Good morning, ladies and gentlemen, and welcome to the Vontier Fourth Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, February 13, 2025, and a replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us on the call this morning to discuss our fourth quarter results. With me today are Mark Morelli, our President and Chief Executive Officer; and 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 investor.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. 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, I'd like to turn the call over to Mark.

Thanks, Ryan, and good morning, everyone. Thank you for joining us on today's call. 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 out setup for 2025. Anshooman will then provide a deeper dive into our Q4 results and outlook for the full year. 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. We are capitalizing on solid industry demand across convenience retail and fueling end markets and leveraging our portfolio of innovative, industry-leading technologies to gain share and deliver above-market growth. We achieved 3.5% core growth in the quarter with all three segments outperforming. 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. Importantly, we saw signs of stabilization in these verticals through the fourth quarter. Bookings were up 9% organically in the quarter, driving a book-to-bill above 1 for the fourth consecutive quarter. Bookings growth for the full year was over 6%, led by double-digit growth at Invenco within Mobility Technologies and Environmental & Fueling Solutions. We saw broad-based strength across our payments, enterprise productivity, fueling dispensing and environmental businesses. Operating margins were flat year-over-year and up sequentially despite continued mix headwinds. Let's turn to Slide 4. Vontier 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…

Thanks, Mark, and hello, everyone. Let's start off with a summary of the fourth quarter results on Slide 9. Reported sales for the quarter was $777 million, with core growth of 3.5%, led by strong performance in our Environmental & Fueling and Mobility Technologies segments. 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. Adjusted EPS came in at $0.80, exceeding the midpoint of our guidance range. We'll spend more time on free cash flow in a few slides, but I want to highlight that we generated adjusted free cash flow of $155 million, representing 128% conversion in the fourth quarter. While 2024 presented some challenges in certain end markets, our teams remain focused on execution and committed to delivering value for our shareholders. 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. Moving on to the segment performance, starting with Environmental & Fueling Solutions on Slide 10. EFS core growth increased nearly 11% in the fourth quarter, benefiting from a robust convenience retail and fueling end market. Sales for global dispenser equipment grew high-single-digits, driven by sustainable growth in new site builds and industry consolidation in North America and recent tender wins resulting in high-teens growth in international markets. Our focus on aftermarket, combined with a large and growing installed base, translated to nearly 20% growth in aftermarket products. 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. For the full year 2024, EFS margins increased 110 basis points, highlighting the benefits…

Thanks, Anshooman. I'm incredibly optimistic about Vontier's ability to unlock shareholder value in 2025. First, Vontier 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. We are driving efficiency through simplification efforts, including greater use of our centers of excellence around the globe. 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. 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. We remain the global leader in petrol fueling infrastructure, which will advantage us in the US for the foreseeable future. At the same time, our investments in 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. It's a global energy trilemma that demands affordability, security and sustainability. The diversity of our portfolio and the right profit pools addresses this trilemma, is strategically resilient and allows us to offer valuable suite of solutions to our customers. Regardless of the pace of the transition, the geography or geopolitical environment, Vontier 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.

Thank you. [Operator Instructions] And your first question comes from the line of Andy Kaplowitz with Citigroup. Please go ahead.

Mark and Anshooman, we understand you have much tougher sales comps in EFS in '25, but it appears like fueling markets have been strengthening over the last couple of quarters. And I think you guided to low- to mid-single-digit growth for '25. I think you 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 a strong quarter. Was that just the lower mix, Anshooman, you mentioned in India? And should you still see good margin expansion in that segment in '25?

Yeah, Andy, thanks for the question. Look, we're really encouraged by what we've been seeing building in the EFS segment. I think it shows the power of our brand and new product introductions that we've been doing there. The investments over the last couple of years, I think, it's been 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. I think the other thing that is playing out here is there's real strength in the convenience retail market. 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 and continuing at a really good rate and a pretty even pace and even rate. I think what you see in Q1 is a little bit of -- just a spiky compared to last year, but we are really encouraged on what we see there. And keep in mind, some of these trends that are underfoot, these folks are building out their storefronts, 18 months, 2.5 years out, making decisions. And 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 and some of our leading customers, and there's no question that they've got strong balance sheets. They're putting that capital work in very successful business models and our equipment is favored.

And just on the margin side, it still looks like...

Yeah, Andy, on the margins, EFS expanded margins 110 basis points for fiscal '24 and ending the year at an impressive 29%, a true testament to the VBS and our Pillar 1 activities, especially around product line simplification. In Q4, margins were down 30 basis points year-over-year. We continue to have positive price cost. We continue to have productivity savings. But 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.

Kind of in line with that 30% to 35% core for '25, Anshooman, in that segment?

Yeah, the incrementals in that business should be in line with our 30% to 35% incremental framework.

