Good morning, ladies and gentlemen, and welcome to the Vontier Second Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, July 31, 2025, and a replay will be available shortly after. I would now like to turn the conference call over to Mr. 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 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. 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 3, and I'll turn the call over to Mark.

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 and Fueling Solutions, which both grew over 15% in the quarter. Orders were up 8% organically, and our book-to-bill was approximately 1 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. 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 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. 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…

Thanks, Mark, and good morning, everyone. I'll start off with a summary of our consolidated results for Q2 on Slide 4. 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 2-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 a new product introductions. Relative to our guidance, we estimate sales outperformance benefited by approximately $15 million to $20 million related to favorable shipment timing 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 $0.79 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 5. 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 rest of the world. We are 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…

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 provides us with a clear competitive advantage to capitalize on secular trends across our Mobility ecosystem. 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.

[Operator Instructions] And your first question comes from Julian Mitchell from Barclays.

I suppose, first off, I just wanted to try and understand as we think about sort of the revenue outlooks into the second half. How is -- 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?

Thanks, Julian. Yes, 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 it's still 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 Technologies, 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. 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 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.

That's helpful. 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 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. They're quite a bit below where they were a couple of years ago. What do we need to get those moving higher? And do we expect the other 2 divisions to be sort of flattish half-on-half in the second half?

Just starting off with Repair Solutions. Yes, the margins are -- have stabilized. 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 2, 3 years, bad debt has 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 will be a tailwind to margins over time also. So I think there is definitely room for margin expansion in the midterm and Repair Solutions just given those 2 dynamics. And then obviously, Pillar 1 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.

Julian, this is Mark. One other item is the backdrop on repair, we think, continues to be a good backdrop. We think that the -- our Repair Solutions 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 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 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.

And then, Julian, just on the other 2 segments, we still expect Mobility Technologies margins for the full year to be up about 100 basis points. So a little bit sequential increase and 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 2 segments on margins.

And your next question comes from Nigel Coe from Wolfe Research.

So I think Anshooman, you called out $15 million to $20 million of pull ahead in EFS. I think there was also a small pull ahead in MT as well, maybe I'm wrong there. But maybe size that. And just based on sort of full year outlook 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 EFS and MT and down mid- to high for Repair. I just want to make sure that's correct.

Yes. So we did benefit from the shipment timings of about $15 million to $20 million, that was a combined number between both EFS and Mobility Technologies. Mobility Technologies was probably $5 million to $7 million of that. The benefit was really because of the timing of our go-live 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 we've had in Repair Solutions are -- both EFS is growing about mid-single digits for this year, Mobility Technologies is growing mid-single digits plus to high single digits for the year. So really strong performance with those businesses. Our EPS is growing high single digits, free cash flow conversion of about 100% and a free cash flow yield of about 7.5%. So overall, pretty strong metrics or numbers for the year for us.

Agreed. Yes. I couldn't agree more. Invenco, continues to grow very strong as you highlighted. Can you maybe just kind of help us kind of size where that business would likely be in 2025 in terms of revenue base? How does the sort of the backlog stroke project funnel look for Invenco? And then just broadening out the conversation a little bit, the recurring revenue portions of Drives, Invenco portions of DRB, where does the recurring revenue base for Vontier stand today?

Yes. So overall, Invenco will be over $600 million this year, probably somewhere around $625 million, $630 million from a revenue perspective. As you mentioned, we've seen some exceptional growth at Invenco for the last 4 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. So just really the innovation that we're driving in this business, bringing our microservices-based architecture digital solutions that help with both productivity, but also with consumer engagement, really starting to read through. From an overall Mobility Technologies perspective, about 40% of our revenue is recurring. DRB's about 35% -- sorry, DRB is about 60%, Invenco about 35% and all of Drives is recurring in nature. So overall, we get to about 40% of Mobility Technologies. At a Vontier level, we're probably in the low 30s right now from a recurring revenue, and we include spare parts and stuff like that in our recurring revenue number.

Nigel, 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 a ramping installed base and new customer pipeline that is developing. We talked about our environmental, our underground offerings. The other piece that also was mentioned was Patheon in the car wash space. So as we continue to post these proof points and grow scale here, our integrated solutions are also at higher margins, as you know, and that can also help us overall with Vontier margins. So I'm really pleased with what we're showing. Just as another proof point here, we've got over 1,200 software engineers now at Vontier. So the portfolio is substantially different than it was at the time of spin.

And your next question comes from Andrew Obin from Bank of America.

This is David Ridley-Lane on for Andrew. Any initial commentary from the field or conversations you're having with customers about the potential benefit part of the one Big Beautiful Bill was the accelerated depreciation that came back on. Is that a needle mover for some of your more sophisticated customers?

Yes. Go ahead, Anshooman, you want to answer that one?

