Well, thanks everyone for being here. It's my pleasure to have up next, Vontier Corporation, Mark Morelli, President and CEO, and Anshooman Aga, SVP and CFO. So maybe just to start off, Mark and Anshooman, you know, talk a little bit about the demand environment. I think you sounded pretty upbeat around the orders that you've seen. Sales are lagging a little bit in common with many companies at this conference. You know, sort of what explains the difference. Do you think that orders growth signifies some broader upswing of customer sentiment?
Yeah. Thank you, Julian. Look, let's just take it by sort of major market segment, if you will. You know, our biggest segment that we serve is in convenience retail. If you look what slowed down the convenience retail market last year around the Q2 time frame, it was more the refresh retrofit portion of that market. Little trepidation headed towards the elections.
The other aspect of the market is new-to-industry or new build. What we've seen transpire through the second half of last year is that new build continues to be really strong. As we look into the outlook for 2025, you know, we just come from an industry conference meeting with some of the largest CEOs in the industry or largest company CEOs in the industry. You know their outlooks, they continue to build out new stores and that format that has been quite successful for them. Strong balance sheets. They don't see any slowing of that. That is full speed ahead. The refresh retrofit market, that did slow. We saw pretty good uptick in the second half of last year. Part of that in the back of six, it gained traction.
So, innovation coming to market and at the same time maybe getting post-election. So, as we look into 2025, we think there's good outlooks for that marketplace as well. There could be some timing issues on orders or adoption of technologies, as always. But a good backdrop when you look at the markets that have been the most sort of slowed one is the repair market, which is our Matco business.
A good backdrop on that market. Repair is pretty healthy. The age of the car park continues to get longer. So you've got 13 years now for the average age of the car park. So that continues to extend. The reason why that's relevant is if you look at the market for repair, it's mostly a vehicle that's five to seven years older till its end of life. So if the end of life keeps getting longer, that repair market size grows. For us, complexity, repair is up, vehicle mileage, travel is up. All that's great for repair. Repair technician wages are up, labor is at full employment. All that's great. So the market should be growing. Why is it not growing is because we sell to service technicians in the United States that's represented by the working class.
I think post elections they feel really good about the election results.
However, they also continue to be impinged by inflation. While the wage rates to inflation spread has certainly gotten there. The problem is that maybe that's not enough to work through the system where we're seeing demand pick up. So they're buying, but they're buying more low price items, more things on productivity. The higher price items such as toolboxes continue to be a bit impinged by that. So we believe there's a great backdrop for repair. However, the pace by which that comes to our business is hard for us to predict. So we're a little cautionary there. The other market that we indicated it slowed last year was DRB. Yeah, that market has stabilized just like the repair market has stabilized, which is great. The backdrop on that is we believe that tunnels, which are the biggest aspect of the car wash market are kind of flattish.
We've got, you know, 60% of our business is recurring revenue. We're launching a new product there, Patheon. We think innovation will have some impact, but at the same time, you know, with interest rates that are, you know, not quite coming down much to stimulate that market, we think that's also flattish for 2025. So those are sort of the major end markets that we touch.
That's helpful. And you know, in terms of sort of phasing through the year, just the last one on the very short term, you know, I think some investors sort of thought, you know, maybe have a bigger second quarter pickup or something. Particularly around Matco and the expo timing, sort of, you know, the caveat would be it's a fairly new company standalone and you've done acquisitions and divestments. So we don't have a great track record to think about. Seasonality of the company.
Yes, we look at the last three years or so. We typically do about 48% of our revenue in the first half and about 46% of our EPS in the first half. Our seasonality for 2025 is in line with that. We said we do about 48%, little above that in the first half and little over 46%. So somewhere between 46% and 47% of EPS in the first half. Matco Expo, which was our largest repair solutions sales event of the year, largest promotional event of the year where we get all our distributors together. That shifted from Q1 to Q2 last year, which was a record expo level year in a pretty strong backdrop worth about $30 million. That's shifting now this year. Obviously the backdrop, as Mark explained, is a little different.
Maybe a little less than $30 million will come in in Q2 and then we have difficult seasonality quarter to quarter. From a bookings perspective things move a bit here and there, but our forecast for the second quarter is pretty strong. If you look at the midpoint of the implied guide for Q2 from an EPS perspective, that would be up 13% versus Q2 of last year. Even though Q2 was a little slow last year. First half our core growth of the midpoint is about 1.5%. The full year midpoint is about 2.2-2.3%. Relatively in line. EPS is growing at about 5% in the first half at the midpoint of our guide versus 6.5% for the full year. Come back. Seasonality, which is pretty typical of us, but I think a pretty responsible look through the year.
