Q4 2024 Vontier Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Volunteer Fourth Quarter 2024 Earnings Conference Call.
At this time, all lines are in a one-and-only mode.
Following the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, February 13, 2025, and a replay will be made available shortly after.
Ryan Edelman: I would now like to turn the conference over to Ryan Edelman, Volunteer's Vice President of Investor Relations. Please go ahead.
Ryan Edelman: 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 Anshooman Aga, our Senior Vice President and Chief Financial Officer.
Ryan Edelman: You can find both our press release as well as our slide presentation that we will refer to during today's call on the investor relations section of our website at investors.vonTier.com.
Ryan Edelman: Please note that during today's call, we will present certain non-GAAP financial measures.
Ryan Edelman: 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.
Ryan Edelman: Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them.
Ryan Edelman: Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SAC filings.
Mark Morelli: With that, I'd like to turn the call over to Mark.
Mark Morelli: Thanks, Ryan, and good morning, everyone. Thank you for joining us on today's call.
Mark Morelli: I'll provide a high-level overview of our performance in the quarter with a brief update on our end markets, the progress we are making on our strategy, and our setup for 2025.
Mark Morelli: Anshooman will then provide a deeper dive into our Q4 results and Outlook for the full year.
Mark Morelli: Let's get started with a summary of the quarter on slide 3. Overall, we were encouraged by our fourth quarter performance, delivering top and bottom line results above the midpoint of our guidance and capping off a strong second half.
Mark Morelli: We're capitalizing on solid industry demand across convenience retail and fueling and markets and leveraging our portfolio of innovative industry-leading technologies to gain share and deliver above-market growth.
Mark Morelli: We achieved three and a half percent core growth in the quarter with all three segments outperforming.
Mark Morelli: For the full year, core growth was about 2%, reflecting the dynamic end market conditions we experienced most of the year, particularly within our car wash and auto repair businesses.
Mark Morelli: Importantly, we saw signs of stabilization in these verticals through the fourth quarter.
Mark Morelli: Bookings were up 9% organically in the quarter, driving a book-to-bill above 1 for the fourth consecutive quarter.
Mark Morelli: Booking's growth for the full year was over 6% led by double-digit growth at Invenco within mobility technologies and environmental and fueling solutions.
Mark Morelli: We saw broad-based strength across our payment, enterprise productivity, fueling dispensing, and environmental businesses.
Mark Morelli: Operating margins were flat year-over-year and up sequentially despite continued mixed headwinds. Let's turn to slide 4.
Mark Morelli: Frontier has a unique competitive advantage within the mobility ecosystem with a purpose-built portfolio of connected hardware and software solutions. Our connected mobility strategy places us at the forefront of our customers' digital transformation journey and offers optionality for their energy needs.
Mark Morelli: As we connect, manage, and scale the mobility ecosystem, our focus on reinvigorating R&D and new product introductions are delivering tangible results.
Mark Morelli: Our ability to deliver on our commitments for commercial and operational excellence rests on the foundation of our three-pillar framework, which leverages the volunteer business system and the 80-20 principles embedded in our focus and prioritization program.
Mark Morelli: We made strong progress on our simplification initiatives under Pillar 1, Optimize the Core. Benefits of these initiatives help to fully offset the significant margin headwind from MIX, and we have a solid pipeline of opportunities that will deliver margin expansion over the next several years.
Mark Morelli: For example, within EFS, we expanded our internal efforts around product line simplification and component standardization in 2024, strengthening our ability to execute on margin expansion.
Mark Morelli: We are well on track to achieve our targets on rationalizing global dispenser platforms to under 10, achieving 50% standardized components, and reducing manufacturing capacity.
Mark Morelli: In addition to improving the cost structure, this simplification process allows us to allocate our resources more effectively.
Mark Morelli: Ultimately, the result is faster innovation cycles, reduced supply chain complexity, lower lead times, and improved working capital and pricing capabilities.
Mark Morelli: We're seeing the success show through in the EFS segment margin, which has improved nearly 200 basis points over the last two years and now sits at an impressive 29% with room to move higher. Tremendous work from the fueling team and more runway ahead.
Mark Morelli: Within Mobility Tech, the Invenco team has been on a similar journey of product line simplification.
Mark Morelli: This began with 34 individual software platforms, including both legacy and acquired platforms. We've consolidated those to 18 at the end of 2024, and we expect the steady state to be under 10 platforms over time.
Speaker Change: The simplification and modernization efforts at Ivanko go well beyond rationalizing platforms and cost reductions.
Speaker Change: During the year, we completed the formation of our global software factory, which will benefit all of Vonteer with an emphasis on streamlining our development and execution processes.
Speaker Change: We now have over 900 software engineers in Invenco alone, creating flexible, scalable solutions for convenience retail, leveraging standardized architectures.
