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Vontier Corporation (VNT) Q4 2022 Earnings Call Transcript

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Vontier Corporation (NYSE:VNT) Q4 2022 Earnings Conference Call February 16, 2023 8:00 AM ET

Company Participants

Ryan Edelman - Vice President-Investor Relations

Mark Morelli - President & Chief Executive Officer

Anshooman Aga - Senior Vice President & Chief Financial Officer

Conference Call Participants

Andy Kaplowitz - Citigroup

Nigel Coe - Wolfe Research

Jeff Sprague - Vertical Research Partners

Julian Mitchell - Barclays

David Raso - Evercore ISI

David Ridley-Lane - Bank of America

Joe Ritchie - Goldman Sachs

Operator

My sanction is Gretchen, and I will beryllium your convention provider this morning. At this time, I would for illustration to invited everyone to Vontier Corporation Fourth Quarter and Full Year 2022 Earnings Results Conference Call. All lines person been placed connected shut up to forestall immoderate inheritance noise. After nan speakers' remarks, location will beryllium a question-and-answer session. [Operator Instructions]

I would now for illustration to move nan telephone complete to Ryan Edelman, Vice President of Investor Relations. Mr. Edelman you whitethorn statesman your conference.

Ryan Edelman

Thank you, Gretchen. Good greeting everyone and convey you for joining america connected nan telephone this greeting to talk our 4th fourth results. With maine coming are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Senior Vice President and Chief Financial Officer.

During today's call, we will coming definite non-GAAP financial measures. Information relating to these non-GAAP financial measures is disposable connected nan investors conception of our website astatine vontier.com. Please statement that unless different noted, nan presented financial measures bespeak nan year-over-year increases aliases decreases. We will besides make forward-looking statements wrong nan meaning of nan Federal Securities Laws including statements regarding events aliases developments that we expect aliases expect will aliases whitethorn hap successful nan future. These forward-looking statements are taxable to a number of risks and uncertainties and existent results mightiness disagree materially from any forward-looking statements that we make today.

Information regarding these factors that whitethorn origin existent results to disagree materially from these forward-looking statements is disposable successful our SEC filings and consequent yearly study connected Form 10-K. These forward-looking statements speak only arsenic of nan day they are made and we do not presume immoderate responsibility to update immoderate forward-looking statements.

With that, I'd for illustration to move nan telephone complete to Mark.

Mark Morelli

Thanks, Ryan. Good greeting everyone, and acknowledgment for joining america connected nan telephone today. Let's get started pinch a fewer highlights of nan quarter, and nan twelvemonth connected descent 4. We're very encouraged by our beardown decorativeness to nan year, reporting 10% halfway apical statement maturation for nan 4th quarter, 11% excluding nan effect of EMV. Our teams astir nan globe stay disciplined successful their execution of our profitable maturation initiatives and level strategies, which proceed to present results.

As we noted connected nan past quarter's call, we are sunsetting EMV. This upgrade rhythm has impacted our US substance dispenser business complete nan past five-plus years and we are transitioning to a caller normal successful 2023. We are assured successful our outlook for our maturation successful this business going forward, arsenic good arsenic successful our strategical imagination to accelerate profitable maturation crossed nan portfolio.

Orders successful nan 4th were up 10%. Excluding nan effect of EMV from nan year-over-year comparison, orders successful Q4 were up successful nan precocious teens. We proceed to spot bully momentum arsenic nan request situation remains constructive crossed astir of our extremity markets and backlogs stay supra pre-pandemic levels.

Global proviso concatenation conditions are normalizing shortening lead times and helping to trim our past owed backlogs. The momentum we've seen successful halfway apical statement growth, underscores our team's committedness to our customers, on pinch nan execution of our profitable maturation initiatives and level strategies. We're building a portfolio of industry-leading technologies and solutions and higher maturation verticals of nan mobility ecosystem.

Let maine item a mates of notable examples of our profitable maturation initiatives. Our fueling aftermarket business grew apical statement much than 20% successful 2022. We person built an unthinkable installed guidelines of dispensers globally and this is simply a coagulated illustration of profitable maturation initiatives we are executing pinch VBS. We'll monetize this maturation opportunity for years to come.

Our biology products business delivered precocious single-digit growth, driven by accrued marketplace request for our innovative solutions that lick 1 of nan astir pressing needs of our fueling customers' biology compliance. Technologies, for illustration vapor betterment and leak discovery are benefiting straight from expanding world regulation. Our level strategies are besides making important progress.

Let maine item a mates of examples. DRB which ended nan twelvemonth pinch pro forma halfway apical statement maturation of complete 30% was mostly driven by beardown marketplace request for passageway car lavation and continued stock gain. We deployed VBS, crossed this business, which helped thrust a 400 ground constituent betterment successful operating margins nether our first twelvemonth of ownership. We spot a clear way for sustainable maturation successful this level complete nan adjacent respective years, arsenic we statesman to leverage existing customer relationships, to capitalize connected upgrade and description opportunities.

The integration of Invenco is disconnected to a awesome start, and we're opening to spot early benefits of nan finance thesis from nan mixed portfolio successful our dispensers and costs business. During nan quarter, we successfully launched nan caller INFX microservices package platform, which enables a much modular, scalable, and customizable solution for our convenience unit customers.