Okay. And then, just on Invenco, obviously, momentum there. Maybe you can give us a little more color. Deployments with Chevron, Shell, how is that going? You obviously mentioned Costco, Mark. And you mentioned FlexPay6 is game changing. So, I know you said that Invenco likely grows more in the high-single-digits range in '25, but it grew mid-teens in '24. I think, Anshooman, you said orders were up double-digits. So, why can't you see that momentum from '24 continue into the '25?

Yeah. Andy, I think we are seeing that momentum. I think it's a great story because if you look back a couple of years ago, there were some vestiges of this, but the investments that we put in place here, the acquisition we did and these integrated solutions we're bringing to market are really solving high-value customer problems, how they manage productivity and how they bring consumers more of their site. You're asking about the Shell and Chevron, those are going really well. We're still in the rollout phase of those, but that's kind of in the acceleration phase at this point. And the customers that we're talking about here are pretty major footprints, and it's pretty early innings. So, I think it really bodes well for what we're bringing to market and you see the spike out growth happening last year with good orders growth. I think we're getting high single-digit Mobility Tech overall platform segment growth this year as well as [indiscernible] improving. So, we're seeing the drop-through there. So, I think 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.

Andy, I'll just add. Invenco, really strong year to 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 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.

And your next question comes from the line of Jeff Sprague with Vertical Research. Please go ahead.

Thank you. Good morning, everyone. Hey, just kind of back on the cost structure and kind of tariff and related risks. I think you mentioned the prebuy, it sounded like your own prebuy ahead of tariffs. So, maybe you could elaborate on that. If you think your exposure is low, why are you prebuying? And do you see any prebuy activity in your customer base?

Jeff, we didn't see any prebuy activity in our customer base because these are some components. We are in the process of moving a lot of the supply chain to derisk, and we will be at about a $50 million run rate this year out of China. We did some prebuys just to manage the time between moving some of our supply chains and supply base because it takes a few months. So, all of those plans are well in way. From a Mexico standpoint, since there's been talk around Mexico, we do buy about $35 million from Mexico. Most of that, 90% or so of it is dual-sourced, 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.

Great. Thanks for that. And then just kind of back to the maybe signs of bottoming and potential inflection in vehicle wash and repair. Obviously, it sounds like you're expecting it to start slow, but do you see, particularly in vehicle wash where maybe it's more project-related, kind of clear signs of projects coming back into your 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?

Yeah. Jeff, first of all, I think we're encouraged because the first step is we've seen stabilization in those markets. I think we have a really good read on the total market buildout at this point, and it's sort of flat to slightly down. But at the same time, in the marketplace itself, we're seeing better recurring revenues. We've got pretty strong recurring revenue portion of that business, and that's growing particularly on the backs of new product launch that we're doing on Patheon, which is a cloud-based point-of-sale software. And we have a really good footprint there. And there's a one of the differentiators in the market right now is folks that can run a good car wash. 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 in there -- might be backing off more on their investments. So, we're positioned really well with that first group of folks and this Patheon offering, we hope will also encourage us. I think it's just too early to tell. It's early in the year. So it's -- 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.

And your next question comes from the line of Julian Mitchell with Barclays. Please go ahead.

Hi. Good morning. 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. And 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. So, just wanted to understand sort of how we should think about maybe some of the segment's movement from Q1 into Q2. Any thoughts on that, please?

Yeah, Julian. So, sales for the first half will be a little north of 48% of the total year, which, at the midpoint, 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. EPS will also be about 46% of -- a little north of 46% for half one, 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, Mobility Technologies, Q1 should be growing mid-single-digits plus; EFS, down slightly on a very strong compare; and then Repair Solutions, down low-teens to maybe mid-teens just on the Matco Expo move from Q1 to Q2. Hopefully, that helps.

Yes, that's helpful. And then, for the second quarter, the point would be, again, 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 flat to down? Is that the way to think about it?

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 mid-single digits plus. So, we continue to see that. And then, Repair will be up quite strong just because of the Matco Expo move. And then, Environmental & Fueling should also be up in the second quarter. So, second quarter sales for Vontier will be up year-on-year and up sequentially.

Thanks very much. And just my follow-up would be on -- if we're thinking about pricing and what you're assuming for sort of price or price cost in your EBIT margins for 2025?

Yeah. We ended this year at about 1% price increase of our growth next year. We expect about another 1% for price increase. Now, pricing is dynamic in case there is impact of tariffs et cetera, that comes in, pricing will be higher, because of that we will pass price through. Price/cost, we're pretty proud that we 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, Julian.

And your next question comes from the line of David Raso with Evercore ISI. Please go ahead.

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 bps to 50 bps, 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.

Yeah. Anshooman will kind of peel the onion based on the segment here, but I think this is 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 spend 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. Do you want to give some color, Anshooman?

