ramp of <unk>, our new cloud based software solutions designed to improve operational efficiency scale seamlessly maximize revenue generation and enhance the consumer experience for car wash operators.
<unk> been FX ramp is progressing well and remains on track with over 20% of shelf 13000 planned sites now deployed.
<unk> conversation and pilots ongoing with the robust pipeline of opportunity.
For the full year 2023 mobility technologies baseline core revenues increased over 12% a true testament to the value of our integrated solutions across the mobility ecosystem.
For example, <unk> nearly doubled the number of connected devices shipped in 2023 to approximately 250000, which validates the value proposition, we offer to our customers to connect manage and scale their assets.
Margins at mobility technologies improved 180 basis points from the prior year ending the quarter at 26% with strong contributions from alternative energy solutions, and <unk> and despite a headwind from the FX transaction impact I referenced earlier.
Turning to slide 11.
Prepare solutions delivered core revenue growth of 5%.
Led by continued strength in our tool storage business up 30% this quarter and over 20% growth in our diagnostic tools category. Following the launch of our Max five advanced scan tool.
Demand for our high ticket items like these reflects the underlying health of the service technician with employment and wages continuing to climb.
Looking back at the full year repair solutions delivered nearly 7% core growth driven by robust underlying demand and an excellent product lineup and outcome of our industry, leading new product vitality.
Operating profit grew approximately 16% year over year to $38 million for the quarter.
With operating profit margins of 25% up nearly 250 basis points, driven primarily by stronger volume productivity savings and favorable price cost.
And our final segment environmental in fueling solutions on slide 12.
Yeah.
<unk> revenue declined roughly 20%, reflecting the impact of the <unk> sunset.
On a baseline core basis sales increased 1%.
Slightly ahead of what we were expecting driven by upside in our U S dispenser business and low double digit growth in after market parts.
Inventories normalize towards the end of last quarter.
For the full year 2023, Etfs reported baseline core growth of 8% due in part to the strength of the U S dispenser demand, which tracked ahead of expectations through 2023.
Industrial consolidation and continued site buildout and modernization by our largest national and regional customers supports our growth.
Salesman's from regulatory changes both in the U S and abroad also contributed to growth.
Driving strong underlying demand for environmental solutions.
Although sales in environmental were essentially flat in Q4, as we continued to experience some destocking headwinds in our North America business. This was offset by growth across our international business.
We are mostly through destocking headwinds and expect a modest amount to carry through in the first half of 2024 with channel inventories returning to normal in the second half and this business returning to attractive growth.
<unk> segment margins of 28, 9% were in line with the prior year as restructuring savings and the benefit from price cost were offset by <unk> related headwinds.
Moving on to the free cash flow and the balance sheet on slide 13.
Fourth quarter, adjusted free cash flow was $153 million representing.
Representing conversion of 122%.
Full year free cash flow increased nearly 40% to 436 million with adjusted free cash flow conversion of 97% within the top half of our full year guidance range.
Cash flow from operations was also up 40% over the prior year, driven primarily by strong working capital management, leading to a $50 million decline in inventories.
Strong free cash flow generation. In addition to the strategic deployment of GTT divestiture proceeds earlier in the year enabled us to pay down $300 million in debt in 2023 and repurchased $75 million in.
In stock.
With this we ended the year with a net leverage ratio of two eight times.
Within our target range for the year and a material improvement with a three two times in 2022.
As we look ahead to 2024, we remain committed to our investment grade credit rating and plan for another $100 million in debt Paydown.
We will maintain our focus on returns driven capital allocation evaluating additional buybacks and bolt on acquisition opportunities.
Turning to the outlook on slide 14.
Having successfully navigated the ENB compare.
Eliminating any reference to baseline core metrics.
Moving forward we will.
Tissue, both reported and core sales growth.
For the full year 2024, we expect core revenue growth of 4% to 6% and reported revenues in the range of $3.05 billion to $3.11 billion.