Speaker Change: We also increase our utilization of shared services during the year, concentrating our development efforts into six global centers in 2024, including a new state-of-the-art facility in Bangalore, India.
Speaker Change: The Bangalore Center will focus on driving innovation and AI-enabled solutions to solve our customers' problems and also house core capabilities to support frontier finance, IT, and data analytics functions.
Speaker Change: Lastly, we proactively de-risk our supply chain by cutting our direct sourcing costs from China to a modest 50 million dollars. As a result, we do not have material exposure to terrorists at this point.
Speaker Change: Our self-help initiatives are demonstrating solid traction and provide momentum for earnings as we head into 2025 with a strong runway of opportunities ahead.
Speaker Change: Quickly touching on pillars two and three, we've been encouraged by the evidence that the organic and inorganic investments we've made to accelerate growth are paying off.
Speaker Change: As a reminder, Pillar 2, Expanding the Core, is about leveraging our current market positions to accelerate profitable growth with a focus on driving share gains through innovation and market-leading product vitality.
Speaker Change: I'm incredibly proud of how far we've advanced our Invenco product strategy in just the last 12 months.
Speaker Change: We are receiving positive customer response to our innovative payment, point-of-sale, and forecourt automation solutions.
Speaker Change: We see evidence of this in our recurring revenue base, which grew low double digits year over year.
Speaker Change: SAS enabled recurring revenue now accounts for more than a third of Ivanko's total revenue base powered by our connected offerings.
Speaker Change: Efforts underway to standardize our convenience retail offerings around our ineffects microservices architecture are gaining traction.
Speaker Change: Customers are acknowledging that our flexible, scalable platform unlocks their ability to increase their revenue yield, reduce operating costs, and enhance consumer loyalty offerings.
Speaker Change: FlexPay 6 is proving to be a game-changing solution and is beginning to open new market opportunities for Vonteer as our customers increasingly recognize the value proposition of a fully integrated connected payment solution.
Speaker Change: As you may recall from last quarter, we showcased several new offerings at the annual National Association of Convenience Stores trade show in October, including Unified Payment, Order at the Pump, and Remote Management Capabilities.
Speaker Change: These solutions are strengthening the commercial funnel with our top tier customers.
Speaker Change: As an example of this success, early deployments of our unified payment solution with Costco in Canada are off to a great start.
Speaker Change: Locations with our solution in place are already seeing a dramatic reduction in their payment transaction times, which improves throughput for Costco and a better user experience for the consumer.
Speaker Change: We are seeing similar benefits for other major North American operators as they adopt FlexPay 6 as their standard payment solution.
Turn to slide 5.
Speaker Change: To help set up the backdrop for 25 Outlook, which Anshooman will provide later in the call, we wanted to provide you with a more detailed overview of how our end markets and businesses performed in 2024.
Speaker Change: Our businesses that sell into the convenience retail and fueling and markets performed well driven by sustainably higher levels of CapEx investment.
Speaker Change: Successful CSOAR operators continue to execute on their multi-year site expansion and modernization plans and the industry continues to consolidate.
Speaker Change: Our base case for this year assumes underlying demand momentum for this and market continues.
Speaker Change: We are optimistic we're seeing positive inflection points in our car wash and repair solutions businesses.
Speaker Change: At the same time, there's uncertainty regarding the pace of improvements due to stabilizing inflation and improving interest rates, and this warrants a more cautious view within those markets.
Speaker Change: Our environmental and fueling segment finished the year with 6% core revenue growth with a solid recovery following the delays we experienced in Q2.
Speaker Change: Our global dispenser business grew low single digits in the year. Strength in North America was led by steady demand for equipment tied to new site-build activity.
Speaker Change: Based on our most recent customer conversations with our channel partners and end-user customers, we expect continuing strength and new site build activity in 2025.
Speaker Change: WrestleWorld dispensers outpaced North America in part due to the shipments of our India tender wins. As a reminder, we were awarded four large tenders in India late last year, including both above-ground and below-ground equipment, which will be accretive to growth this year.
Speaker Change: These wins were the result of providing value-added features that improve security, productivity, and automation while reducing cost and complexity.
Speaker Change: Our underground environmental solutions grew revenues in the low single digits for the year with solid growth in North America partially offset by tougher compares in the rest of the world.
Speaker Change: Strength in North America was driven by solid upgrade activity for our underground sensing and monitoring equipment as well as new product introductions.
Speaker Change: We have a market-leading install base of over 350,000 legacy automatic tank gauges globally. This offers a multi-year upgrade opportunity as customers increasingly recognize the differentiating value proposition of our new cloud-connected tank gauges.
Speaker Change: As I mentioned earlier, bookings for environmental were up low double digits for the full year, giving us confidence that this part of our portfolio is positioned for sustainable growth at attractive margin rates.
in 2025.