Our substance aliases c-store early adopters are already seeing nan benefits of this technology. Alternative power grew much than 30% past year, arsenic our fleet and municipal customers proceed to displacement much substance usage towards compressed earthy gas, and renewable earthy state aliases biofuels, to support cost-effective decarbonization efforts.

We are optimistic astir nan early of this business, peculiarly arsenic we motorboat our caller hydrogen dispensing technologies and tin amended service a multi-fuel future. Lastly, Driivz continues to standard commercially owing to its best-in-class hardware-agnostic EV charging software.

Driivz now manages complete 35,000 complaint points and we proceed to summation traction pinch cardinal customers. We now service complete 60 premier customers for illustration EVgo, Shell, Mer, Volvo and Circle K to sanction a fewer successful much than 30 countries, and crossed a assortment of verticals.

Driivz' scalability and way grounds of successful integrations has enabled starring marketplace positions successful places for illustration nan Nordics, which has among nan highest penetration of EVs anyplace successful nan world and wherever Driivz now manages 75% of nan nationalist accelerated charging networks. These examples show that we are making meaningful advancement connected our strategy-led portfolio translator designed to heighten profitable maturation done delivering, smart, sustainable solutions pinch a tighter attraction connected nan mobility ecosystem.

We are bolstering our competitory advantages successful markets pinch beardown secular drivers by adding to our connected hardware and package capabilities and successful move creating offerings that leverage information analytics to lick progressively high-value customer problems.

Our strategy revolves astir connecting smart hardware scaling done digitally-enabled platforms and managing assets to present outcomes, for illustration improved operational efficiency, enhanced personification experiences aliases frictionless costs transactions.

All of these lead to much maturation and higher recurring revenues pinch much accretive margins. Throughout 2022, we exercised a disciplined superior allocation approach. As you whitethorn retrieve early past year, we committed to prioritizing stock repurchase, and for nan afloat twelvemonth we completed complete $325 cardinal of stock repurchase.

Share repurchase remains a cardinal constituent of our superior deployment strategy. And arsenic Anshooman will stock pinch you, we besides scheme to salary down indebtedness successful nan coming quarters. We besides invested organically successful caller merchandise developments and technologies on pinch astir $300 cardinal successful strategical acquisitions that will thrust sustainable semipermanent maturation and worth creation.

Notably, we published our first ESG study successful November. I americium proud of nan eager goals we've group for ourselves and nan advancement we person already made crossed a number of dimensions, including greenhouse state emissions, diverseness and safety.

In 2022, we reduced our full recordable wounded complaint by 30% accrued our percent of world female leaders from 22% to 26%, and accrued our percent of achromatic and Latinx labor from 10% to 15%. It's imperative that we pull and clasp world-class talent and that we cultivate an inclusive and innovative culture.

Our ESG programme is helping america do conscionable that. More recently, we received a B from CDP pursuing our first ambiance disclosure. This puts america successful astir nan apical 30% of each submitting companies correct retired of nan gates, recognizing our programmatic rigor and committedness to transparency. Sustainability is halfway to our business and strategy. We are uniquely advantaged to thrust sustainability impacts that matter to our customers and cardinal stakeholders, including helping our customers meet their ain ESG commitments.

Before I move nan telephone complete to Anshooman, I wanted to supply a fewer cardinal thoughts connected our advancement and outlook. I couldn't beryllium much pleased pinch nan measurement our colleagues astir nan globe responded to adversity and stayed focused delivering for our customers and stakeholders this past year. It's a existent testament to nan fundamentals of nan Vontier Business System, aliases VBS that underpins our civilization of invention and continuous improvement.

Looking into 2023, while nan macroeconomic backdrop remains dynamic, historically our businesses person proven to beryllium resilient and we are seeing signs of patient customer demand. We stay agile and we will proceed to intimately way bid trends and show starring indicators for each of our businesses.

Regardless of nan economical outcome, we are fresh and we will proceed to leverage our civilization of excellence powered by VBS to present beardown operating results and heighten halfway growth. When coupled pinch disciplined superior deployment we person an charismatic model for worth creation.

I'd for illustration to move nan telephone complete to Anshooman to supply nan financial results.

Anshooman Aga

Thanks Mark, and hullo everyone. Let's commencement pinch a little summary of our capacity successful nan 4th fourth connected Slide 5. Sales of $872 cardinal were up conscionable complete 10% connected a halfway ground and 11% excluding nan effect of EMV. This capacity is simply a consequence of disciplined execution, improving proviso concatenation conditions peculiarly erstwhile compared to nan anterior 2 quarters, and beardown momentum connected our profitable maturation initiatives and level strategies. Growth was broad-based including different 4th of beardown maturation astatine DRB and continued spot crossed nan GVR portfolio.

Adjusted operating profit for nan 4th fourth was $190 million, down somewhat versus nan anterior twelvemonth pinch a corresponding diminution successful operating profit separator impacted by anticipated merchandise operation dynamics, continued maturation investments and a afloat 4th of Invenco revenue. These impacts besides had a resistance successful adjusted gross separator during nan quarter.