Perfect, and you know, when you focus on that repair business, as you said, there's been sort of some mix down maybe because of general high inflation and interest rates. Sort of how comfortable do you feel with your, you know, market share in repair? You know, how's the competitive landscape amidst this sort of softer demand backdrop?
I think we've been doing really good. You know, there's always ebbs and flows quarter to quarter. But if you look at sort of this medium term backlog outlook, we're definitely on a gain share trend.
I think that's also the business model with the brand has really never been stronger, folks. Really, it's a professional brand to a professional market that is, I think, quite valued. It's just this buying dynamic that's sort of afoot at the moment and that, you know, hopefully we'll see clear up here. But it's just once again a little bit hard to call when that happens. But nothing fundamentally happening in a bad way with the business model. We're also offering some great innovations to the market with Milwaukee brand that we've launched that's been well received. We have new product coming to market that's really helping on the productivity side. So quite vibrant in that regard and I think quite well appreciated. A new diagnostics line that came out recently. We think that positions us really well for the future as well.
So I think we feel good about what's happening there. We wish we would see the consumer kind of come back a little more strongly and hopefully that will happen soon.
Got it.
And the main gating factor there, what it's really sort of interest rates, inflation. And your point is maybe in the second half that gets a little bit easier.
You're talking overall business in repair.
Yeah. Specifically.
You're looking at better comps clearly, you know. Q1 you're still dealing with a difficult compare to prior year.
Yeah,
They were still buying a lot of high-priced items in Q1 of last year, which I think was ahead of competition last year because I think a lot of the competition that we read about saw fall off, you know, well before that. But we were still hanging in there. We had the strongest expo last year in February than we've ever had in the business. So we're lapping that compare.
Yeah.
This year.
Got it.
And when we look at Vontier overall, you know, added a bunch of core brands really in recent years, you know, businesses that have become very important in Invenco, DRB and so forth. So maybe just kind of remind us some of the biggest, you know, revenue buckets if you like, for say last 12 months. You know, what are the, the biggest main pieces within the organization sort of brand wise as you're looking at it.
Yeah. If we break the market into different pieces and let's start off with the convenience, retail and fueling market. In the convenience, retail and fueling market, if we look at the fueling part of the business, both above the ground, below the ground, which is from a segment perspective, our environmental and fueling segment, that's about a $1.4 billion segment. Above the ground, which is the dispensers globally is about $650 million. Environmental below the ground is a little north of $300 million. Aftermarket parts, a little above $200 million. Services about $200 million. So that's about, that's the environmental and fueling piece of the business. Also in that segment we have, in that market we have our Invenco business which is part of the mobility tech segment, and that business is north of $525 million.
That's where a lot of the innovation bringing connectivity to our customers is starting to read through. That segment's also growing really fast. The car wash, which is DRB, which was an acquisition that has done relatively well since acquisition, that's little north of $210 million in revenue. Our Teletrac business, about $165 million.
Yeah.
EVolve, which is our EV charging business. Where we have a pure SaaS model, it's the number two provider of EV charging network software management around the world. That's about $20 million and growing very quickly as the number of plugs under management is doubling. Our ANGI business, which gives us another optionality into a multi-energy future, mainly deals with compressed natural gas, but also renewable natural gas. That's about $100 million business. And then Repair Solutions, which is Matco, is about $650 million. So hopefully that gives you a good overview of the different businesses.
You know, when you break it down like that though, Julian, you know, it sounds a bit complicated, but when you step back, we serve three major markets just simplistically. One is the convenience retail market. It's the stop along the highway or your local neighborhood. A pretty, pretty large market.
Yep.
And opportunity. The second market is fleet and fleet operators. So we sell them their refueling options. And also major optionalities not only for high flow diesel, which is, you know, pumping, you know, large quantities of diesel in a short period of time. We're the market leader in that, but we're also the market leader in gaseous dispensing which is a great way to decarbonize going into biogas and hydrogen. So that's a great business and market for us and we have leadership positions in that. And then the third one is repair. With Matco we're number two. So when you look at what Anshooman just spoke about, we're like number one or number two in every business within these markets that we serve.
Yeah. And I think, you know, Invenco is one that stands out because it's, you've had it for a couple of years. I think double digit growth in 2020. It's also won some large contracts with sort of marquee customers. What's the, you know, how do we think about its market share? How do we think about the sort of growth entitlement for you medium term?