Speaker Change: Aftermarket parts was a clear standout this year with sales up high teens on top of a high single-digit prior year comparison.
Speaker Change: We continue to monetize our large and growing install base to get closer to our entitled share of aftermarket sales.
Speaker Change: Although we anticipate growth to slow given the tougher compares, aftermarket is positioned for another year of solid growth in 2025.
Speaker Change: Mobility technologies finished the year up 2% including nearly a 6-point drag from the volume decline at DRB. Invenco had a breakout growth year in 2024 delivering mid-teens core revenue growth also benefiting from the general strength of the convenience retail and fueling and market.
Speaker Change: Based on strong demand for new products like NFX and FlexPay 6,
Building Order Momentum
Speaker Change: and the Pipeline of Opportunities, we expect another year of solid top-line performance this year, albeit closer to a high single-digit rate as we lap tougher comparisons.
Speaker Change: The car wash industry shifted rapidly during 2024 following a multi-year hyper-growth phase for tunnel car wash systems as larger operators pulled back on planned greenfield activity and funding became more limited.
Speaker Change: For the full year, DRB's revenues declined just over 20% in line with what we were anticipating.
Speaker Change: While key market fundamentals have stabilized, we believe it's too early to call for a return to growth.
Speaker Change: Net-net, we expect DRB revenues to be relatively flat in 2025.
Speaker Change: Longer term, we remain constructive on this end market and in DRB's competitive advantage as the leading technology provider in the industry.
Speaker Change: Turning to repair solutions, as we've communicated previously, headwinds at MACCO are related to slower discretionary spending by service technicians.
Speaker Change: resulting from persistent inflation and general uncertainty regarding the U.S. economic and political environment.
Speaker Change: While there has been an improvement in service technician sentiment post-election, we believe it is appropriate to remain cautious on the outlook.
Speaker Change: The sentiment on buying behaviors for the service technicians are stabilizing, but not yet catching up to the healthy market opportunity for repair.
Speaker Change: While we are optimistic about the year ahead, we also recognize that the macro environment remains uncertain. That said, we're encouraged by the order strength we experience in the second half and stabilization in our softer markets. We lead an attractive growth market and we're uniquely positioned to capitalize on our self-help momentum in our Pillar 1 initiatives going forward.
Speaker Change: I'm confident in our outlook for the full year and in our ability to execute, and we will continue to strengthen Von Thier's position for the future. With that, let me turn the call over to Anshooman.
Thanks, Mark, and hello, everyone.
Anshooman Aga: Let's start off with a summary of the fourth quarter results on slide 9.
Anshooman Aga: Reported sales for the quarter were 777 million with core growth of 3.5% led by strong performance in our environmental and fueling and mobility technologies segments.
Anshooman Aga: Adjusted operating profit margin in the quarter was 22% consistent with the prior year and slightly above our guide as we work to mitigate sales mix through accelerated cost actions.
Anshooman Aga: Adjusted EPS came in at $0.80, exceeding the midpoint of our guidance range.
Anshooman Aga: While 2024 presented some challenges in certain end markets, our teams remained focused on execution and committed to delivering value for our shareholders.
Anshooman Aga: As Mark mentioned, we remain focused on optimizing our cost structure to deliver consistent, more profitable growth and achieving top quartile financial performance over time.
Anshooman Aga: Moving on to the segment performance, starting with environmental and fueling solutions on slide 10.
Anshooman Aga: EFS core growth increased nearly 11% in the fourth quarter, benefiting from a robust convenience retail and fueling end market.
Anshooman Aga: Sales for global dispenser equipment grew high single digits driven by sustainable growth and new site builds and industry consolidation in North America and recent tender wins resulting in high teams growth in international markets.
Anshooman Aga: Our focus on aftermarket, combined with a large and growing install base, translated to nearly 20% growth in aftermarket parts.
Anshooman Aga: EFS segment margin of 28.6% was down slightly from the prior year, impacted by geographic and product mix in the quarter, which was mostly offset by our cost optimization initiatives.
Anshooman Aga: For the full year 2024, EFS margins increased 110 basis points, highlighting the benefits of positive price cost, ongoing product line simplification, strong absorption, and improved productivity savings.
Turning to mobility technologies on slide 11.
Anshooman Aga: Core sales increased approximately 3%, supported by strong demand for our advanced payment and enterprise productivity solutions from Invenco, as well as our Drives EV charging software solutions.
Anshooman Aga: Invenco continues to lead the way, reporting another quarter of double-digit orders and sales growth, showcasing the strong demand for FlexPay 6.
Unified Payment Solutions powered by NFX and Vehicle Identification Systems.
Anshooman Aga: DRB sales declined in the quarter as expected with ongoing market weakness impacting new system sales.
Anshooman Aga: Margins at Mobility Technologies improved 10 basis points from the prior year despite increased investments in R&D at Invenco, an unfavorable mix related to lower DRB sales.