Yeah. David, for 2025, our largest margin expansion is going to come from Mobility Technologies. It's really our investments are starting to read through out there, both from a top-line perspective, but also in the prepared remarks, as Mark talked about, the product line simplification and investments that went into that. So, we expect our Mobility Technologies margins to expand over 100 basis points in 2025. EFS should be up slightly coming off a very strong 2024 of 110 basis point margin expansion. And then, Repair Solutions should be flat to up slightly on flat volumes. So, a lot of the margin expansion coming from Mobility Technologies in 2025.

Yeah. I'm intrigued about the E&F margins. I'm trying to figure out when I see the strength in the dispenser even the orders you said you were up, I think, double digit, the profitability of the dispensers, 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. So, 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.

Yeah, the margin is very based on the regions, David. So, there is a mix topic that comes into play. Our highest part of the margin portfolio is aftermarket and environmental, but dispensers, again, is a very attractive business for us. So, there is the normal 30% to 35% incrementals in that business should kind of read through.

Yeah. David, I will sort of [endorse] (ph) a bit of what you're seeing there. I do think there's really good potential in margin improvement on this. But even though we have market-leading margins, I mean, if you look at the simplification opportunities that we have, they're pretty significant. And there's also pricing power in the market. It's a fairly well disciplined market with the number of players that are in it. And so, I think longer term, we see a really good runway here.

David?

I apologize. I was in mute. I mean, this is the business a couple of years ago that people felt was a melting ice cube and now you're speaking orders up 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.

Yeah. 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. And it was something that we believed in since then, and we've made investments in this business accordingly. And as a consequence, you're seeing some of the benefits of those investments play 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 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 drag that's going on out there of regulation that drives the market. 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. At the same time, as this business plays out, there's more integrated solutions as these major retailers and truck stop 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.

Thank you very much...

I'll just add, even though we have less than one quarter in backlog for Environmental & Fueling at any time, 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, they're doing the land acquisition permitting a year or two years out. And since we have a good market position with the large national regional players, we're partnering with them and we're getting visibility into their build-out plans.

Yeah, that's helpful. Thank you.

Thanks, David.

And your next question comes from the line of Nigel Coe with Wolfe Research. Please go ahead.

Thanks. Good morning. Just wanted to come back to the -- Anshooman, maybe the Q2, certainly, the first half, second half that you talked about, I think you said 46%-plus 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 from 1Q, I'm getting the Matco Expo shift as a $0.05 to maybe $0.07 uplift Q-over-Q. So then, when we think about the EFS business, normally has higher 2Q than 1Q. Just trying to understand kind of like 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?

Yes, so there's a little bit of mix between Q1 and Q2. So that does impact margins. Operating profit margins in Q2 will be slightly down versus Q1. So that does impact EPS a little bit, even though sales are a little bit up. And then again, it's pretty typical half one, half two seasonality. So, quarter-to-quarter, there's some mix challenges. But when you start taking bigger chunks like for first half and second half, sort of those normalized between a couple of quarters. So, we feel pretty strong about our margin expansion potential for the year, as Mark talked about, our Pillar 1 activities, 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.

Okay. Can you just maybe just elaborate on what that 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 just -- I did want to just talk about the kind of the net interest expense guidance 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 not. So I just want to understand that disconnect maybe.

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. We did get our spread to come down 22.5 basis points, which is about $1 million plus of annualized savings. So, all of that is factored in. We did factor in $75 million of buybacks. The rest of the cash we generate 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 the mix?

The mix, just a couple of examples. The Matco Expo, while it drives higher volumes, it is also the best deals of the year. So, there is some mix headwind that comes from that. Also, these days, if you think of Matco, a lot of the higher-price point items, which are more discretionary in nature, those are under pressure. And what we're seeing is that the technicians are buying are the lower price point items with higher payback. So, there's a mix headwind out there. 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. 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 timing between a couple of quarters.

Okay. I'll leave it there. But I think you did mention Matco Expo had attractive drop-through, but we'll follow up offline. Thanks.

[Operator Instructions] Your next question comes from the line of Andrew Obin with Bank of America. Please go ahead.

Yes, hi. This is David Ridley-Lane on for Andrew. Your R&D expense has -- as a percentage of revenue has gone up now around 6% or so. As your software revenue mix continues to grow, should we expect an upward bias to your R&D spend in 2025 and beyond?

No, I don't believe so. I think we've definitely pushed forward to make some investments here. I think you're beginning to see how that's paying off and is reading through. But if anything, I think that percentage of sales at a total cross on peer basis will come down. We might 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.

Got it. And just sort of broadly, there's been a lot of discussion here on mix impact. There was clearly a mix impact on the fourth quarter. But just to sort of from a big picture perspective, when you talk about 2025 guidance, having normal incrementals, you're basically saying most of this mix headwind is behind us, not ahead of us. Is that correct?

That's correct. And it's just seasonal between quarters. For example, in 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 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.

Got it. Thank you very much.

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.

Yes. 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 Vontier, and we look forward to engaging you and seeing you on the road in the weeks ahead. Have a great day.

Thank you. And this concludes today's conference call. Thank you all for participating. You may now disconnect.