Looking ahead, we expect Invenco will adhd $0.07 to $0.10 of EPS successful 2023 pinch synergies ramping arsenic nan twelvemonth progresses. For nan afloat twelvemonth 2022, we delivered coagulated underlying profit improvement, up debased double digits excluding nan year-over-year effect of EMV. We efficaciously navigated difficult ostentation and proviso concatenation conditions and ended nan twelvemonth pinch affirmative price/cost.

Our capacity reflects nan powerfulness of nan Vontier Business System, including nan deeper deployment of a attraction and prioritization process crossed nan organization. Adjusted net per stock for nan 4th were $0.81 compared to $0.83 successful nan anterior twelvemonth period. Higher liking disbursal was mostly offset by a affirmative publication from little stock count year-over-year.

Turning to nan apical statement capacity of our 2 platforms connected Slide 6. Core revenues for Mobility Technologies accrued astir 13% pinch robust maturation crossed overmuch of nan portfolio owed to coagulated execution, improved proviso concatenation conditions, transportation connected backlogs and accrued bookings. DRB had different 4th of beardown maturation driven chiefly by continued spot and stock gains successful nan passageway car lavation segment.

Our fueling aftermarket and replacement fuels businesses each posted 30% apical statement maturation pinch biology up precocious teens. Retail Solutions was up mid azygous digits successful nan quarter. As expected nan Teletrac Navman business posted its first 4th of halfway growth, up debased azygous digits pinch beardown momentum arsenic we exited nan twelvemonth arsenic ACV ended 2022 up debased double digits.

Core gross successful our Diagnostic and Repair Technologies was up 3%, pinch a 4% summation successful Matco. Matco knowledgeable higher backlog conversion enabled by an proven proviso concatenation environment, starring to same-store income maturation of mid-single digits. By merchandise category, we saw beardown request for powerfulness devices up 30% and instrumentality retention up low-double-digits. Solid maturation successful same-store income was partially offset by normalization successful nett franchisees aft exceptional maturation successful 2021.

Moving connected to free rate travel and nan equilibrium expanse connected descent 7. Fourth 4th adjusted free rate travel was $175 million, up 15% year-over-year pinch conversion of 137%. For nan afloat year, adjusted free rate travel was $314 million, pinch adjusted free rate travel conversion of 63%.

Capital expenditures were $17 cardinal successful nan 4th and $60 cardinal for nan twelvemonth aliases an summation of 14% for Q4 arsenic we proceed to put successful maturation productivity and sustainability. This was short of our afloat twelvemonth target scope owed chiefly to higher than anticipated moving superior successful Q4 fixed beardown income growth, including a higher AR balance.

For nan afloat twelvemonth moving superior arsenic a percent of income returned to pre-pandemic levels. Net leverage ended nan twelvemonth astatine 3.2 times, down sequentially but still supra our target of astir 3 times. Our longer-term target scope for nett leverage remains 2.5 to 3 times and we expect to beryllium wrong that scope successful 2023.

We repurchased astir $40 cardinal successful shares successful nan 4th quarter, which brought america to conscionable complete $325 cardinal for nan afloat twelvemonth aliases astir 14 cardinal shares. Following nan extremity of nan 4th done nan period of January, we repurchased an incremental $18 million.

Turning to our guidance for 2023 connected descent 8. We are initiating a Q1 2023 guideline of adjusted EPS of $0.57 to $0.62, which assumes a halfway gross diminution successful nan debased to mid-single-digits and adjusted operating profit margins down successful nan scope of 100 to 140 ground points.

Withstanding nan effect of EMV, we expect baseline halfway income will summation low-single-digits and adjusted separator to grow 130 to 170 ground points. At nan midpoint, arsenic a percent of full-year, this represents a comparatively normal commencement to nan twelvemonth astatine astir 22.5%.

The guidance for nan afloat twelvemonth 2023 is somewhat supra nan model we provided connected our Q3 telephone successful November. I want to constituent retired that this guidance, arsenic antecedently communicated assumes a $300 cardinal gross headwind from nan year-over-year diminution successful EMV, which translates to astir $150 cardinal successful operating profit unit aliases astir 250 ground points of margin.

Adjusted EPS is expected to beryllium successful nan scope of $2.73 to $2.83, which is based connected a mid-single-digit diminution successful halfway gross and separator compression of 60 to 80 ground points. Again, if we portion retired nan impacts of EMV, for nan afloat twelvemonth we expect baseline income to summation mid-single-digits connected a halfway ground and adjusted separator description of 180 to 200 ground points.

Relative to nan erstwhile framework, our outlook assumes restructuring savings astatine nan precocious extremity of nan antecedently communicated set of $40 cardinal to $45 million. We expect free rate travel conversion successful nan scope of 90% to 100% returning to normalized levels.

Although we began to spot improvements successful moving superior successful Q4, our inventory turns stay beneath normal. We are proactively moving connected reducing our information banal and resetting our min-max levels astatine a portion number level, allowing america to transportation little inventory and still meet anticipated demand. Longer term, continued advancement connected our merchandise statement simplification will alteration america to further rationalize SKUs and create further runway for inventory turns to improve.