Anshooman Aga: Turning to slide 12, repair solutions core sales declined just over 2% with sequential improvement driven by gradually improving discretionary spend among service technicians and Madco's commitment to new product vitality focusing on lower price point tools.
Anshooman Aga: Segment operating profit margin was relatively flat sequentially but declined 390 basis points year-on-year as anticipated, driven by lower volumes and unfavorable product mix.
Anshooman Aga: Bad debt expense was relatively neutral year over year as reserve levels have normalized.
Anshooman Aga: Importantly, Matco's product margin stabilized sequentially despite the continued mixed headwinds.
Anshooman Aga: It's important to note the fundamentals underpinning the repair solution segment remain intact and as we've mentioned, sentiment across our customer base is slowly improving.
Anshooman Aga: Turning to free cash flow and the balance sheet on slide 13.
As I mentioned earlier,
Anshooman Aga: Fourth quarter adjusted free cash flow was $155 million, representing conversion of 128%.
Cash from operations increased to $168 million for the quarter.
Anshooman Aga: Solid free cash flow generation enabled us to repay $150 million in debt and repurchase $225 million or 6.3 million shares of stock in 2024.
Anshooman Aga: Turning to our capital structure, we ended the year with a net leverage ratio of 2.6 times, well within our target range for the year, and an improvement versus 2.8 times in 2023.
Anshooman Aga: This month, we repaid an additional $50 million of our 2025 term loan.
Anshooman Aga: Yesterday, we completed the refinancing of the remaining $500 million off that term loan, extending the maturity out to February 2028.
Anshooman Aga: Additionally, we were able to reduce the effective interest by 22.5 basis points, which will translate to over $1 million in annual interest savings.
Anshooman Aga: We also announced that we amended and extended our $750 million Revolving Credit Facility out to February 2030, reducing the facility fee and eliminating the credit spread adjustment.
Moving to our financial outlook on slide 14.
Anshooman Aga: For the full year 2025 on a consolidated basis, revenue is expected to be approximately $3 billion at the midpoint, which assumes core growth in the 1% to 3.5% range and including a $30 to $40 million headwind from FX.
Speaker Change: As Mark mentioned, we expect top-line growth to continue across the majority of our end markets with DRB and repair solutions remaining relatively flat.
Speaker Change: Operating margin is expected to expand 35 to 50 basis points.
Speaker Change: Implied incrementals on a reported basis will be north of 60% supported by cost optimization initiatives underway as Mark covered as part of a pillar one activities with the highest margin expansion coming from mobility technologies.
Speaker Change: We expect EPS to be in the range of $3 to $3.15, reflecting mid to high single-digit growth year over year.
Speaker Change: This includes a modest headwind from FX and a placeholder of $75 million of share repurchases.
Speaker Change: As we discussed with you last quarter, we expect the year to start off slower than normal in Q1 due to the timing of the Madco Expo, which is our largest annual trade show and has historically driven significant sales volumes.
Speaker Change: In 2025, this event shifts from Q1 to Q2, creating roughly a $30 million headwind year over year, all else being equal.
Speaker Change: On a stand-alone basis, this shift results in about a 4 percentage point headwind to top-line growth in Q1, at a fairly decent drop-through on margins.
Speaker Change: Additionally, we are lapping difficult compares in both the EFS segment and in Venco business within mobility technologies.
Speaker Change: We expect sales in Q1 of just over $720 million at the midpoint.
Speaker Change: which embeds a core decline of about 3% and margins down about 30 basis points.
Speaker Change: EPS should fall in the range of 71 to 74 cents.
Speaker Change: As always, we have included some below-the-line modeling assumptions on the right-hand side of this slide. Additionally, given the Matco X4 shift between Q1 and Q2, we wanted to provide a bit more color on the first half and Q2.
Speaker Change: From a quarterly cadence perspective, we expect Q1 to be the low point of the year for revenue, accelerating sequentially for the rest of the year. Revenue in the first half will equate to just over 48% of the year at the midpoint of our guide, with first half EPS coming in a little over 46%
Speaker Change: First half revenue and EPS should be fairly consistent with our historical seasonal averages.
Mark Morelli: With that, I'd like to pass the call back over to Mark.
Mark Morelli: Thanks Anshooman. I'm incredibly optimistic about Vonteer's ability to unlock shareholder value in 2025.
Mark Morelli: First, Frontier will drive significant earnings growth this year. Our team is laser focused on earnings growth and building on our momentum as we optimize our core businesses and cost structure.
Mark Morelli: We are driving efficiency through simplification efforts including greater use of our centers of excellence around the globe.
Mark Morelli: Second, our repair and car wash end markets remain buoyed by strong secular trends, and these markets are showing signs of stabilizing. And overall, Vontier has solid bookings growth.