All operating segments are expected to contribute solid growth in 2024 as the strong secular trends underpinning the mobility ecosystem many of which we have talked about today continue to further the advancement of our industry leading solutions.
We expect full year adjusted operating margin expansion of 80 to 110 basis points, reflecting another year of solid operational execution, partially offset by continued reinvestment in innovation.
This would include increased R&D at <unk> as well as our evolved business all of which will strengthen our industrial leading position and accelerate market growth.
Adjusted EPS is expected to fall in the range of $3 to $3 15.
We expect free cash flow conversion in the range of 90% to 100% a normal operating range for one tier.
However, this does assume a modest increase in capex spend to support our growth outlook.
We have provided us with some other P&L assumptions relative to our guide in the appendix of this deck just to walk through a few of those briefly divestitures will be a headwind of nearly $150 million for the full year based on our plan for additional debt Paydown and assuming current rates interest expense will be a tailwind year over year.
80% to $85 million.
With the tax planning actions taken in the fourth quarter, our tax rate for the full year should track between 21, 5% and 22%.
And the model and outstanding share count of approximately $155 million to 156 million shares.
For the first quarter, we expect revenues in the range of 745 million to $760 million on core growth of 2% to 4% and adjusted earnings per share of <unk> 68 to 72.
From a seasonality perspective, we expect Q1 sales and operating profit to be approximately 24% and 23% of the full year, respectively, which is in line with our historical norm.
For the full year, we expect second half earnings to be around 55% of the total year also in line with our historical seasonality.
Overall, we believe our outlook reflects another strong year of performance from one tier.
With that I will turn the call back over to Mark to wrap up.
Thanks, Ann Chairman I'll wrap up with a few quick comments on slide 15.
We made significant progress on our strategic initiatives in 2023, and I couldnt be more proud of what our teams have been able to accomplish.
We delivered on our financial commitments exceeding many of the original guidance targets provided in February of last year drove incremental operational and commercial success through Bbs remaining disciplined on capital allocation and continue to transform our portfolio.
We enter 2024, and a position of strength and with significant momentum given the progress we made last year.
Our markets are constructive underpinned by strong secular drivers and we're advantaged by our leading share positions with the largest players in the mobility ecosystem.
The investments being deployed across our end markets, our verification of the value being placed on improving productivity enabled by our integrated solutions.
This is a unique advantage for volunteer as the build out and consolidation of end markets continues.
This puts us in a solid position for sustainable above market growth and top quartile free cash flow as a percentage of sales.
Our guidance for 2024 puts us squarely on the path to achieving our long term targets I am confident we have the right strategy in place to deliver differentiated solutions for our customers and unlock value for our shareholders.
With that operator, we're ready to open the line for questions.
Thank you Sir.
Ladies and gentlemen, we will now begin the question and answer session.
So do you have a question. Please press star followed by the number one on your Touchtone phone.
You will hear today, Tom Tom acknowledging your request to use the declines on the polling process. Please press star followed by the number Tim.
If you are using a speaker phone please lift your handset before pressing any.
One moment. Please for your first question.
Our first question comes from the line of Andy Kaplowitz from Citigroup. Please go ahead.
Good morning, everyone.
Good morning.
Mark You mentioned your book to Bill could inflect above one times and that yourself funnels, improving improving but maybe you could talk a little bit more about that are you already seen that order inflection as you go through Q1, where do you expect the biggest inflection in orders growth order growth in the portfolio, what's baked into your 4% to 6% core revenue growth guide for the year.
Yes, so first of all we've been pretty encouraged that our book to Bill has hung in there through 2023, Alex She has been hovering just below one fairly steadily and thats been encouraging because we've obviously had to face.
Reducing lead times, some minor destocking issues, but.
So that I think that the demand has been there I think as we work through those further headwinds into 2024 I think the secular drivers are still at work I think we've got a lot of momentum coming.
Coming out of the year I think it's.