We person provided you pinch immoderate different P&L assumptions comparative to our guideline connected nan right-hand broadside of nan slide. I won't locomotion done each of those, but I would telephone your attraction to our presumption for an outstanding stock count of astir 156 cardinal shares, which reflects nan stock repurchase completed successful Q4 and successful January, but does not presume nan further stock repurchase that we would complete successful nan remainder of nan year.

We person a returns-driven, disciplined, and balanced superior allocation programme aimed astatine creating semipermanent value. We stay focused connected investing for semipermanent maturation and we still position stock repurchase arsenic a cardinal priority.

We besides stay committed to maintaining a patient equilibrium expanse and our investment-grade in installments rating. To that end, we expect paying down betwixt $150 cardinal and $200 cardinal successful gross indebtedness this year.

With that I will move nan telephone backmost complete to Mark.

Mark Morelli

Thanks Anshooman. We're highly proud of nan advancement we've made since our spin. In 2020, we became a nationalist institution and built our foundation. In 2021 and 2022, arsenic portion of Vontier 2.0, we assembled an unthinkable activity team, began our portfolio translator focusing connected non-EMV growth, and executed connected self-help initiatives that proceed today.

Now, Vontier 3.0, our smart sustainable solution strategy built connected this instauration and moves up nan exertion stack solving high-value customer problems driving profitable growth, transforming nan portfolio, and generating top-tier shareholder returns.

The 3.0 strategy has 3 pillars. Pillar 1 optimize nan halfway expands margins done profitable maturation initiatives for illustration strategical pricing and merchandise statement simplification. We are still successful nan early innings present pinch tremendous runway up to optimize margins and thrust growth. Our advancement and continued attraction connected optimize nan halfway puts america successful an diversion stance heading into an uncertain macro environment.

Pillar 2 grow nan core, leverages our halfway level positions to grow and grow. Prime examples of this includes our replacement power and fueling aftermarket businesses increasing complete 20% successful 2022.

Pillar 3 adjacent markets expands into adjacent adjacencies wherever we person a correct to play and win. Examples see description opportunities astatine DRB and our caller hydrogen dispensing technologies.

Vontier has unparalleled portfolio breadth crossed nan mobility ecosystem. We judge we are nan only institution tin of providing a afloat suite of connected hardware and package solutions to connect, manage, and standard assets crossed this $30 cardinal positive addressable market.

We person a divers and increasing group of customers crossed nan car wash, convenience retail, car repair, fleet operators, and EV charging verticals. These customers are facing communal secular trends and communal challenges that they spot america to solve.

Labor and accomplishment shortages expanding car portion complexity, expanding regulation, expanding attraction connected decarbonization and sustainability, and user demands for much individual frictionless experiences are each forcing improvement of nan mobility ecosystem.

We run astatine nan halfway of this ecosystem and are poised to alteration nan measurement nan world moves for years to come. We are uniquely positioned to use from nan power modulation sloppy of nan gait of this modulation arsenic we person winning positions crossed nan multi-fuel landscape.

Our squad is energized by nan opportunity to beryllium a leader successful nan world power modulation and to thief guarantee it is safe, affordable, secure, and sustainable. We are galvanized astir nan Vontier 3.0 smart sustainable solution strategy and our firm intent of mobilizing nan early to create a amended world.

We are excited astir nan roadworthy up arsenic we return advantage of nan resiliency and strategical optionality inherent successful our businesses to build a amended stronger and turn our portfolio. I look guardant to sharing much astir our advancement successful this strategy to accelerate maturation astatine our Investor Day adjacent month.

With that, Gretchen, we are fresh to unfastened lines for questions.

Question-and-Answer Session

Operator

At this time, we will unfastened nan level for questions. [Operator Instructions] Our first mobility comes from Andy Kaplowitz from Citigroup.

Andy Kaplowitz

Hey bully morning. So, you mentioned that orders were up 10% successful high-teens I deliberation ex-EMV and improved sequentially. What does that construe into for lawsuit only debased single-digit halfway gross maturation successful Q1 pinch 10% you did successful Q4? And past conscionable focusing connected orders. Has your non-EMV related bid spot continued into nan first quarter? Have you seen immoderate hints of nan slowdown from your customers?

Anshooman Aga

Thanks, Andy. We did spot bully spot successful our orders successful nan 4th quarter. Underlying businesses are strong. When we look astatine it from a book-to-bill perspective, our book-to-bill ex-EMV for nan afloat twelvemonth 2023 was 1.03 truthful a small supra 1. We spot bully maturation successful our businesses based connected our discussions pinch our customers, nan convenience shop operators nan larger nationalist chains, nan location – ample location players proceed pinch caller tract builds.

When we look to nan different pieces of our portfolio for illustration Matco, we spot nan mid-single-digit maturation visibility retired there. DRB should proceed to turn high-single digits, contempt a very beardown comparison from nan erstwhile year. So erstwhile you put it each together we consciousness comfortable pinch nan mid-single-digit maturation for adjacent year.

Mark Morelli

Yes. Andy, this is Mark. I'll conscionable jump successful connected that too. I deliberation nan outlook for Q1 is impacted by timing. We cognize nan building cycles person been impacted a small spot by upwind too. So while we're beautiful assured connected nan outlook, location besides is an effect successful Q1 owed to timing.