Mark Morelli: Third and finally, the mobility industry transformation is increasingly playing out to our advantage. Since then, we've transformed our portfolio to encompass broader options within the mobility ecosystem.
Mark Morelli: We remain the global leader in petrofueling infrastructure, which will advantage us in the U.S. for the foreseeable future.
Mark Morelli: At the same time, our investments and innovations across electrification, petrol, hydrogen, and natural gas are enabling us to provide multi-fuel optionality to our global customers as different technologies are advancing at different paces.
Mark Morelli: It's a global energy trilemma that demands affordability, security, and sustainability.
Mark Morelli: The diversity of our portfolio in the right profit pools addresses this trilemma, is strategically resilient and allows us to offer valuable suite of solutions to our customers.
Mark Morelli: Regardless of the pace of the transition, the geography or geopolitical environment, Frontier is poised for growth and position to win, more so today than ever before.
With that, operator, let's turn the call over for questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: To ask a question, you may press star followed by the number 1 on your telephone keypad.
Speaker Change: And your first question comes from the line of Andy Kaplanitz with CD Guru. Please go ahead.
Speaker Change: Mark and Anshooman, we understand you have much tougher sales comps in EFS and 25 but it appears like fueling markets have been strengthening over the last couple quarters and I think you got into low to mid single-digit growth for 25.
Andy Kaplanitz: I think it would suggest maybe a little bit more leveling off of momentum. So can you just address that? And then your margin in EFS was down a little bit sequentially despite such a strong quarter. Was that just the lower mix, Anshooman, that you mentioned in India? And should you still see good margin expansion in that segment in 2025?
Speaker Change: Yeah, and thanks for the question. Look, we're really encouraged by what we've been seeing building in the EFF segment. I think it
Speaker Change: Shows the power of our brand and new product introductions that we've been doing there the investments over the last couple years I think it's you know been
Speaker Change: You know a long time since the shocks from EMV and I think there's just a lot of great stabilization in that market where we're really being appreciated.
Speaker Change: I think the other thing that is playing out here is there's real strength in the convenience retail market. You know, we have leading share with the largest players in that business, and there's no question they continue to build out their franchises, put in new storefronts.
Speaker Change: And that's continuing at a really good rate and a pretty even pace and an even rate.
Speaker Change: I think what you see in Q1 is a little bit of just a spiky compare to last year, but we are really encouraged on what we see there. And keep in mind, some of these trends that are underfoot, you know, these folks are building out their storefronts.
Speaker Change: You know, while there might be some macro uncertainty underfoot, there's no question, I just have come back from meeting with some CEOs in the industry.
Speaker Change: and some of our leading customers and there's no question that they've got strong balance sheets, they're putting that capital work and very successful business models and our equipment is favored.
Speaker Change: And just on the margin side, still... Yeah, Andy, on the margins, EFS expanded margins 110 basis points for fiscal 24, which, and ending the year at an impressive 29%. A true testament to the VBS and Pillar 1 activities, especially around product line simplification.
Speaker Change: But, you know, quarter to quarter, we do have product and geographic mix, which I won't read too much into the margins in Q4, but we continue to feel very strongly about the margin potential in this business.
Speaker Change: Kind of in line with that 30-35% core for 25-inch units in that segment? Yeah, the incrementals in that business should be in line with our 30-35% incremental framework.
Speaker Change: Okay, I mean just on Invenco, you know, obviously momentum there
Speaker Change: Maybe you can give us a little more color. Deployments with Chevron Shell, how's that going? You obviously mentioned Costco, Mark. And you mentioned FlexPay 6 is game changing. So I know you said that Invenco likely grows more in the high single-digit range in 25, but it grew mid-teens in 24. I think Anshooman said orders were up double digits. So why can't you see that momentum from 24 continue into 25?
Speaker Change: Yeah, Andy, I think we are seeing that momentum. I think it's a great story because if you look back a couple years ago, you know, there were some vestiges of this but, you know, the investments that we put in place here, the acquisition we did,
Speaker Change: and these integrated solutions we're bringing to market are really solving high-value customer problems.
Speaker Change: on how they manage productivity and how they bring consumers more to their site.
Speaker Change: You're asking about, you know, the Shell and Chevron. Those are those are going really well. We're still in the in the rollout phase of those, but that's kind of in the acceleration phase at this point. And, and, you know, the customers that we're talking about here have pretty major footprints.
Speaker Change: and it's pretty early inning so I think it it really bodes well for what we're bringing to market and you know you see the spike out growth happening last year a good orders growth
Speaker Change: You know, I think we're getting a high single-digit mobility tech overall platform segment growth this year, as well as OLMAC's improving, so we're seeing the drop through there. So I think, you know, this is what we've been talking about in terms of the portfolio transformation, and I think you're beginning to see some of that come to light.
with that guide as well.