Pretty hard to exactly call when the book to Bill will inflect above one, but but we're seeing sort of the legs of the work that we've been doing with the backdrop of these secular drivers in these integrated solutions that we're having in the marketplace are getting good traction with our customers based on serving.
The market in the secular drivers and some of the larger players in the industry that are consolidating so all these are a really good signs our channel checks.
<unk> are going well, where we're looking at to build out and the demand of the infrastructure is certainly seems to be there keep in mind. Most of our customers are also not necessarily dependent on the interest rate environment, they've got really strong balance sheets really flushed with cash and these folks are continue to build out and theyre looking.
<unk>.
Little bit further down the road with that infrastructure build out and the decisions that we're making to do that and these are the folks that we have a leading share with so we feel pretty encouraged on what we see in the 2024 of course, a lot of 2024 in front of us.
So it's hard to tell everything that will happen, but for what we see right now I think it's pretty encouraging.
Helpful. Marc and then I just wanted to focus on environmental and fueling solutions for a second I think you said baseline clear growth was.
Fine in line or better than you thought, but could you give us a little more color regarding that tradeoff between sort of the destocking in environmental in North America versus the international strength I assume you expect continued muted overall core growth for that segment through the first half of the year and then gets better in the second half is that the way to think about it.
Yes. So first of all 23 was a really strong year for that platform I think it really shows that the secular drivers are at work.
And I think the product launches we've done there have has.
It has served us well.
Through 'twenty three as we get into the.
The 2024 cycle. We did indicate there was a small portion of our business exposed to destocking of about 15% of revenue.
We're working through that pretty well I mean, the aftermarket parts is one area that we saw Destocking last year and we think we're through that we saw Q4 with double digit growth in aftermarket parts, which is a great been a great business for us and it's benefiting from the fact that we gained share during the <unk> cycle.
Install base and we've really focused on that as one of our profitable growth initiatives and so getting through the destocking. There I think it bodes well for 2024, and then on the underground side, which also experienced some destocking there we're mostly through that I think.
It what we performed well in the quarter.
International markets were really strong on environmental offset some of the Destocking some of the weakness in North America. So overall, a really good performance on environmental.
But.
More to your question as we get into 2020 for most of that Destocking is through some still pockets on the west coast and we should be through that in the first half so kind of getting getting to your point here, we see a good backdrop churn.
You want to add anything there, yes, just from a seasonality perspective for environmental and fueling Q.
Q1 should be a good growth quarter for them that should be growing mid single digits for the quarter.
So I think the businesses performing well and a lot of the innovation on the environmental side is supporting our business also.
Great to hear guys. Thanks.
Yes.
Our next question comes from the line of David Ridley Lane from Bank of America. Please go ahead.
Good morning.
You have a competitor in mapco that had year over year declines in.
This quarter.
And they called out, particularly the higher priced items.
Look your results.
Steady growth.
So what do you see kind of in the market any difference between your sell in to the franchisees versus the sell through.
Obviously, you're expecting.
Continued growth in 2024.
What are you what are you seeing that kind of gives you that confidence.
I don't think it's any secret that employment is at an all time high and the wage rates are also at an all time high I think the thing that might weigh on the service technician is just sort of the backdrop with overall raising prices as a consumer and certainly if they are.
Buying other other things that there.
They're paying more for it certainly with higher interest rates as well and so that could certainly impact some of the buying behavior. So we've been very carefully looking at that and watching that.
And I think the thing that has bode well for our growth is that it just had a really strong product lineup.
One of the areas, we differentiate ourselves on is that vitality, bringing new products to market. I think we just had an excellent lineup. This year, we've launched a new diagnostics platform thats showing well our power tool lineup has been doing outstanding through 2023, and then our toolbox factory has been on the mend. So we are actually.
Seen movement.
Higher priced items in this market environment, which I think has been encouraging to us it's hard to say exactly what 2024 will bring in this regard so we're watching it carefully but at the same time, we've been pretty darn encouraged with.