Yes. So obviously, looking at the Big Beautiful Bill, the first benefit for us is around free cash flow where 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 the benefits to some of our customers are going to be around the accelerated depreciation where both on the equipment they're buying, but also for production buildings there's 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 permit cycle and construction cycle, the benefit would probably be next year. But it's definitely good for our customers, especially the smaller operators, which are more cash based and that 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.

Yes. One segment of customers that we're particularly paying attention to is around DRB, 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 DRB. We definitely saw sales inflect higher in Q2 and we think that was really important because it was the first time in 5 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 and help that, we expect the build to be about flattish, but on the back of also launching and ramping our Patheon, we know there's good returns here. And so we're encouraged on what we're seeing for a return to growth in this business.

Got it. And I think we understand there's an underground tank replacement cycle, your underground business, I think scoring mid- teens this quarter. Again, sort of sustainability of that, you sort of have these conversations, you kind of see a pathway to kind of maintaining that growth into -- for a while here?

Yes, that's -- it's a great point you're bringing up. I'm glad you brought it up. It was pretty early innings on the tank upgrade cycle. When you look at the installed base, you look at the opportunities to do that, and we're also see international opportunities. We've also invested in our underground business or our environmental business as we call it. We've come out with new products, including the 4- horsepower pump. So we think we've got some real innovations here that really enable folks to manage that asset base and we talked a little bit about it in the call, but 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 someone in 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 appreciated. And I think the backdrop on a real driver like the underground upgrade cycle is definitely going to be a tailwind for some time to come.

And just one quick numbers one. what was book-to-bill in the quarter?

Book-to-bill was just about 1. Orders grew about 8% year-on-year and book-to-bill was just about 1.

[Operator Instructions] And your last question comes from Rob Mason from Baird.

Wanted to go back to the discussion we had on Invenco. Again, aware that you probably hit some tougher comps in the second half of this year. But it does sound like you're confident about some reacceleration as you move into '26, mid- high single-digit growth. And I'm aware you've got some pilots out for iNFX as well. Are you counting on some of these pilots to convert to drive that mid-single to high single or -- how are you thinking about that?

Yes. Thanks, Rob, for the question. Look, the really encouraging thing here is we're seeing real uptake of this technology. The thing that's a little bit hard to call is the timing of some of these orders. As you can see, they're pretty large orders. The good news is you're dealing with more recurring revenue. The thing that has to be worked out is when do 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, you're seeing real traction here. And I think that's 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's no question, really encouraging signs here for strong organic growth with really good drop- through.

Rob, I'll also add, it's not just iNFX that's going to help drive some of this growth. Our new FlexPay 6 from a payment perspective is really making a lot of positive traction in the market. Once you start looking at unified payment, which is FlexPay 6 plus iNFX, also you're going to start seeing more offerings related to consumer engagement in there, which is going to help with some of the growth. So just a continuation of our strategy to bring digitalization and innovation to the space is going to help Invenco drive some of the growth next year.

Right. Right. And then to circle back to DRB. It's good to see maybe a little bit of a turn there. I think in the quarter, you also completed a smaller acquisition in the space. I'm just curious, how is that impacting the outlook just financially? Understanding is relatively small? But -- and then what's kind of the contribution strategically of that opportunity or add on?

Yes. Let me talk about the strategic contribution here. So, if you think of our real value proposition in car wash is that we provide the brains for the car wash. It's the area that really drives productivity for the car wash operator, enables them to scale a lot of their assets. It enables the larger car wash operators in particular to focus on how they attract more consumers to the site. We know from surveys and talking to customers that recurring revenue for them, which is on the subscription is actually up for car wash right now, which is great, and our technologies really help enable that in customer pull. So this small acquisition is a bolt-on that really adds a smart controller. And when that works with their point-of-sale system, which we're the leading provider in, then you can provide more productivity and more insights in how they can manage their car wash and their car wash footprint better, which is exactly what the operators are looking to do. And so when you look at our Invenco 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, enhance consumers to the site.

And just from a numbers perspective, the 2024 revenue for the acquisition was about $7 million in revenue and $1 million in EBITDA. So relatively small and doesn't move the needle that much this year from a revenue perspective. But as Mark said, very strategic which allows us to be the brains of the car wash, but also lots of upside opportunity on this as we go forward.

Sure, sure. And just last question real quick, I may have missed this, juggling other calls here. But did you talk about the -- maybe the month-to-month trends that you were seeing in Matco? 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.

Yes. Just when we look at sellout, the sellout was about down 5% for the first half. There's been some ebbs and flows during the first 6 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, the sell-out of the 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 will 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.

Thank you. There are no further questions at this time. I will now turn the call back over to Mr. Mark Morelli. Please continue.

Yes. Thank you,[Kels]. Thanks for joining us on today's call. I'm 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 in attractive end markets, and we're committed to creating long-term value for our customers and returns for our shareholders. We appreciate your continued interest in Vontier, 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.