Speaker Change: Andy, I'll just add, you know, Invenco, a really strong year, they make a lot of traction in the marketplace. Some of it is also the longer sales cycle in some of these projects, so growing high single digits.
Speaker Change: for Invenco on top of the really strong mid-teens growth in 2024 and then overall mobility technology again will be at the highest growing segment in 2025 with mid-single-digit growth.
Appreciate all the color, guys.
Thanks Andy.
Speaker Change: And your next question comes from the line of Jeff Sprague with Vertical Research. Please go ahead.
Thank you. Good morning, everyone.
Jeff Sprague: Hey, just kind of back on the cost structure and kind of tariff and
Speaker Change: related risks. I think you mentioned a pre-buy, it sounded like your own pre-buy ahead of tariffs, but maybe you could elaborate on that. If you think your exposure is low, why are you pre-buying and do you see any any pre-buy activity in your customer base?
Speaker Change: Yeah, Jeff, we didn't see any pre-buy activity in our customer base because these are some components. We are in the process of moving a lot of the supply chain to de-risk.
Speaker Change: It might take us a couple of months to scale up manufacturing on some of the printed circuit boards in the other geography where we have a dual source, but we are in a pretty strong position managing our supply chain with everything we know today.
Jeff Sprague: Great, thanks for that. And then just kind of back to the maybe signs of bottoming and potential inflection and vehicle wash and repair Obviously, it sounds like you're expecting it to start slow But do you see you know, particularly in vehicle wash where maybe it's more project related, you know, kind of clear signs of
Jeff Sprague: Projects coming back into your, you know, front log or how would you kind of characterize just the demand picture as you look, I guess, into the back half of the year?
Jeff Sprague: Yeah, Jeff, first of all, I think we're encouraged because first step is we've seen stabilization in those markets
Jeff Sprague: I think we have a really good read on the total market build out at this point.
Jeff Sprague: But at the same time, in the marketplace itself, we're seeing better recurring revenues. We've got a pretty strong recurring revenue portion of that business, and that's growing.
Jeff Sprague: Particularly on the backs of a new product launch that we're doing on Pathion, which is a cloud-based point-of-sale software.
Jeff Sprague: And we have a really good footprint there. And one of the differentiators in the market right now is folks that can run a good car wash.
Jeff Sprague: They can actually drop more to their bottom line, and we see a sort of a fallout between the folks in the industry that run good car washes, and they are consolidating the industry, and folks that are not, and might be backing off more on their investments.
Jeff Sprague: So, we're positioned really well with that first group of folks, and this Pathion offering, we hope, will also...
Jeff Sprague: encourage us. I think it's just too early to tell. It's early in the year so it's you know we're we're just being prudent in what we're seeing right now and sort of how it plays out but I think the backdrop is a good backdrop and I think the fact that we've seen stabilization is a great sign.
Great, thanks, I'll leave it there.
Thanks Jeff.
Thank you. Bye.
Speaker Change: and your next question comes from the line of Julian Mitchell with Barclays please go ahead
Hi, good morning.
Speaker Change: Just wanted to dive in maybe to the seasonality point through the year a little bit more to understand the timing of the Expo for Matco into Q2. When I look at your first half comments I think they're implying sort of flattish revenue and EPS sequentially for the total company in the second quarter.
Speaker Change: So, just wanted to understand sort of how we should think about maybe some of the segments movement from Q1 into Q2. Any thoughts on that, please?
Speaker Change: At the midpoint, it would give us about 1.5% core growth for half one, so obviously with Q1 being down, that means Q2 will be stronger from a core growth perspective.
Speaker Change: EPS will also be about 46% off, a little north of 46% for half one.
Speaker Change: which again in Q2 our EPS will be growing year-on-year and is in line with our historical seasonality. Just from a color perspective of some segments
Speaker Change: to maybe make things just on the Madco Expo move from Q1 to Q2. Hopefully that helps.
Speaker Change: Yes, I think that's helpful. And then for the second quarter, the point would be, you know, again, it's sort of, I think, flattish sequential sales and profits. So is it sort of repair up in Q2 sequentially, and then the other two are sort of flatter down? Is that the way to think about it?
Speaker Change: Sequentially, sales will be up from Q1 to Q2 at the midpoint of our guide. We will continue to see growth in mobility technologies in line with, you know, mid-single digits, mid-single digits plus.
Speaker Change: So we continue to see that and then repair will be up quite strong just because of the Matco Expo move.
Speaker Change: And then environmental and fueling should also be up in the second quarter. So second quarter sales for one tier will be up year on year and up sequentially.
Speaker Change: Now, pricing is dynamic in case there is impact of tariffs, etc., that comes in. Pricing will be higher because of that. We will pass price through.
Speaker Change: Price cost we've we're pretty proud that we've managed that well ever since spin we've been price cost positive every quarter since spin and I don't see that changing in 2025 either.