So you know, this, the catalyst here has been the acquisition that we did. We combine it with our other businesses. So just to get the accounting straight on that, you know, we did that acquisition, said it would be a 20% return in three years. It's been a 20% return in two years.
And so I think what it really shows is that the industry is really ripe for innovation. You know, we made some organic investments around that that certainly shown up in our R&D. But now what you see happening is the real need that the industry has for this contemporary technology that enables them to manage their assets a lot better. Microservices, edge-based. You know, why would these companies go out there and spend so much capital in this day and age? One, they're looking at very resilient end markets. Two, they don't really have the technology available to be able to manage these assets. A lot of these costs that are being taken out of are borne by their internal IT department that has to stitch together these monolithic systems. And you know, the market is very dynamic.
You know if everything were just static maybe that would work quite well. But you know the industry is consolidating. You're buying other players, you're incorporating other technologies. The markets are changing. They demand more loyalty programs that are out there to try to attract consumers to their site. So they want to contemporize that. They want better media options to bring people inside the store. There's regulatory drivers on payment security. Can you imagine that? Julian? Another payment security technology is coming out. PCI 5.0 is obsolete in 2025 now. It's not the mother of all Y2Ks that we had to live through. But you know these drafts are constantly happening and so how do you manage that infrastructure and in effect gives them a contemporary way to manage that much more cost effective over-the-air updates for them instead of rolling trucks for on-prem updates.
You see that it is a combination of. We don't compete with necessarily one same player everywhere. You know, Franklin is a great competitor. They compete with us underground. Dover is great competitor. We compete with Wayne on most of the above-ground NTI. Great companies. We compete with them, sort of point us out. But there's nobody that competes with us across the board where we can integrate solutions here and provide holistic solutions to our customers. And that's what Invenco represents. And the strong growth profile that we're now beginning to demonstrate.
Got it. That's a business that we could see grow high single digit plus for years then.
That's right. And it grew faster than that in the second half. So yeah, real opportunity there. And the rest of that was not growing, right?
Yeah.
A lot of the growth is also coming from recurring revenue. Very sustainable long term growth.
Yeah. You know, anyone that often surprises people when they first start looking at the company is that R&D to sales is high. I think, you know, it's double the average of the companies at this conference. It's sort of close to 6% or so.
You know, maybe help us understand.
What are some of the main two or three areas that you're, you know, putting the most organic investment into right now?
I think some of these business models that we were just talking about certainly have soaked up some R& D. I do think you're seeing the proof points of that begin to read through also, you know this concept that convenience stores as well as fleet operators are really needing these tools and capabilities. I mean think about what folks are dealing with in convenience stores or in car washes. They face some of the highest labor turnover of anything you can think of. I mean folks in factories, you know, we see turnover in our factories. I mean we, you know, people complain about labor. Yes, that is nothing compared to these industries that are dealing with this. Look at the labor challenges they have.
Look at how much capital is going in the ground and how complicated the mix of things they have to manage. Everything from selling lottery tickets, alcohol, fresh food which is more and more in demand. Dispensing gas, car wash, electric charging, all of this with a very limited amount of labor on site in remote locations around a geography. This is ripe for innovation. I think what we're seeing is.
Innovation that is paying off also. The other thing that is ripe for innovation is optionality on fueling.
It's decarbonizing.
It's happening in a very strong return way. Let's talk about sunsetting or vapor recovery. We work with California Air Resources Board.
Automatic tank gauge which has the best vapor recovery. You know this is not political football. It's, you know, if you can make that a more sustainable infrastructure, people all for that. If you can.
Advance the state of this not only in developed countries but in developing markets.
Infrastructure and developing markets can happen a more sustainable way. All this is taking R&D resources but excellent returns are associated with that infrastructure. Then electric charging has been taking certainly some of our resources there. Strong business model. We're going to exit 2026 with.
It's number two worldwide on plugs under management. Take a market like the U.K. We have 30% share of EV charging in the U.K. Tesla, for example, has 11% share. Strong growth market. U.K. is fully behind electrification. We built a strong leadership position. We'll exit 2026 with a $50 million run rate business now making money. When you think about it, the margins on this business are outstanding. It's asset light so it's not capital intensive. You're building a business model that is quite resilient for long term.
Got it. You know when you first spun out, you know, close to five years ago, a lot of focus on the traditional fueling business, particularly above ground. You know, we've seen the sort of hype wave for electric vehicle kind of ebb and flow. Where you sit now, what do you think the growth entitlement is for that traditional GVR business, call it?