Andy Kaplowitz

Appreciate nan color, guys. And past possibly conscionable a small much colour regarding your separator capacity successful Q4. Why was operation worse than you thought? And what astir nan different items that pressured margin? Could you talk astir nan further maturation investments you're making. I cognize you didn't alteration your 2023 operating model from what you gave america but really do you deliberation astir immoderate incremental separator unit impacting 2023 results?

Anshooman Aga

Sure. From a anterior twelvemonth perspective, our guideline did see Invenco gross of conscionable complete $20 cardinal pinch nary operating profit successful nan 4th quarter. And it included nan incremental investments for Driivz. However for nan 4th quarter, we did person astir 80 bps miss to what our operating profit separator guideline was. And that was really tied to nan amounts and timing of immoderate year-end expenses and past conscionable a very flimsy effect from incremental mix.

From a position of adjacent year, we consciousness beautiful comfortable pinch our margins. We person separator description extracurricular of nan EMV effect truthful nan baseline margins are improving. That's supported by a important restructuring programme that we are executing and besides driven by nan operation of higher-margin maturation businesses for illustration DRB and aftermarkets business.

Andy Kaplowitz

Anshooman, were those expenses for illustration labour related aliases thing other proviso concatenation related? Just immoderate much colour there?

Anshooman Aga

No, a small spot labour related successful nan consciousness that for example, 1 of nan bigger ones was nan timing of wellness attraction claims came successful a small hotter successful December than we had been moving each nan twelvemonth but those are controlled because you person to extremity losses, et cetera but it did effect america for illustration $3 cardinal much than what we were expecting.

Andy Kaplowitz

Appreciate nan color.

Operator

The adjacent mobility comes from Nigel Coe from Wolfe Research.

Nigel Coe

[indiscernible] nan question. Good morning, everyone. So conscionable connected nan EMV headwind, nan $3 cardinal evidently nary alteration location but I deliberation nan mathematics is $25 cardinal to $50 cardinal of year-over-year headwinds successful nan first 4th based connected nan guidance points. So conscionable wondering, if you could possibly conscionable get retired of these benignant of comp issues and possibly conscionable talk astir nan dollar numbers. So if you return nan 250 anticipation for nan afloat year, would you expect nan dollar income to beryllium comparatively unchangeable quarter-to-quarter, aliases do you expect it to deteriorate done nan year? Just immoderate colour location would beryllium helpful.

Anshooman Aga

The 250 baseline income for dispensers successful nan US are comparatively linear complete nan 4 quarters. There is immoderate seasonality but you're talking plus/minus $5 cardinal based connected nan timing of immoderate of nan building of our customers' projects. But typically nan scope positive aliases minus $5 million, $7 cardinal successful nan quarter.

Nigel Coe

Okay. Good. And past conscionable reasoning astir nan 1Q guide, nan down 100 to 150. I deliberation successful nan past you talked astir halfway separator not progressive margins. So I'm conscionable wondering is that – 100 to 150 is that all-in EBITA margins down year-over-year, aliases is location a halfway and M&A effect we should deliberation arsenic well?

Anshooman Aga

These are each successful operating profit margins. We did not guideline to halfway operating profit margins conscionable I deliberation we're trying to simplify immoderate of our reporting and make it easier for our expert organization some buy-side and sell-side to exemplary us. So we did not see nan halfway operating margins arsenic we did successful nan past conscionable reported operating margins.

Nigel Coe

Yeah. Definitely makes it a small spot easier. And past conscionable my last mobility is connected components. Obviously very beardown maturation successful 2022, aftermarket business don't thin to turn that much. I'm conscionable wondering really overmuch of this is possibly proviso concatenation related perhaps. And erstwhile this each shakes retired what proportionality of your income successful GVR will beryllium components?

Mark Morelli

Yeah. Nigel this is Mark. Look I deliberation that this has been an inaugural we've really tackled arsenic portion of our profitable maturation initiatives. I deliberation each of our gross mostly speaking has been helped by nan easing of proviso chain. So we're decidedly getting an uplift there. But this is simply a very specific, very concerted effort.

I deliberation we pushed really difficult to summation stock pinch nan EMV upswing rhythm that -- we did that really well. And I deliberation we're besides prosecuting a very bully lay-up for 2023 based connected US dispensers. The ample location players are decidedly making investments pinch caller build-out successful building arsenic good arsenic rebuilds, arsenic good arsenic underground and environmental.

But each this leads to a amended capacity to seizure aftermarket. And I deliberation it was conscionable an area that was I would opportunity a comparative opportunity that we saw much than a twelvemonth agone and we started really focusing connected that pinch our profitable growth. And yea there's nary mobility proviso concatenation has helped, but it's sewage a batch of legs to it successful nan future.

Nigel Coe

That’s great. Thanks for nan color.

Operator

Our adjacent mobility comes from Jeff Sprague from Vertical Research Partners.

Jeff Sprague

Thank you. Good morning, everyone. Just connected EMV it's, obviously, bully to spot that number not moving anymore. I conscionable wonderment though if you could elaborate a small spot connected your existent visibility connected nan $250 cardinal successful 2023, and past evidently this is simply a US discussion, I wonderment if you could springiness america a small spot of colour connected what you're seeing successful non-US fueling markets?