Great, thank you.
Thanks, Julie.
Speaker Change: And your next question comes from the line of David Rasa with Evercore ISI. Please go ahead.
David Rasa: Hi, thank you for the time and I apologize if I missed this from earlier, but for the full year operating margin expansion, the 35 to 50 BIPs, can you provide a little color on which segments do you believe will be above and below and whatever detail you can give on the year-over-year changes by segment would be great.
Anshooman Aga: Yeah, Anshooman will kind of peel the onion based on the segment here, but I think this is
David Rasa: an area about controlling our controllables. I think we've got a lot of momentum coming off last year with some of this. I think we
Anshooman Aga: Spent a decent amount of time in prepared remarks covering why we're pretty confident that we're going to pick that up. And I think also importantly, you're seeing really good improvement in mobility tech as well, which has been a platform we've been building out. And I think it's really encouraging for where things go from here. You want to give some color, Anshooman?
Anshooman Aga: Yeah, David. For 2025, our largest margin expansion is going to come from mobility technologies.
David Rasa: It's really our investments are starting to read through out there both from a top-line perspective, but also
David Rasa: EFS should be up slightly, coming off a very strong 2024 of 110 basis point margin expansion.
David Rasa: And then repair solutions should be flat to up slightly on flat volume. So, a lot of the margin expansion coming from mobility technologies in 2025.
Speaker Change: Yeah I'm intrigued about the ENF margins. I'm trying to figure out when I see the strength in the dispenser, even the orders you said you're up were up I think double digit.
The Profitability of the Dispensers
Speaker Change: Can we just get a sense of where the dispensers are relative to the segment margins? Obviously, the growth of the top line is great. I'm just trying to figure out the impact on the margins. I'm just a little surprised maybe the margin expansion can't be a little bit greater. But again, maybe it's a mix issue, geographic, whatever it may be. Thank you.
David Rasa: Yeah, the margins vary based on the regions, David, so there is a mix.
David Rasa: topic that comes into play. Our highest part of the margin portfolio is aftermarkets and environmental but dispensers again is a very attractive business for us. So there is you know the normal 30 to 35 percent incrementals in that business should kind of.
read through. Yeah, David, I will sort of...
David Rasa: bit of what you're saying there. I do think there's really good potential in margin improvement on this, even though we have market-leading margins.
David Rasa: I mean, if you look at the simplification opportunities that we have
David.
Speaker Change: Oh, I apologize. I was on mute. I mean, this was the business a couple years ago that people felt was a melting ice cube.
Speaker Change: Now you're speaking of orders of double digit, you have pricing power. I'm just curious, the backlog, how far does it extend? I'm just curious the legs on this dispenser momentum.
Speaker Change: Yeah, you know it's a short cycle business in terms of how we take orders for the business, but I think a really important way to think about it is that first of all this petrol-based infrastructure is going to be around for a long time.
Speaker Change: and it was something that we believed in since then and we've made investments in this business accordingly.
Speaker Change: And as a consequence, you're seeing some of the benefits of those investments played through. I think it's also a great opportunity to make it more sustainable. Security of payment is a big issue. We're coming up on another payment card industry.
Speaker Change: initiative that's hitting the industry in the United States called PCI-5 or Payment Card Industry 5 regulation that needs to be met. So there's this constant grab that's going on out there of regulation that drives the market.
Speaker Change: and we're selling more high flow diesel pumps as well as folks want to provide that offering at your truck stop or even your local convenience store. So I think there's a lot of legs to this and we're very encouraged by what we see.
Speaker Change: At the same time, as this business plays out, there's more integrated solutions as these major retailers.
Speaker Change: and TruckStop owners are connecting together an integrated solution where they're trying to get more productivity out of that. And so you see the importance of that working with Invenco and those integrated solutions and I think it's really coming forward.
Speaker Change: I'll just add, even though we have less than one quarter in backlog for environmental and fueling at any time,
Speaker Change: Our orders, while they're shorter-term or quicker book-to-turn, our customers' projects and the visibility we have is longer-term because a lot of the new-to-industry construction sites that are being built
Speaker Change: They're doing the land acquisition permitting a year, two years out, and since we have a good market position with the large national regional players, we're partnering with them and getting visibility into their build-out plans.
That's helpful. Thank you.
Thanks David.
Speaker Change: And your next question comes from the line of Nigel Cole with Wolf Research. Please go ahead.
Speaker Change: Thanks, good morning. I just wanted to come back to the, Anshooman, maybe the Q2. Sorry, the first half, second half, you talked about it. I think you said 46% plus.
Speaker Change: for the first half. But even so, if we just take 46 literally, it does imply that 2Q EPS is pretty flat, or actually slightly down.