We have said it is loaded to mid single digit. You know, we invested also in the underground business. Yeah, the environmental business. We have offered real innovations there that we think are gaining quite a bit of share. We are also investing.
On the global scale. It's not only within the United States. There's a lot of growth. You have 350,000 underground locations around the world and that represents strong growth and a lot of aftermarket. When you combine all of that above ground, below ground, and then we gain share during the EMV cycle and you see a strong aftermarket business, you see those product lines coming out of warranty now. That's leading to this really strong aftermarket growth. I think low single digit to mid single digit, great profitability. There's real resilience in this global footprint. We announced some great orders in India in above ground and also below ground. This is an infrastructure that's going to be built out here for a long time. I think we're really happy with the way that business model has shaped since spin and the investments that we've made there are really paying off.
You have these, you know, if we sort of tie it together, you've got these financial targets for 2026 around, you know, that mid single digit revenue CAGR, 150 basis points of operating margin expansion, sort of, you know, as you sit today. Still, you know, 18 months to go, call it, you know, how comfortable do you feel with those two financial targets?
Let's start off with the operating profit margin targets and then I'll touch on revenue. I think on the operating profit margin we still see the 150 basis points of margin expansion as viable pillar. One of our strategic framework, what we call optimize the core, is all about our focus on prioritization process and product line simplification. For example, we've significantly reduced the number of dispensers from 32 to 15. We've increased the number of standardized components. We're about halfway there in our journey. There is more margin expansion out there. Similarly, on the Invenco side we had 34 different global platforms, software platforms. We're down to 18 and we're going to reduce that to two handfuls.
You know, in our environmental and fueling business in 2024 we expanded margins 110 basis points. Now we're going to see a lot of that benefit in Invenco and mobility technologies in 2025 coming through. There is a lot of runway out there. We're continuing to work on some simplification of our organization with more shared services across Vontier and really the one Vontier concept. We feel there's significant potential for margin expansion and we still think the 150 basis points is viable from a revenue perspective. If you look at most of our businesses, they're on track or ahead of their long term framework that we put out with the two exceptions of b eing the car wash business and the repair solutions business, you know, the underlying fundamentals as Mark talked about, remain extremely strong and it is just about when do we see that inflection up in the business?
It is a little bit hard to call given the macro is still changing and moving, but we feel confident that that business will return to the mid single digit growth over time that we had called out. Also, the car wash business, which is now 60% recurring, the recurring revenue is growing. The new tunnel build in 2025 is flat to slightly down. I think as the macro improves, the interest rates come down, the construction costs are stabilized.
There's still good, it's still a good business model and the demand for new car washes still exists out there and we're seeing the good operators in the space continuing to build out. I think that business again moves to the mid single digit growth rate especially with our Patheon solution which is a cloud based solution out there. We still think next year we can get into the target range from a growth perspective in 2026. This year obviously we've got it to below. Over the three years the 150 basis point margin expansion target we still think is viable.
Perfect. And then maybe lastly before the audience response survey questions, capital deployment, you know, decent buyback last year the multiple is very low. But you're in this sort of interesting ecosystem around the gas station forecourt if you like, including car wash and then repair and C- store. So you know there's a lot you could buy I think around that. But is it just the multiple is so low?
Yeah, we continue to work the pipeline and we, you know, had a number of LOIs out last year that did not transact. Yeah, you know, we have a dynamic capital allocation model and with the multiple as low as it is, it has been hard to compete with buybacks.
Yeah.
You know we've done pretty well on the returns on those buybacks and right now we do view that bolt ons will be attractive. Like Invenco was a great one.
Yes.
We are constantly hunting for the right, the right kind of bolt- ons to do.
Perfect. With that we'll switch to audience response survey. The first question, do you currently own the stock? Very big opportunity there I think in this room. Secondly, what's a sort of general bias? Positive, negative, neutral. Fairly even positive and neutral. Thirdly is around sort of through cycle earnings growth expected for Vontier versus the kind of multi industry average. Sort of in line to below. Next question is around what should the company do with excess cash? Mostly bolt-on M&A is the preferred one. Next question is around, I think, valuation. You know, what near-term PE multiple should Vontier trade at s ort of a maybe 3 turn discount to the S& P. Next one is what's the most significant sort of headwind facing the stock? You know, why do people think it should trade at a discount to the market? Call growth the main one.
Grateful with that.
Thanks so much Mark and Anshooman.
Thank you.
Thank you, Julian.