The results that we've been getting in the marketplace and churn when you want to add anything there.
Add to your question about sell through so when when you look at the fourth quarter, we were up about 5%, but when you look at the completed business of our franchisees really the sell through on.
Year on year basis. The average weekly completed business was up about 6%. So good sell through so it's not an inventory issue. That's building up so overall, a solid quarter as mark talked about good product vitality that helped drive it with the healthy technician, but we continue to monitor the space.
And just a quick follow up.
I know that.
Divestitures are going to throw off the incremental margin calculations.
But can you.
Just sort of bridging from kind of 2023, how much restructuring cost savings.
Yeah.
That bridge versus kind of the core organic profit growth.
There's about $8 million of restructuring benefit in 2024, which is a carryforward from 'twenty to 'twenty three.
Yes, the portfolio shift does help roughly 50 basis points.
If you look at our drop through on the ex divestiture part of the business on the growth, we're doing about a 30% drop through.
Despite some higher R&D expenses as we continue to build out our leading position.
And <unk>.
The car wash business and evolve.
Thank you very much.
Just a reminder, so do you have a question. Please press star followed by the number one on your Touchtone sign we have our next question coming from the line of Julian Mitchell from Barclays. Please go ahead.
Hi, good morning.
Just wanted to try and understand sort of how you're thinking about organic sales growth for the year and margin expansion across the three segments.
Which ones do you think kind of lead growth, we will have the lowest margin expansion any sort of color around that please.
Hi, Julien so ill.
Start with that so when you think of the three segments, let's start off with mobility technologies mobility technologies.
We should have mid single digit to high single digit growth in that segment operating margins will be flat to slightly up despite the higher R&D and <unk>.
This business has good drop through and as it expands and grows.
That really helps us the repair segment.
That should be a low single digit to mid single digit growth stop.
Operating profit margins roughly in line with the previous year, and then our environmental and fueling business should grow about mid single digits, but higher margins and with some margin expansion out there.
That's very helpful. Thank you and then just my second question would be around.
How much leverage do you think or how much firepower do you have available for the year ahead.
What's the appeal of sort of M&A versus buyback. So youll current price and I think you have about 100 million most of that reduction.
Dialed in for that interest guide is that sort of maximum debt reduction.
Could there be more.
Yes, maybe I'll start off and then Marc will also chime in so the debt reduction will probably be limited to the $100 million as of now we have a maturity.
Off a term loan of $100 million left on it so we'll pay that off.
From a leverage perspective, we said we'd have a leverage ratio of two and a half to three times at two eight times, we're squarely in that.
So just maintaining our leverage in that range.
And then from a firepower perspective, obviously.
Are a good cash flow generator, and 90% to 100% free cash flow generation generation. We also did have the hennessey sales proceeds which came in in January little over $70 million.
From a capital allocation perspective, we will be very disciplined as we have demonstrated in the past we are very returns driven.
And we have.
We are patient.
So just expect per tons, driven focused capital allocation from us Mark do you want to add something yes ill just reiterate.
That Julien.
We feel that we.
We've really.
<unk> demonstrated a very disciplined approach on the capital allocation and it's something I think we we think about a lot we spend a lot of time thinking through.
The different avenues for this and we're extremely disciplined and very patient.
With how we figure these things out so we don't feel in a rush to do M&A, if that's maybe what where people might think.
But we will have M&A part of the equation and bolt ons.
At when the when the right hurdle rates are met and the right strategy kind of plays out for us. So.
Very strategy lead on that and then I think more more of what we've done in the prior year.
I think has worked really well so we continue to spend time on this and I think you're just going to see a very disciplined approach.
That's great. Thank you.
Thanks Julien.
Yeah.
Our next question comes from the line of Rob Jamieson from UBS. Please go ahead.
Hi, good morning, Congrats on the results this morning.
I just wanted to focus a little bit on <unk>. It sounds like again FX deployments for shallow progressing.