Mark Morelli

Yeah. Jeff, we're very happy that we person sunset nan EMV rhythm that's played through. Obviously 2023 will beryllium a trough year-on-year-on-year compares. But we're besides very assured successful nan number that we're putting retired there. We've done immoderate caller conversations pinch customers that bespeak location is nan ample nationalist players, arsenic good arsenic location players successful nan United States that are continuing to build retired their footprint and they're besides doing rebuilds connected existing sites. So there's patient finance that's going into convenience retailing correct now. And location is nary mobility that we person bully visibility location connected that $250 million. So I deliberation that's a very bully number. And we're emotion amended and amended astir that. So I deliberation it's a number that we've put retired there. And arsenic we get much into nan twelvemonth we're emotion very comfortable astir that number.

And past there's regulatory drivers that are besides helping us. In nan US there's a vessel upgrade rhythm that's going connected for beneath ground. And truthful we're early innings connected that vessel upgrade rhythm and that's been driving our biology business. It's been 1 of our profitable maturation initiatives to get amended connected that.

And past your mobility was connected nan world broadside and we decidedly spot a bully maturation opportunity connected world and predominantly regulatory drivers here. Latin America is simply a bully one. Brazil is going into information of costs cycle. We person taxation fraud issues successful India. We've sewage vapor betterment successful Mexico and Brazil. And Middle East besides represents a bully maturation opportunity for america arsenic they're getting much biology connected their regulation. So we emotion these regulations. They are surely popping up not only successful nan US, but astir nan world and these are things that thrust bully secular maturation for us.

Jeff Sprague

Great. Thanks for that. And conscionable an update connected nan process connected Hennessy and GTT, what's going connected there? And immoderate update connected timing, expected timing?

Mark Morelli

Yeah. So nan GTT process is moving on well. So we're moving done that arsenic we speak. On Hennessy, we took a 2 portion of parts attack to that process. We had a portion of nan business that wasn't profitable. We unopen that down erstwhile 4th and we are successful nan process of trading those assets. The remaining of Hennessy, which is simply a profitable business we expect to motorboat that process later this twelvemonth erstwhile nan timing is right.

Jeff Sprague

Great. Thank you.

Operator

Our adjacent mobility comes from Julian Mitchell from Barclays.

Julian Mitchell

Hi. Good morning. Maybe conscionable wondered if you could soma retired that baseline gross guideline of mid-single digit maturation successful 2023, a spot much -- possibly benignant of affirm, why really overmuch is measurement versus price? And then, conscionable integrated income wise immoderate colour on, bits and pieces for illustration Teletrac, DRT [ph], DRB expectations if there's immoderate awesome quality versus nan positive mid-single?

Mark Morelli

Yeah. Let maine conscionable commencement disconnected pinch a spot much of a strategical overview Julian, and then, I'll fto Anshooman locomotion you done immoderate much of nan nuts and bolts.

Look, nan profitable maturation initiatives nary mobility person legs. We talked astir bully traction successful businesses for illustration DRB. And we afloat expect DRB to beryllium a really bully performer into 2023 and beyond. What's driving that business is surely nan tract build-out connected car wash.

It's very resilient besides successful downturns and folks are continuing to spot bully returns connected their build-outs moreover pinch elevated costs and elevated liking expenses. And so, we do judge location is very bully visibility. Obviously, a really beardown twelvemonth past year, it won't beryllium arsenic beardown this year.

But still location is nary mobility there's, legs to that. So I deliberation erstwhile you look astatine really we build up nan gross immoderate of nan strategical pieces including replacement power which we besides proceed to person bully legs Invenco is going to beryllium a bully contributor to america this twelvemonth arsenic well.

So I deliberation these initiatives are really -- person momentum. I deliberation they're paying disconnected for america and translating into decent visibility into nan twelvemonth for growth, if you want to springiness immoderate of nan specifications connected that Anshooman?

Anshooman Aga

Yeah. From -- to your mobility connected pricing we do expect value to beryllium a tailwind astir apt successful nan low-single digits, but support successful mind pricing is dynamic. We are very disciplined, successful making judge value costs remains positive. We were early to nan crippled pinch expanding pricing arsenic portion of our strategical pricing inaugural which is 1 of our profitable maturation initiatives.

Some of nan areas that will turn supra nan mid-single digits, Mark talked astir our aftermarket business being highly beardown and america having a attraction astir that our CNG business, ANGI that's expected to turn supra nan fleet average.

DRB will proceed to turn supra nan fleet average, contempt a very difficult comp coming into 2023 that business should turn high-single digits. So decidedly pockets of spot crossed nan business. And we consciousness very bully astir our portfolio.

Julian Mitchell

That's helpful. Thank you. And then, conscionable possibly connected nan separator and net cadence done nan year. Should we deliberation astir benignant of operating margins year-on-year they're down again successful Q2 and past benignant of flattish successful nan 2nd half year-on-year. And connected EPS, is nan first half worthy possibly high-40s stock of nan afloat twelvemonth EPS. Is that nan correct measurement to deliberation astir it?

