Q2 2025 Vontier Corp Earnings Call
This call is being recorded on Thursday July 31st 2025, and a replay will be available shortly after.
I would now like turn the conference call over to Mr. Ryan Edelman volunteers, 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 second 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. 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. 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.
Thank you.
Good morning, everyone and thank you for joining us on the call. This morning to discuss our second quarter results.
With me today are Mark Morelli, our President and Chief Executive Officer, and then Sherman, our senior Vice President and Chief Financial Officer.
You can find both our press release as well as a slide presentation that we'll refer to during today's call on the Investor Relations section of our website at investors that volunteer Dot com.
Please note that during today's call, we will present certain non-GAAP financial measures.
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. 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 SEC filings. With that, please turn to slide three, and I'll turn the call over to Mark.
Actual results might differ materially from any forward looking statements that we make today, we do not assume any obligation to update them.
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 SEC filings.
With that please turn to slide three and I'll turn the call over to Mark.
Mark Morelli: Thanks, Ryan, and good morning, everyone. Thank you for joining us on the call today. We delivered strong second quarter results with core sales, adjusted operating profit, and adjusted EPS exceeding our guidance, reflecting disciplined execution against a dynamic backdrop. Core sales growth of 11% was led by Mobility Technologies and Environmental Healing Solutions, which both grew over 15% in the quarter. Orders were up 8% organically, and our book-to-bill was approximately one in the quarter. We're encouraged by the market's acceptance of our new product introductions, validating the R&D investments we've made, strengthening our competitive advantage. The traction we are seeing demonstrates Vontier's unique position to capitalize on secular trends across our end markets. Our innovative solutions and deep domain expertise create a compelling value proposition for our customers, unlocking growth, improving productivity, and elevating their customer experience.
Thanks, Ryan and good morning, everyone. Thank you for joining us on the call today, we delivered strong second quarter results with core sales adjusted operating profit and adjusted EPS exceeding our guidance, reflecting disciplined execution against a dynamic backdrop.
Core sales growth of 11% was led by mobility technologies and environmental in fueling solutions, which both grew over 15% in the quarter orders were up 8% organically and our book to Bill was approximately one in the quarter.
We're encouraged by the market's acceptance of our new product introductions validating the R&D investments, we've made strengthening our competitive advantage.
The traction we are seeing demonstrates volunteers unique position to capitalize on secular trends across our end markets.
Our innovative solutions and deep domain expertise create a compelling value proposition for our customers unlocking growth improving productivity and elevating their customer experience.
Mark Morelli: This is a testament to our team who has been instrumental in focusing our business on process improvements and new product innovation. I couldn't be more thankful for their hard work and dedication. Adjusted operating profit increased 15% year over year with margin expansion of 80 basis points. This improvement reflects the benefits of ongoing simplification efforts and productivity gains driven by the Vontier business system and what we call our focus and prioritization process, or our 80/20 initiatives. While tariff-related cost pressures are real, we were able to maintain positive price costs in the second quarter. We delivered another quarter of free cash flow conversion above seasonal norms. This enables us to maintain our dynamic capital allocation program with ongoing share repurchases at attractive levels and a bolt-on acquisition completed during the quarter.
This is a testament to our team who has been instrumental in focusing our business on process improvements and new product innovation.
Couldn't be more thankful for their hard work and dedication.
Adjusted operating profit increased 15% year over year with margin expansion of 80 basis points.
This improvement reflects the benefits of ongoing simplification efforts and productivity gains driven by the volunteer business system, and what we call our focus and prioritization process or our 80 20 initiatives.
While tariff related cost pressures are real we were able to maintain positive price cost in the second quarter, we delivered another quarter of free cash flow conversion above seasonal norms.
This enables us to maintain our dynamic capital allocation program with ongoing share repurchases at attractive levels and a bolt on acquisition completed during the quarter.
Mark Morelli: We continue to advance our strategic priorities with an intensifying focus on operational discipline and commercial excellence, critical in navigating the current macro environment. These efforts are underpinned by our three-pillar value creation framework, with Pillar One centered on self-help and Pillars Two and Three driving sustainable organic revenue growth. Under Pillar One, optimizing our core, we delivered meaningful operational efficiencies in the first half, supported by our 80/20 process initiatives. At Healing Solutions, we are driving further savings through product line simplification and lean manufacturing to countermeasure tariff-related cost headwinds. We've reduced labor costs by nearly 10% year to date at our Greensboro dispensary facility through increasing labor efficiency and reducing overtime. At the same time, we've identified incremental simplification opportunities, including actions to reduce the cost of quality by more than half over the next couple of years.
We continue to advance our strategic priorities with an intensifying focus on operational discipline and commercial excellence critical in navigating the current macro environment.
These efforts are underpinned by our three pillar value creation framework with pillar one centered on self help and pillars, two and three driving sustainable organic revenue growth.
Under pillar, one optimizing our core we delivered meaningful operational efficiencies in the first half supported by our 80 20 process initiatives.
Fueling solutions, we're driving further savings through product line simplification and lean manufacturing to countermeasure tariff related cost headwinds.
We've reduced labor costs by nearly 10% year to date at our Greensboro dispenser facility through increasing labor efficiency and reducing overtime.
At the same time, we've identified incremental simplification opportunities, including actions to reduce the cost of quality by more than half over the next couple of years.
Mark Morelli: We're also moving forward on a number of opportunities to optimize our regional footprint in various international markets, ensuring we are aligning our resources to the most profitable regions and product lines. We're advancing an agreement to divest our European service business, which exemplifies this effort. At Inventco, we set up our global software factory last year, which reduced our overall engineering labor costs by 30%. Inventco is on track to double its engineering velocity this year while driving R&D efficiency through automation, the use of AI, and global scale. As it relates to tariffs, we've made significant progress on our mitigation initiatives year to date. From a supply chain standpoint, our primary focus is reducing our exposure to China, with several major projects underway expected to complete in the second half.