I Wonder if you could just talk about the pilot programs that you mentioned.
How does this play out from a timing perspective or are these with like larger chains that are testing a few sites and then how long does this pilot program last before it might like converting to a win.
So thank you for that question, we've been Super excited about the progress we've been making with in effects platform and.
Shell is going really well.
<unk> deployed.
Pretty significant amount almost maybe 25% of that very large order. If you may remember, we accepted orders from shell and Chevron.
Ah represents about 15% of the U S. C store installed base. So some really big orders there and so the fact that we're progressing through them really nicely in the rollout I think bodes well I think there is other large names that are out there that are piloting it. They are taking a very close interest in some of the productivity gains they get from there.
This platform, which is really one of the central issues that they are facing is how do they manage that infrastructure in a more productive way and this platform really fits exactly into that need so a lot of attention on it and I think we'll keep you posted as we've done press releases in the past and will we keep.
You posted as we continue to get wins.
Our pipeline is no question growing.
For this offering and keep in mind that Thats just for the payment aspect. We also have I think advent effects more as a site management platform and so we have a lot more build out around the NSX platform on site management related productivity and automation, which is an outstanding team with some great secular drivers behind that.
For the mobility ecosystem. So we're excited about it and.
There'll be more to come.
No that's great. Thank you for the color there and then solid free cash flow generation in the quarter and conversion.
Can you just talk about some of the opportunities into 2024, and how you might drive higher conversion.
Yes, I think 90% to 100% free cash flow conversion is the hallmark of our business. So we will continue to drive.
We have strong working capital management initiatives in place.
Spine all aspects of our balance sheet, we continue to look at inventory, how we can optimize inventory, while meeting customer demand and keeping lead times down.
Obviously, we're very focused around collections and payables also.
And if there is a lot of talk around some of the R&D from a tax perspective, whether the Senate bosses that that's definitely some potential upside if that happens about $20 million upside from that if that happens.
Okay, that's great and sorry can I sneak one more in on macro.
Just on product vitality, I mean, I know thats something that you called out. Besides could you just talk a little bit about that process like you kind of reaching out proactively to mechanics, and trying to figure out what attributes they are willing to pay for when youre developing these products, but just curious kind of how you approach that thank you.
Yes. It is.
Along starting part of our business model in macro where.
We're pretty nimble with our supply chain and through our supplier. So we heavily.
Engage our supply chain with with a team that focuses on the market.
And on the high value problems that service technicians are facing one of the biggest issue for our service technicians, how do they how can they be more productive in the shop, how can they make sure. They are not running into problems. They have the right tools and capabilities and if they can do things that dropped their time and have higher efficiency.
In the shop, then then Thats, a major boon for them and they're certainly willing to pay for that.
And they don't ever want to approach a situation, where they Mike Mike bogged down the shop or bogged down their productivity as you know if you've ever had your car repaired.
Recently, you know, it's just difficult just that.
Overall labor challenges and the complexity of repair is going up with with new modern vehicles, including electric vehicles things are more complex and so that is a great backdrop for for our business model, which really focuses on this productivity aspect within the shop and I think what youre seeing.
As our product lineup. This year has been just great I think we've identified the right issues that they can help the service technician and they're certainly willing to spend in that environment.
That's great. Thank you for the color.
Thanks, Ron.
There are no further questions at this time I would now like to turn the call back over to Mr. Morelli for final closing comments.
Yes, thanks for joining us today, and I'm really excited about our operational performance through 'twenty three our outlook for 2024.
So it's reflective of the significant progress of our portfolio transformation and the momentum that we have I can tell you.
I am not more thrilled to have the E&P cycle behind us and look forward to a clean core growth in 2024, I'm incredibly proud of our team and I look forward to further executing on our connected mobility strategy. So we look forward to seeing folks on the road in the coming weeks have a great day.
Thank you Sir.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask could you. Please disconnect your lines have a lovely day.
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