Speaker Change: From from one cue and I'm getting the the Matco Expo Shift as a five to maybe seven cent uplift Cuba Q. So
Speaker Change: Then when we think about the EFS business normally has a higher 2Q than 1Q. Just trying to understand how we should think about the Q1 versus Q2 kind of bridge, if you will. Is there any margin offsets or anything else we should be thinking about here?
Speaker Change: So, that does impact EPS a little bit, even though sales are a little bit up, and then
Speaker Change: Again, it's pretty typical half one, half two seasonality, so quarter to quarter there's some mixed challenges, but when you start taking bigger chunks like the first half and second half, a lot of those normalize between a couple of quarters.
Speaker Change: We feel pretty strong about our margin expansion potential for the year, as Mark talked about our Pillar 1 activities.
Speaker Change: and our productivity program, which is leading to a very strong drop through of about 60% or north of 60% on the volume at the midpoint of the guide.
Speaker Change: Can you maybe just elaborate on how that mix is changing from Q1 to Q2 because I don't think we'd need to see it necessarily in prior years. But I did want to just talk about the kind of the net interest expense guidance.
Speaker Change: versus the share buyback guidance. It seems that the net interest expense guidance implies that you're deploying pretty much all of your free cash flow whereas obviously the $75 million placeholder implies you're not. So just want to understand, you know, that disconnect maybe.
Thank you.
Speaker Change: Yeah, just maybe I'll start off with the interest. So the interest basically assumes current interest rates and the debt that we have, the debt stack we have. We did announce that we extended our term loan by a couple of years. We paid down $50 million of debt, so that's all factored in.
Speaker Change: spread to come down 22 and a half basis points, which is about a million dollars plus of annualized savings. So all of that's factored in. We did factor in 75 million of buybacks. The rest of the cash we generate
Speaker Change: hasn't been factored in from a capital deployment perspective and is upside as we continue to deploy that during the course of the year.
and Mark Morelli.
and the mix.
Speaker Change: The mix, just a couple of examples, you know, the Madco Expo, while it drives the higher volumes, it has also the best deals of the year.
Speaker Change: So there is some mixed headwind that comes from that. Also, these days, if you think of Madco...
A lot of the higher price point items.
Speaker Change: which are more discretionary in nature, those are under pressure and what we're seeing that the technicians are buying are the lower price point items with higher payback. So there's a mixed Edelman out there.
Speaker Change: Also, some geographic mix issues and a couple of businesses between Q1 and Q2 of where we're delivering some of the volume coming in.
Speaker Change: which impacts some of the margins. So again, from a full year perspective or a half one perspective, really nothing to be concerned about. It's just a time in between a couple of quarters.
Speaker Change: Okay, I'll leave it there, but I think you did mention that Matco Expo had attractive drop-through, but we'll follow up offline. Thanks.
Thank you.
Speaker Change: And once again, if you would like to ask a question, please press star 1. Your next question comes from the line of Andrew Ubin with Bank of America. Please go ahead.
Speaker Change: Hi this is David Ridley Lane on for Andrew. You know your R&D expense has as percentage of revenue has gone up now around 6% or so.
Speaker Change: As your software revenue mix continues to grow, should we expect an upward bias to your R&D spend in 2025 and beyond?
Speaker Change: No, I don't believe so. I think we've definitely pushed forward to make some investments here.
Speaker Change: beginning to see how that's paying off and is reading through. But if anything, I think that that percentage of sales at a total cross frontier basis will come down. We might
Speaker Change: of course be investing in specific platforms a little bit more, but I do think we have opportunity to flatten that and if anything that should drift down.
Speaker Change: Got it. And just, you know, sort of broadly, there's been a lot of discussion here on, you know, mix impact. There was clearly mixed impact on the fourth quarter, but just to sort of
Speaker Change: You know, from a big-picture perspective, when you talk about 2025 guidance, having, you know, normal incrementals, you're basically saying most of this next headwind is behind us, not ahead of us. Is that correct?
Speaker Change: That's correct and it's just seasonal between quarters. For example if a dispense some markets the dispensers don't have payment integrated in because of the nature of the market. Payments is at a more attractive margin so that does help. So you have to really look at the geographic mix.
Speaker Change: of the products and from a full year perspective, there is a pretty normal standard mix across the year when you look at it year on year, it's just it varies from quarter to quarter.
Thank you very much.
Speaker Change: All right, thank you. And there are no further questions at this time. I would like to turn it back to Mark Morelli for closing remarks.
Mark Morelli: Yeah, thank you, Operator. Thanks again for joining us on today's call. I'm really encouraged. We've got significant momentum controlling our controllables and we expect excellent payoffs in 2025. We appreciate your continued interest in Volunteer and we look forward to engaging you and seeing you on the road in the weeks ahead. Have a great day.
Please see the complete disclaimer at https://sites.google.com
Mark Morelli: Thank you, and this concludes today's conference call. Thank you all for participating. You may now disconnect.