We're also moving forward on a number of opportunities to optimize our regional footprint and various international markets, ensuring we are aligning our resources to the most profitable regions and product lines.
We are advancing an agreement to divest our European service business, which exemplifies this effort.
At <unk>, we set up our global software factory last year, which reduced our overall engineering labor cost by 30% in.
<unk> is on track to double its engineering velocity this year, while driving R&D efficiency through automation and the use of AI and global scale.
As it relates to tariffs we've made significant progress on our mitigation initiatives year to date from a supply chain standpoint, our primary focus is reducing our exposure to China with several major projects underway expected to complete in the second half within repair solutions. For example, we started the year with 20 <unk>.
Mark Morelli: Within repair solutions, for example, we started the year with 20% exposure to China, with a goal of reducing this to less than 10% by year-end. We implemented pricing actions mid-quarter, and we expect the benefits to ramp in Q3 and Q4, with price expected to offset about half of our updated tariff exposure. Innovation has been a cornerstone of our Pillar Two, expand the core initiatives, and a key driver of above-market organic growth. Our disciplined investments in new product development are strategically aligned with powerful secular drivers, including digital transformation. This underpins our connected mobility strategy and positions us to capture evolving customer needs. The benefits are evident across our portfolio, but are perhaps most visible at Mobility Technologies.
Percent exposure to China with a goal of reducing this to less than 10% by year end.
We implemented pricing actions mid quarter, and we expect the benefits to ramp in Q3, and Q4 with price expected to offset about half of our updated tariff exposure.
Innovation has been a cornerstone of our pillar two expand the core initiatives.
And a key driver of above market organic growth.
Our disciplined investments in new product development are strategically aligned with powerful secular drivers, including digital transformation.
This underpins our connected mobility strategy and positions us to capture evolving customer needs.
The benefits are evident across our portfolio, but are perhaps most visible mobility technologies.
Mark Morelli: As an example, the Inventco team has successfully accelerated adoption of the FlexPay 6 payment terminal, with over 50% of new dispensaries leaving the factory with a FlexPay 6 unit. Our market-leading global dispensary base provides us with a sizable funnel of upgrade and replacement opportunities ahead. As we migrate customers to FlexPay 6, we enable flexible onsite commerce, which unlocks revenue growth potential for customers and enables recurring revenue for Vontier. We are actively expanding our recurring revenue base, a key strategic initiative for Vontier. Invenco's recurring revenue, which accounts for about 35% of the base, was up 17% year over year as the install base of NFX continues to ramp and as the feature set continues to expand. We have nearly completed the initial deployment with Shell and continue to make good progress for Chevron, and recently surpassed 1 billion transactions on our NFX payment servers.
As an example, the invesco team has successfully accelerated adoption of the flex page six payment terminal.
With over 50% of new dispensers, leaving the factory with flex pay six unit.
Our market, leading global dispenser base provides us with a sizable funnel of upgrade and replacement opportunities ahead as.
As we migrate customers to flex pay six we enable flexible onsite commerce, which unlocks revenue growth potential for customers and enables recurring revenue for volunteer.
We are actively expanding our current revenue base, a key strategic initiative for <unk> and.
<unk> recurring revenue, which accounts for about 35% of the base was up 17% year over year as the installed base of NSX continues to ramp and as the feature set continues to expand.
We've nearly completed the initial deployment with shell and continue to make good progress with Chevron and recently surpassed 1 billion transactions on our NSX payment servers.
Mark Morelli: Invenco's solutions cater to executing fuel and in-store commerce, driving more consumer engagement through loyalty and media, and ensuring assets, physical and digital, are available when a consumer is transacting. We are enabling all this with leading-edge technologies that are transforming and enhancing the way convenience retailers operate their businesses. Environmental and healing solutions delivered broad-based growth across both above-ground dispensers and underground environmental sensing and monitoring. Our environmental solutions business continues to capitalize on multi-year replacement opportunities, particularly through automatic tank gauge upgrades, with an install base of over 350,000 ATG units globally. Our new TLS 450 Plus connected ATG offers market-leading technology for advanced fuel management, enabling real-time monitoring, improved accuracy, and proactive maintenance that reduces downtime and lowers operating costs for our customers.
<unk> solutions cater to executing fuel and in store commerce, driving more consumer engagement through loyalty and media and ensuring assets physical and digital are available when a consumer is transacting, we're enabling all of this with leading edge technologies that are transforming and enhancing the way convene.
This retailers operate their businesses environmental in fueling solutions delivered broad based growth across both above ground dispensers and underground environmental sensing and monitoring.
Our environmental solutions business continues to capitalize on multiyear replacement opportunities, particularly through automatic tank gauge upgrade with an installed base of over 350000 atg units globally.
Our new Tls $4 50, plus connected Atg offers market, leading technology for advanced fuel management, enabling real time monitoring improved accuracy and proactive maintenance that reduced downtime and lowers operating costs for our customers.
Mark Morelli: Just this quarter, we were thrilled to be selected by one of the largest global C-Store operators in North America to upgrade their entire install base of ATGs across 4,500 sites over the next five years. Alongside the equipment upgrade, this customer will adopt Vontier's new cloud-based device management software. This application will collect data from onsite environmental devices across their network and produce outcomes that improve uptime and asset reliability, as well as reduce maintenance costs. This integrated approach highlights our ability to cross-sell and deliver future-proof, scalable solutions that unify forecourt and site management, helping our customers maximize operational efficiency and make smarter decisions across their entire network. It also highlights the meaningful progress we're making on our efforts to deliver fully integrated solutions and technologies by leveraging our relationships with some of the largest global convenience retail operators.