Anshooman Aga

Yeah. As we've moved past-COVID and now nan EMV, upgrade rhythm has sunset we're moving into a much normal seasonality. I would deliberation of astir 42% to 44% of nan twelvemonth are coming successful nan first half from an operating profit and an EPS position pinch operating profit margins expanding successful nan backmost half of nan twelvemonth fixed nan timing of gross immoderate of nan timing of restructuring savings and past nan ramp-up of Invenco synergies.

Julian Mitchell

That's helpful. Thank you.

Operator

Our adjacent mobility comes from David Raso from Evercore ISI.

David Raso

Hi. Good morning. My mobility is connected nan free rate flow. After nan 63% conversion successful 2022 nan betterment to 95% adjacent year, I'm conscionable curious, of nan span successful that improvement. And past secondarily, if you tin execute that you've sewage astir $200 cardinal other of rate travel aft nan dividends and indebtedness simplification target. How should we deliberation astir your prioritization of utilizing that other $200 million? Thank you.

Anshooman Aga

Yeah. Thanks for nan question. In 2022, we dealt pinch a very difficult proviso concatenation environment. And our inventory argumentation was focused connected gathering customer request and satisfying our customer and winning mind stock pinch our customer.

As nan proviso concatenation conditions person improved, we person instituted actual measures to little our inventory and amended our inventory turns. For example, we've reduced our information stock. We've reduced nan min-max level astatine a portion number level.

The merchandise statement simplification helps importantly trim nan number of SKUs we carry, truthful each of these it takes clip to activity done complete nan adjacent fewer months and trim our inventory levels, which gives america a batch of comfortableness successful nan truth that inventory turns will improve.

From a DSO perspective, successful 2022, by Q4 we've gone to nan pre-pandemic levels which is astir apt a amended reflection because, during COVID erstwhile money was free a batch of group were taking nan early salary discounts, truthful I deliberation we consciousness very comfortable of nan 90% to 100% free rate travel conversion target that we put retired there. Talking astir superior deployment, yes, you're right. We've fundamentally successful our guideline committed to astir $200 cardinal -- small complete $400 cardinal successful free rate travel that we would generate. We person a very focused returns-driven superior allocation argumentation and attraction connected driving shareholder value. Given wherever we are from a banal value perspective, it's difficult for M&A to compete pinch connected a returns ground pinch banal buybacks. So I would expect for you to spot much stock repurchase arsenic we spell done nan year.

David Raso

That’s bully to hear. Thank you.

Operator

Our adjacent mobility comes from Andrew Obin from Bank of America.

David Ridley-Lane

Good morning. This is David Ridley-Lane connected for Andrew. Just wondering, what are nan in-year benefits from restructuring that are embedded successful nan 2023 guidance? And also, what are your expected power modulation investments successful nan year?

Anshooman Aga

Yes. So, nan in-year use is nan precocious extremity of nan $40 cardinal to $45 cardinal scope that I talked astir successful nan prepared remarks. We consciousness beautiful comfortable that we're going to present a caller use of $45 cardinal astatine nan precocious extremity of what I antecedently said past quarter. The impacts of nan power transition, I would position them successful nan debased $20 cardinal range, truthful location betwixt $22 cardinal and $25 million.

David Ridley-Lane

And past connected Invenco, nan $7 cardinal to $10 cardinal -- aliases $0.07 to $0.10 accretion was amended than we expected. Are you seeing much opportunities connected nan costs synergy side? Are you seeing stronger demand? Just benignant of update connected what you're seeing astatine Invenco?

Anshooman Aga

Yes. I deliberation nan costs synergies are search to scheme and we consciousness beautiful comfortable astir it. From nan upside perspective, this adds tremendous worth to our portfolio. It's a very strategical acquisition that we did. And some from a payments broadside pinch our existent portfolio, but from nan caller level that we conscionable launched this quarter, we consciousness very excited astir wherever this business is positioned and really it integrates into our wide portfolio.

Mark Morelli

Yes. I'll conscionable jump successful location existent quick. It not only adds to our unit beingness from a much strategical opportunity pinch immoderate of nan ample nationalist players. It besides fills immoderate of our costs gaps -- excuse maine merchandise gaps connected nan costs strategy side. So you've sewage a benignant of twofold use there. Obviously, arsenic we get into owning this for a small bit, we person much assurance successful what we're capable to articulate astir our hypothesis, erstwhile we initially acquired it, but we're incrementally emotion better.

David Ridley-Lane

Perfect. Thank you, very much.

Operator

Our adjacent mobility comes from Joe Ritchie from Goldman Sachs.

Joe Ritchie

Thanks. Good morning, everyone.

Anshooman Aga

Good morning.

Mark Morelli

Good morning, Joe.

Joe Ritchie

Anshooman, successful your prepared comments, you mentioned having much assurance successful nan benignant of preliminary model that you provided past 4th for 2023 and conscionable looking astatine that framework, nan high-end, you tin presume is astir $3. And so, possibly conscionable talk done a small spot astir what's driving that confidence? And are you now talking astir a imaginable model that could beryllium supra $3 for nan year?