Just this quarter, we were thrilled to be selected by one of the largest global C store operators in North America to upgrade their entire installed base of Atg's across 4500 sites over the next five years.
Alongside the equipment upgrade this customer will adopt <unk>, new cloud based device management software.
This application will collect data from onsite environmental devices across their network and produce outcomes that improve uptime and asset reliability as well as reduce maintenance costs. This integrated approach highlights our ability to cross sell and deliver future proof scalable solutions that unified for core.
And site management, helping our customers maximize operational efficiency and make smarter decisions across their entire network.
It also highlights the meaningful progress, we're making on our efforts to deliver fully integrated solutions and technologies by leveraging our relationships with some of the largest global convenience retail operators or.
Mark Morelli: Our commitment to new product development remains strong, with R&D investments hovering around 6% of total sales. We're redeploying resources freed up by our Pillar One 80/20 initiatives to create capacity for margin expansion and growth. This enables Pillar Two successes, including a focus on connected hardware and smart software that enable higher recurring revenue streams across the portfolio. Given our strong first half results, we're raising our full-year guide with adjusted EPS on track for high single-digit growth. While tariff headwinds and macro uncertainties are still expected to weigh on demand in the second half, particularly in repair solutions, key end markets such as convenience retail and fueling continue to show resilience. We are confident we're on the right path to delivering sustainable above-market growth.
Our commitment to new product development remains strong with R&D investments hovering around 6% of total sales, we're redeploying resources freed up by our pillar 180, 20 initiatives to create capacity for margin expansion and growth. This enables pillar two successes, including a focus on connected hardware and.
Smart software that enables higher recurring revenue streams across the portfolio.
Given our strong first half results, we're raising our full year guide with adjusted EPS on track for high single digit growth, while tariff headwinds and macro uncertainties are still expected to weigh on demand in the second half, particularly in repair solutions key end markets, such as convenience retail and fueling continued to show a <unk>.
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We're confident we're on the right path to delivering sustainable above market growth as we navigate through the remainder of the year, we will remain agile and focused on controlling what we can while delivering innovative solutions for our customers and driving value for our shareholders.
Mark Morelli: As we navigate through the remainder of the year, we'll remain agile and focus on controlling what we can while delivering innovative solutions for our customers and driving value for our shareholders. With that, I'll turn the call over to Anshooman.
With that I'll turn the call over to end schuman. Thanks.
Anshooman Aga: Thanks, Mark, and good morning, everyone. I'll start off with a summary of our consolidated results for Q2 on slide four. As Mark mentioned, we had a very strong second quarter with sales, adjusted operating profit margin, and EPS coming in at or above the high end of our guidance range. Sales of 774 million increased 11%, both on a reported and core basis. Recognizing we had a favorable prior year comparison in Q2, on a two-year stack basis, total Vontier core sales are up approximately 8%. Overall, roughly 70% of our portfolio outperformed in the quarter, reflecting the strong progress we are making in a resilient end market and the success of our new product introductions.
Thanks, Mark and good morning, everyone I'll start off with a summary of our consolidated results for Q2 on slide four.
As Mark mentioned, we had a very strong second quarter with sales adjusted operating profit margin and EPS coming in at or above the high end of our guidance range.
Sales of $774 million increased 11%, both on a reported and core basis.
Recognizing we had a favorable prior year comparison in Q2 on a two year stack basis total volunteer for sales are up approximately 8%.
Overall, roughly 70% of our portfolio outperformed in the quarter, reflecting the strong progress we are making in our resilient end market and the success of our new product introductions.
Anshooman Aga: Relative to our guidance, we estimate sales outperformance benefited by approximately $15 to $20 million related to favorable shipment timings, given a planned factory maintenance outage and a successful ERP go live both in the first week of July. Adjusted operating profit margin improved 80 basis points year over year, and adjusted EPS increased 25% to 79 cents above the high end of our guidance range. Adjusted free cash flow of $89 million increased significantly versus the prior year and reflects a seasonably strong 76% conversion to adjusted net income, or approximately 12% of sales. Turning to our segment results, starting on slide five, environmental and fueling solutions delivered core growth of nearly 16%, bringing first half growth to over 8%. Shipments of dispensers increased over 20% in the second quarter, with strong growth in both North America and the rest of the world.
Relative to our guidance, we estimate sales outperformance benefited by approximately $15 million to $20 million related to favorable shipment timings, given our planned factory maintenance outage and a successful ERP go lives both in the first week of July.
Adjusted operating profit margin improved 80 basis points year over year, and adjusted EPS increased 25% to 79.
Above the high end of our guidance range.
Adjusted free cash flow of $89 million increased significantly versus the prior year.
It reflects a seasonably strong 76% conversion to adjusted net income or approximately 12% of sales.
Turning to our segment results starting on slide five environmental in fueling solutions delivered core growth of nearly 16%, bringing first half growth to over 8%.
Shipments of dispensers increased over 20% in the second quarter with strong growth in both North America and rest of the world.
Anshooman Aga: We're seeing strong demand tied to new build activity from large national and regional players, as well as healthy refresh and replacement activity. Environmental solutions also showed strong momentum, growing high teens in the quarter, fueled by new product launches and higher shipments of submersible pumps related to last year's India tender win. Segment operating profit margin expanded another 50 basis points, driven by volume leverage combined with strong self-help measures and disciplined cost management. On slide six, Mobility Technologies core sales grew 18%, driven by solid performance at Inventco, up strong double digits in the quarter on higher shipments of payment technology and enterprise productivity solutions. ERP sales declined in the teens year over year, relatively consistent with what we were anticipating. While the industry is experiencing some minor project timing delays, car wash operators are bullish regarding the CapEx plans going forward.
We're seeing strong demand tied to newbuild activity from large national and regional players as well as how this refresh and replacement activity Environmental solutions also showed strong momentum growing high teens in the quarter fueled by new product launches and higher shipments of submersible pumps related to last year.
And yet tender win.
Segment operating profit margin expanded another 50 basis points driven by volume leverage combined with strong self help measures and disciplined cost management.
On slide six mobility technologies core sales grew 18% driven by solid performance at Invesco up strong double digits in the quarter on higher shipments of payment technology and enterprise productivity solutions.
Darby sales declined in the teens year over year relatively consistent with what we were anticipating.
While the industry is experiencing some minor project timing delays car wash operators are bullish regarding the capex plans going forward.
Anshooman Aga: We still expect ERP to reflect positive later this year as new build and replacement activity continues, and as we drive higher customer conversion to a Patheon software platform. Conversion rates for Patheon contributed to approximately a 2% increase in software revenue for ERP in the quarter. Mobility Tech's operating profit margin increased over 180 basis points versus the prior year on strong volume leverage and cost savings from Pillar One initiatives. On slide seven, repair solutions sales were flat compared to the prior year as ongoing market pressures offset the gains expected from the annual Matco Expo. Sales trends post-Expo confirm that we experienced elevated pre-buy activity. Sell-through off the truck was down mid-single digits in the first half, but exceeded sell-in, suggesting distributors were destocking. Tool storage and hard lines declined in the quarter, offset in part by strength and specialty, power tools, and branded merchandise.
We still expect the RMB to inflect positive later this year as Newbuild and replacement activity continues and as we drive higher customer conversion to our posture on software platform.
Conversion rates for Patheon contributed to approximately 2% increase in software revenue for <unk> in the quarter.
Mobility tax operating profit margin increased over 180 basis points versus the prior year on strong volume leverage and cost savings from below one initiatives.
On slide seven.
Prepare solution sales were flat compared to the prior year as ongoing market pressures offset the gains expected from the annual Mexico Expo.
Sales trends post Expo confirm that we experience elevated pre buy activity.
So through off the truck was down mid single digits in the first half, but exceeded sell in suggesting distributors were destocking.
Storage and hard lines declined in the quarter offset in part by strength in speciality power tools and branded merchandise.
Anshooman Aga: While higher ticket product categories remain under pressure, we continue to see solid demand for lower price point tools that improve technicians' productivity. We made clear progress in focusing our offerings on these categories, with their new product vitality up nearly 50% year over year for the first half of 2025. Two notable examples of these lower price point offerings are the new folding clip lifter and the ready tool cart. These products were developed after extensive voice of the customer work and performed well through Expo and the remainder of the quarter. Segment operating profit declined $700,000 on flat revenue, reflecting mixed headwinds offset in part by Pillar One actions that drove cost savings in the quarter. Turning to the balance sheet and cash flow on slide eight, our net leverage ratio stepped down sequentially to 2.5 times, highlighting the health of our balance sheet.
While higher ticket product categories remain under pressure, we continue to see solid demand for lower price point tools that improve technicians' productivity.
We've made clear progress in focusing our offerings on these categories with their new product vitality up nearly 50% year over year for the first half of 2025.
Two notable examples of these lower price point offerings are the new folding slipped lifter and Theyre ready to cut. These products were developed after extensive voice of the customer work and perform well through export and the remainder of the quarter.
Segment operating profit declined $700000 on flat revenue, reflecting mix headwinds offset in part by the low one actions that drove cost savings in the quarter.
Turning to the balance sheet and cash flow on slide eight.
Our net leverage ratio stepped down sequentially to two five times, highlighting the health of our balance sheet.
Anshooman Aga: We completed another $50 million in share buybacks in the quarter, bringing us to $105 million in the first half. Over the past three plus years, we have now completed over $730 million in share buybacks, representing 15% of our shares outstanding. Turning to our updated outlook assumptions for Q3 and the full year on slide nine. For the third quarter, we project revenues in the range of $745 to $755 million. At the midpoint, we expect core sales to be roughly flat. Adjusted EPS is expected in the range of 74 to 78 cents, up mid-single digits. Both the top and bottom line reflect the impacts of the shipment timing dynamics I mentioned earlier. As Mark mentioned at the start of the call, we are raising our full-year guidance. Operationally, our outlook for the second half is mostly unchanged.
We completed another $50 million in share buybacks in the quarter, bringing us to $105 million in the first half.
Over the past three plus years, we have now completed over $730 million and share buybacks, representing 15% of our shares outstanding.
Turning to our updated outlook assumptions for Q3, and the full year on slide nine.
For the third quarter, we project revenues in the range of $745 million to $755 million.
At the midpoint, we expect core sales to be roughly flat.
Adjusted EPS is expected in the range of <unk> 74 to 78.
Up mid single digits.
Both the top and bottom line reflects the impact of the shipment timing dynamics I mentioned earlier.
As Mark mentioned at the start of the call we are raising our full year guidance.
Operationally our outlook for the second half is mostly unchanged.