Anshooman Aga

I'll instrumentality to our guideline for nan twelvemonth that we already provided from a model perspective. But fto maine talk astir why we're emotion much confident. When you look astatine nan different pieces, 1 EMV has sunset, nan numbers are arsenic we expected. We've moved past EMV. Second, nan guidelines business, nan $250 cardinal arsenic Mark elaborated, we consciousness very comfortable astir it. It's not conscionable soul analysis, it's speaking to our customers, looking astatine our customers' plans, and we consciousness really powerfully astir it.

Our ex-EMV growth, we person a batch of drivers. Our orders successful Q4 proved that nan markets stay healthy. And so, we consciousness comfortable astir that portion of nan framework. Our restructuring is astatine nan precocious end.

Now, what I will opportunity is different from nan model we provided. In that framework, we fundamentally assumed that each our free rate travel would beryllium redeployed successful either indebtedness paydown aliases stock buybacks, arsenic our argumentation is to supply a guideline pinch nan existent stock count based connected stock purchases we already did, that's what we've provided. But arsenic we pointed out, there's different mates of 100 cardinal of free rate travel that we expect to make this year, that we tin redeploy, which would yet lead to higher EPS. So that's why successful my prepared remarks, I said, we're somewhat supra nan model we provided past quarter. Hopefully, that was helpful.

Joe Ritchie

Yes, super. And I conjecture conscionable my 1 follow-on there, and I cognize we've talked astir this nan EMV sunsetting rather a spot already today, and afloat admit that you're assured successful nan $250 cardinal number. But if you return a look astatine nan 4th quarter, location really was only a 1 constituent quality betwixt your halfway maturation and ex-EMV growth, which is for illustration astir $8 million. And truthful I mean it does consciousness for illustration nan $300 million, 10-point number that you person for 2023, I mean it does really look blimpish astatine this point. And so, could you conscionable possibly thief elaborate connected for illustration nan conversations pinch customers and why that number should really uptick a lot, arsenic you advancement done 2023?

Anshooman Aga

Yes. So, a mates of points retired there. First, nan Q4 number did use from nan truth that proviso concatenation conditions eased significantly, lead times came down and we could vessel more. The 2nd portion of nan arena was, erstwhile you really look astatine nan halfway US dispenser marketplace excluding, nan EMV upgrade that remained very healthy. We saw bully bid activity for above-the-ground instrumentality coming successful from a ample nationalist and location customers, arsenic they proceed to walk money connected caller tract builds and refreshes.

We person spoken to ample customers. We've looked astatine their tract scheme build-outs. Keep successful mind, building of caller sites, which is astir 75% 80% of this $250 cardinal number. That rhythm that starts pinch acquisition of land, getting nan permits and past moving done nan construction. So arsenic we talk to our customers, we get visibility into nan plans and that makes america comfortable pinch nan $250 cardinal number for nan year.

Mark Morelli

So, fto maine adhd in, possibly 1 point we haven't said before, arsenic I consciousness for illustration we're trying to get this connection through. One area that besides gives america assurance is, erstwhile you look astatine nan ample and location players successful nan US, we perfectly person mostly stock present already. So this is nan portion of nan market, that is experiencing growth. And it's not for illustration we're having to summation stock here. It's -- we already ain a very, very ample percent of that marketplace already. And truthful I deliberation it's benignant of already successful our wheelhouse.

Joe Ritchie

Perfect. Thanks, guys.

Operator

Our past mobility comes from Steve Tusa from JPMorgan.

Unidentified Analyst

Hi, this is Simeon [ph] connected for Steve Tusa. In position of pricing for adjacent year, really overmuch of nan debased single-digit maturation is carryover price, aliases are location immoderate caller value increases successful expected adjacent year?

Anshooman Aga

There's a blend of both, and we do person value increases for adjacent twelvemonth built in. But support successful mind, nan situation is dynamic. As we enactment focused connected being price/cost positive, if location is incremental inflation, we are going to walk that to nan market.

Unidentified Analyst

Okay. And past what was nan dispersed connected value costs successful nan quarter?

Anshooman Aga

In Q4, we benefited conscionable nether mid-single digits from a value position and we were price/cost positive.

Unidentified Analyst

Okay, sewage it. Thanks – Thank you.

Operator

And it appears we person nary further questions astatine this time. I will now move nan programme backmost complete to Mark, for immoderate closing aliases further remarks.

Mark Morelli

Yes. Thank you, Gretchen. Look earlier we close, I conscionable want to opportunity a mates of comments here. I really want to return this opportunity to convey nan teams crossed Vontier, whose capacity and dedication really let america to proceed to execute and summation momentum successful our business. I'm very assured successful our business exemplary and our expertise to stay agile and execute, by leveraging our civilization of excellence led by VBS.

I deliberation we're making fantabulous progress, successful our execution connected our multiyear maturation strategy is intact and we're positioned to unlock worth for our shareholders for quarters to come. Thank you, for joining america connected today's call. I look guardant to engaging pinch galore of you complete nan adjacent respective weeks, arsenic good arsenic successful our Investor Day successful personification successful New York. Thank you very overmuch and person a awesome day.

Operator

Thank you ladies and gentlemen, this concludes today's conference. You whitethorn now disconnect.

Editor: Naga



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