Anshooman Aga: Our full-year sales guidance range is now 3.02 to 3.07 billion, reflecting our strong operational performance and a tailwind from FX relative to our prior guide. Strength within our fueling and Inventco business is more than offsetting our outlook for repair solutions. As we have communicated previously, Inventco's core growth will begin lapping more difficult comparisons, with this business having grown 25% on average over the past four quarters. As we look into next year, we still expect Inventco to achieve attractive mid to high single-digit core growth, supported by a strong pipeline of opportunities for unified payment and enterprise productivity solutions. Operating margin expansion is expected to be in the range of 20 to 40 basis points, which incorporates lower drop-through on FX. We still expect to fully mitigate tariff headwinds within the year, with encouraging progress made in Q2.
Our full year sales guidance range is now three points a year or two to $3 <unk> 7 billion.
Reflecting our strong operational performance and a tailwind from FX relative to our prior guide strength within our fueling and <unk> businesses more than offsetting our outlook for repair solutions.
As we have communicated previously <unk> core growth will begin lapping more difficult comparisons.
With this business, having grown 25% on average over the past four quarters.
As we look into next year, we still expect and when go to achieve attractive mid to high single digit core growth supported by strong pipeline of opportunities for unified payments and enterprise productivity solutions operating margin expansion is expected to be in the range of 20 to 40 basis points, which incorporates lower dropped.
Through on FX.
We still expect to fully mitigate tariff headwinds within the year with encouraging progress made in Q2.
Anshooman Aga: We now expect adjusted earnings per share of $3.15 at the midpoint, at the high end of our prior guide, and equating to 9% growth year over year. You can find our other guidance assumptions on the right-hand side of the slide. Based on our first half performance and the recent passage of the Big Beautiful Bill, we are raising our free cash flow conversion target to approximately 100%. Our teams are well prepared to execute in any environment, and the end markets we operate in have proven to be resilient over time. We have a solid runway of self-help opportunities through our Pillar One actions, and we are confident in our growth trajectory. Our balance sheet is in good shape. We're generating strong free cash flow, and we're returning capital to our shareholders. With that, I'll pass the call back over to Mark for his closing comments.
We now expect adjusted earnings per share of $3 15 at the midpoint.
The high end of our prior guide and equating to 9% growth year over year.
You can find our other guidance assumptions on the right hand side of the slide.
Based on our first half performance and the recent passage of the Big Beautiful Bill we are raising our free cash flow conversion target to approximately 100%.
Our teams are well prepared to execute in any environment and the end markets. We operate in have proven to be resilient over time.
We have a solid runway of self help opportunities through a pillow on actions and we're confident in our growth trajectory.
Our balance sheet is in good shape, we are generating strong free cash flow and we are returning capital to our shareholders.
That I will pass the call back over to Mark for his closing comments. Thanks.
Mark Morelli: Thanks, Anshooman. Vontier had great performance in the first half, delivering results that surpassed our guidance ranges and substantiated our strategic priorities. We have the right strategy, we're executing well, and our portfolio transformation is taking hold. I couldn't be more proud of our team's execution against an incredibly complex backdrop. Our focus on innovation is gaining traction, validating the differentiated value propositions we're bringing to market. While we are mindful of the macro environment, we have leading positions in traditionally resilient end markets, and our strategy is well aligned with the needs of the strongest operators in the industry. Our connected mobility strategy, deep domain expertise, and broad service network provide us with a clear competitive advantage to capitalize on secular trends across our mobility ecosystem.
Thanks, Dan Schulman Frontier had great performance in the first half delivering results that surpassed our guidance ranges and substantiated our strategic priorities.
Have the right strategy, we're executing well in our portfolio transformation is taking hold I couldnt be more proud of our team's execution against an incredibly complex backdrop.
Our focus on innovation is gaining traction and validating the differentiated value propositions, we're bringing to market.
While we are mindful of the macro environment, we have leading positions in traditionally resilient end markets and our strategy is well aligned with the needs of the strongest operators in the industry.
Our connected mobility strategy deep domain expertise and broad service network provides us with a clear competitive advantage to capitalize on secular trends across our mobility ecosystem.
Mark Morelli: We have significant runway of self-help opportunities ahead, with strong free cash flow and prudent capital allocation, all of which position Vontier well for the future. With that, operator, please open the line for questions.
We have significant runway of self help opportunities ahead with strong free cash flow and prudent capital allocation, all of which positioned volunteer well for the future.
With that operator, please open the line for questions.
Operator: Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star, followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star, followed by the two. If you are using a speaker phone, please let the hands up before pressing any keys. Also, please be reminded it is one question with a follow-up. So one moment, please, for your first question. And your first question comes from Julian Mitchell from Barclays. Please go ahead.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session.
Do you have a question. Please press the star followed by the one on you touched on firm you will hear prompt the your hand has been great.
If you wish to decline for reporting process. Please press the star followed by the two.
You are using a speaker phone please lift the handset before pressing me Keith.
Also please be reminded is one question with a follow up.
So one moment please for your first question.
And your first question comes from Julian Mitchell from Barclays. Please go ahead.
Julian Mitchell: Oh, yes. Hi. Good morning. I suppose, first off, I just wanted to try and understand, as we think about sort of the revenue outlooks into the second half, you know, what's dialed in for sort of repair? And have you seen a sort of short-term stabilization in that business as it's been under pressure for a couple of years? And then sort of dialing into the fourth quarter sales, should we expect EFS to be sort of flattish year on year just because of the very tough comp?
Oh, Yes, hi, good morning, I suppose.
First off I, just wanted to try and understand.
Think about sort of the revenue outlooks.
Into the second half.
Let's start in for sort of repair.
And have you seen a sort of short term stabilization in that business that has been under pressure for a couple of years.
And then sort of dialing into the fourth quarter sales should we expect PFS to be sort of flattish year on year, just because of the very tough comp.
Anshooman Aga: Thanks, Julian. Yeah, just from a second half perspective, for repair solutions, we're still, we have a guide of down mid to high single digits. You know, we're starting to see some signs of stabilization, but it's still a little early and hard to call an inflection in that business. We continue to see the lower price point items that are leading to productivity for the technicians to do well, but we're still seeing declines in some of the higher priced items. So that's why we're basically calling for that business to be down mid to high single digits. However, 80% of our portfolio, which is really environmental and fueling and mobility technology, that's both doing really well. Both the markets are resilient, but also the innovation that we've been investing in is paying off, and we're seeing really good traction in those businesses.
Thanks Julien.
Just from a second half perspective for repair solutions. We're still we have a guide of down mid to high single digits.
We're starting to see some signs of stabilization, but its still little early and hard to call an inflection in that business, we continue to see.
<unk> price point items that are leading to productivity for the technicians to do well, but we are still seeing.
Declines in some of the higher price items. So that's why we basically calling for that business to be down mid to high single digits.
However, 80% of our portfolio, which is really environmental and fueling and mobility technology, that's both doing really well.
The markets are resilient, but also the innovation that we've been investing in is paying off and we're seeing really good traction in that in those businesses mobility technologies should be up mid single digits, plus do high single digits for the year <unk> should be up mid single digits for for the whole year so over.
Anshooman Aga: Mobility technologies should be up mid-single digits plus to high single digits for the year. EFS should be up mid-single digits for the whole year. So overall, both those businesses are trending slightly better than our last guide, and really, we're very proud of the team in terms of innovation and also our go-to-market, which are competitive strengths for us.
Both of those businesses trending slightly better than our last guide.
And really we're very proud of the team in terms of innovation and also our go to market, which are competitive strengths for us.
Okay.
Julian Mitchell: That's helpful. Thanks very much, Anshooman. And sort of on the margin front, you know, I think when we look at it, you know, you had a pretty good performance in terms of, you know, most of the businesses. It looks like repair is sort of finding a floor perhaps now. Maybe help us understand kind of what's the scope for repair margins to move up from here. You know, they're quite a bit below where they were a couple of years ago. You know, what do we need to get those moving higher, and do we expect the other two divisions to be sort of flattish half on half in the second half?
That's helpful. Thanks, very much and human and.
Sort of on the margin front.
I think when we look at it.
You had a pretty good performance.
In terms of.
Most of the businesses it looks like repair sort of finding a floor perhaps now.
Maybe help us understand kind of what's the scope for repair margins to move up from here quite a bit below where they were a couple of years ago.
Do we need to get those moving higher and do we expect the other two divisions to be sort of.
Flattish half on half in the second half.
Anshooman Aga: Just starting off with repair solutions, yeah, the margins have stabilized. You know, to your question of what would it take for those margins to increase, obviously, as the market improves and some of the higher price point items start selling better, that will be a tailwind from a mixed perspective. Also, over the last two, three years, bad debt had been a challenge for us. Write-offs, delinquencies, all are stable. But towards the lower end of where they typically trade over a longer term period. So as the consumer health of the consumer improves and some of the delinquency rates come down and the write-offs come down, that'll be a tailwind to margins over time also. So I think there is definitely room for margin expansion in the midterm in repair solutions, just given those two dynamics.
Just starting off with repair solutions.
The margins are have stabilized to.
To your question of what would it take for those margins to increase.
Obviously.
As the market improves and some of the higher price point items start selling better that will be a tailwind from a mix perspective also over the last two to three years by that had been a challenge for US right offs delinquencies all are stable, but towards the lower.
And where that typically trades over a longer term period, so as the consumer the health of the consumer improves and some of the delinquency rates come down and the write offs come down that will be a tailwind to margins over time also so I think there is definitely room for margin expansion in the midterm and repair.
Our solutions just given those two dynamics and then obviously below one actions, where we continue to look at.
Anshooman Aga: And then obviously, Pillar One actions where we continue to look at both 80/20 initiatives and productivity initiatives play a good part in terms of driving margin expansion for the business.
820 initiatives and productivity initiatives.
A good part in terms of driving margin expansion for the business.
Mark Morelli: Hey, Julian, this is Mark. You know, one other item is the backdrop on repair we think continues to be a good backdrop. We think that our repair solutions business is mostly impacted by the consumer or the working-class American. That is, you know, it's a bit of a choppy market for them right now. And so their buying behaviors are favoring more value-oriented items, specifically on productivity, which we've got a great lineup for. I think what you mentioned is absolutely true. I think that that business is stabilizing at this point. But I think the backdrop that we're looking at is sort of an inflection upward. It's just too early for us to tell exactly when that'll happen.
Hey, Julien this is mark one other item is.
The backdrop on repair we think continues to be a good backdrop, we think that our repair solution business is mostly impacted.
By the consumer or the working class American that is it's a bit of a choppy market for them right now and so they are buying behaviors are favoring more value oriented items, specifically on productivity, which we've got a great lineup for I think which you mentioned is absolutely true.
I think that that business is stabilizing at this point, but I think the backdrop that we're looking at is sort of an inflection upward. It's just too early for us to tell exactly when that will happen.
Anshooman Aga: And then, Julian, just on the other two segments, we still expect mobility technology margins for the full year to be up about 100 basis points. So a little bit sequential increase in the margin quality in the back half for them. EFS margins will be up slightly year on year. So just that should give you some color for the other two segments on margins.
And then Julian just on the other two segments, we still expect mobility technology margins for the full year to be up about 100 basis points or.
So a little bit sequential increase and the margin quality of in the back half of them.
Margins will be up slightly year on year.
So just.
That should give you some color for the other two segments and margins.
Julian Mitchell: That's great. Thank you.
That's great. Thank you.
Yeah.
Thank you. And your next question comes from Nigel Cole from Wolfe Research. Please go ahead.
Thank you and your next question comes from Nigel Coe from Wolfe Research. Please go ahead.
Thanks, Good morning, guys.
So I think I'm, assuming your quota.
$15 million to $20 million of pull ahead in MFS.
I think there was also a small.
Pull ahead and empty as well, maybe I'm wrong, there, but maybe.
Is that just based on.
So the full year outlooks by segment it seems like the second half that flattish outlook. It seems like it's sort of bifurcated between low to mid single digit growth for PFS and empty and down mid to high <unk>.
For repair to just want to make sure that's correct.
Yes, so we did benefit from the shipment timings of about 15% to $20 million that was a combined number between both PFS and mobility technologies.
<unk> technologies was probably 5% to $7 million of that.
The benefit was really because of the timing of our go live of our ERP system at one location and a planned outage.
For maintenance at another factory, where customers requested us to pull in some of the shipments because we were down the first week of July.
While there can be some quarterly timing differences, we do have a pretty good 2% core growth for the year. Despite some of the headwinds that you've had and repair solutions are.
<unk> is growing about mid single digits for this year mobility technologies.
Growing mid single digits plus to high single digits for the year. So really strong performance that those businesses. Our EPS is growing high single digit free cash flow conversion of about 100%.
Free cash flow yield of about seven 5%, so overall pretty strong metrics or numbers for the year for us.
Great, Yes can agree more <unk>.
<unk>.
Continues to grow very.
Very strong as you highlighted.
Can you maybe just.
Kind of help us kind of size, what that business will likely be in 285 in terms of revenue base.
How does the sort of the backlog stroke project funnel look for <unk>.
<unk> and then just putting up the conversation a little bit the recurring revenue portions of drives in vanco portions of DRP.
It is the recurring revenue base for volunteer stand today. Thank you.
Yes, so overall and when coal will be over 600 million. This year are probably somewhere around 625, <unk> hundred 30, <unk> from a revenue perspective.
As you mentioned, we've seen some exceptional growth at <unk> for the last four quarters growth has been over 20%, averaging about 25% a quarter, so definitely going into some more difficult comps, but we still expect good annual growth I think next year, we should see mid to high single digit growth in.
This business.
<unk>.
Just really the innovation that we're driving in this business, bringing our micro services based architecture digital solutions that help with both productivity, but also the consumer engagement really starting to read through.
Overall mobile mobility technologies perspective about 40% of our revenue is recurring <unk> of about 35%, sorry, <unk> about 60% and when it goes above 35% and all of drives is recurring in nature.
So overall, if we get to about 40% from mobility technology at a one tier levels, we're probably in the low thirties right now from a recurring revenue and we include spare parts and stuff like that in our recurring revenue number.
So I'm going to add a couple of comments here as well I mean not only.
Do we think there are some really good proof points that our investments are paying off for our connected mobility strategy.
Smart hardware.
Connected application software we gave some.
Really good proof point examples.
In effect continues to go forward.
With with a ramping install base and new customer pipeline.
That is developing we talked about our environmental our underground offerings.
The other piece that also as mentioned was patheon and the Carwash space. So as we continue to post these proof points in growth scale here.
In our integrated solutions are also at higher margins as you know and that can also help us overall with volunteer margins.
So we're really pleased with what we're.
Showing just as another proof point here, we've got over 200 software engineers now advantage. So the portfolio is substantially different than it was at the time of spin.
That's great. Thank you very much.
Thanks Nigel.
Thank you.
Next question comes from Andrew <unk> from Bank of America. Please go ahead.
Hi, Yes. This is David Ridley Lane on for Andrew.
Any.
Initial commentary from the field or conversations youre, having with customers about the potential benefit.
Part of the one big beautiful Bill was the accelerated depreciation.
It came back on.
Is that a needle mover for some of your more sophisticated customers.
Yeah go ahead, and Kevin you want to answer that one yes. So obviously looking at the big beautiful belt. The first benefit for US is around free cash flow were.
The R&D expense can now be expensed versus capitalized and depreciated over time and that led to us raising our free cash flow guidance from about 90% to about 100% for the year from a conversion perspective now benefits to some of our customers are going to be around the accelerated.
<unk> there.
Both on the equipment they are buying but also for our production buildings.
There is there is some.
Accelerated depreciation available.
It's a little early to say what that means in terms of speeding up decisions and the benefit probably would be given the controller procurement cycle in construction cycle the benefit of it probably be next year.
It's definitely good for our customers, especially the smaller operators, which are more cash based and.
I don't have strong balance sheet. So it's definitely good for business, but I would expect some of the benefits to read through more next year because of the timing of.
Getting some of these projects started.
One segment of customers that were particularly paying attention to is around derby. Because these tend to be smaller type customers, where this kind of effect could read through but just a little color on where we are on DRP.
We definitely saw sales inflect higher in Q2, and we think that was really important because it was the first time in five quarters that we had higher sales. So we definitely see some very encouraging signs there in the marketplace. So anything else like what we're just talking about with certainly pile on in <unk>.
Help that we expect the build to be about flattish, but on the backs of also alliance chain and ramping our Patheon, we know theres. Good returns here and so we're encouraged on what we're seeing.
For our return to growth in this business.
Got it and.
Yeah.
I think.
We understand there is a.
Underground tank replacement cycle.
Youre underground business, I think scoring mid teens.
This quarter.
And then sort of sustainability of that.
You sort of have this.
Conversations you kind of can.
We see a pathway to kind of maintaining that growth into.
For a while here.
Yes.
It's a great point youre, bringing up I'm glad you brought it up.
Pretty early innings on that tank upgrade cycle. When you look at the installed base. When you look at the opportunities to do that we're also see international opportunities. We've also invested in our underground business for our environmental business as we call it.
We've come out with new products, including the four horsepower pump so.
So we think we've got.
Some real innovations here that that really enable folks to manage that asset base and we talked a little bit about it in the call that us launching some enhanced offerings on maintenance asset management for that is definitely a plus and.
Keep in mind. This is really the first time is coming that industry can do an over the air update.
For security reasons and for.
Improvements in the software. So we continue to advance that offering and I think we're showing that it's really appreciate it and I think the backdrop on.
A real driver like the underground upgrade side.
Cycle is definitely going to be a tailwind for some time to come.
Thank you and just one quick numbers, one what was book to bill in the quarter.
Book to Bill was just about one orders grew about 8% year on year and book to Bill was just about one.
Thank you very much.
Thanks, David.
Thank you and just as a reminder, if you do have a question. Please press star one.
And your last question comes from Rob Mason from Baird. Please go ahead.
Yes. Good morning, Thanks for taking the question.
I wanted to go back to the discussion we had on <unk>.
Again aware that youll.
Youll, probably hit some tougher comps in the second half of this year.
But it does sound like Youre confident about some reacceleration as you move into 26 at the mid to high single digit growth in I'm aware, you've got some pilots out for in FX as well are you counting on some of these pilots to convert to drive that mid single to high single or.
How do you.
Thinking about that.
Yeah. Thanks, Rob for the question. Good morning look the the really encouraging thing here is we're seeing real uptake of this technology the thing Thats a little bit hard to call is the timing on some of these orders as you can see theyre pretty large orders.
The good news is youre dealing with more recurring revenue.
The thing that has to be worked out as one of these things come online when is the last.
The ramp down of the last delivery occur and so from a quarter to quarter basis, it could be a little bit uneven, but I think on a year over year basis, Youre seeing real traction here and I think thats really the way to look at it.
Is how do we.
Continue to even this out over time as we build scale. That's clearly something we're focused on but there is no question really encouraging signs here for strong organic growth with really good drop through.
Well also add it's not just an FX thats going to help drive some of this growth our new flex space six from a payment perspective is ready.
Really making a lot of positive traction in the market. Once you start looking at unified payment, which is flex Spacex plus and effects also youre going to start seeing more offerings related to consumer engagement.
<unk>, which is going to help put some of the growth. So just a continuation of our strategy to bring digitalization and innovation to the space is going to help in venoco drives some of the growth next year.
Right right.
And then.
To circle back to D. R B.
It's good to see maybe a little bit of a turn there.
In the quarter you also completed a smaller acquisition in this space I'm just curious how is that impacting the outlook just financially.
Understanding it's relatively small, but and then what's kind of the contribution strategically of.
Of that opportunity or add on.
Yes, let me talk about the strategic contribution here so.
Think of our real value proposition and Carwash is that we provide the brains for the carwash.
The area that really drive productivity for the Carwash operator enables them to scale a lot of their assets and enables the larger car wash operators in particular to focus on how they attract more consumers to the site we know from <unk>.
Surveys and talking to customers that recurring revenue for them, which is on the subscription is actually up for Carwash right now, which is great and our technologies really help enable that and customer poll. So this small acquisition is a bolt on that really add smart controller and when that.
It works with their point of sale system, which we are the leading provider and then you can provide more productivity and more.
Insights in how they can manage their carwash and our carwash footprint, better which is exactly what the operators are looking to do and so when you look at our <unk> acquisition. It was a pretty small acquisition, but it really ignited a lot of growth. We think we have some real potential here as we continue to build out this.
More tech enabled way by which you drive productivity enhanced consumers to the site.
And just from a numbers perspective, the 2020 for revenue for the acquisition was about $7 million in revenue and $1 million in EBITDA, so relatively small and it doesn't move the needle that much this year from a revenue perspective, but as Mark said.
Very strategic way.
It allows us to be the brands of the car wash, but also lots of upside opportunity on this as we go forward.
Sure sure.
Just last question real quick I may have missed this juggling other calls here, but did you talk about maybe the month to month trends that you were seeing in <unk> and I guess I'm thinking more on sell out.
Off the truck I know Liberation day was kind of a shock back in April but I'm just curious how the progression went.
Here through July.
It's just when we look at sellout sellout was about down 5% for the first half there has been some ebbs and flows.
During the first six months.
Sell in was lower than that so actually our channel partners, our distributors actually lowered inventory on the truck.
When we look at the month of July.
Sell out after truck is better than what the year to date trend was and also the good thing at the end of July actually inventory levels on the truck are now back to what they were last year at the end of July so inventory levels are definitely come down so hopefully that bodes well for us and the industry.
But again, a little early to call an inflection given just.
Macro uncertainty and the health of the consumer.
Understood. Thank you.
Okay.
There are no further questions at this time I will now turn the call back over to Mr. Mark Morelli. Please continue.
Thank you <unk>. Thanks for joining us on today's call I am encouraged by the progress, we're making and I'm really confident in our team's ability to navigate near term uncertainty and advance our strategic initiatives, we're delivering differentiated solutions and attractive end markets and we are committed to creating long term value for our customers.
And returns for our shareholders. We appreciate your continued interest in volunteer and I look forward to engaging many of you over the next several weeks and at our Investor event in mid October have a great day.
Ladies and gentlemen. This concludes today's conference call. Thank you very much for your participation. You may now disconnect have a great day.