My name is Brittany, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to the Vontier Corporation's Third Quarter 2022 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask, press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the star two keys. I would now like to turn the call over to Ryan Edelman, Vice President of Investor Relations. Mr. Edelman, you may begin your conference.
Morning, everyone, and thank you for joining us on the call this morning to discuss our third 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. During today's call, we will present certain non-GAAP financial measures. Information relating to these non-GAAP financial measures is available on the Investors section of our website at vontier.com. Please note that unless otherwise noted, the presented financial measures reflect year-over-year increases or decreases. These 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 a number of risks and uncertainties, and actual results might differ materially from any forward-looking statements that we make today.
Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our SEC filings and subsequent quarterly report on Form 10-Q. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements. With that, I'd like to turn the call over to Mark.
Thanks, Ryan. Good morning, everyone, and welcome to our third quarter earnings call. I'd like to formally welcome our new CFO, Anshooman, to his first earnings call with Vontier. I know many of you have had the chance to catch up with him already. He's been in the seat now for about 60 days, and he's already having a positive impact on the org and the board. As we mark the two-year anniversary of our separation, I'd like to highlight the progress we've made and give a view of our path forward. First, I'd like to highlight the challenging third quarter where we missed revenues but delivered bottom-line results. Also, we're lowering our full year guidance driven by an acceleration of the EMV roll-off, which we believe is prudent given the weakening macro environment. We continue to actively shape our post EMV business.
After Anshooman walks you through the financials, I'll leave you with a strategic framework that we will build upon in our future engagements. You will see that we have significant momentum and reasons to be optimistic. Let's get into the details of the quarter with a summary of our results. We delivered adjusted EPS of $0.86 per share, up 8% versus the prior year in spite of a revenue miss. Adjusted operating margin expanded 40 basis points year-over-year, reflecting strong operating leverage and positive price cost, as well as the benefit from ongoing cost actions. Core revenue declined 2% in the quarter. At the end of August, one of our key suppliers of the printed circuit boards used in all of our U.S. fueling dispensers experienced a cyber attack, which shut down their production for three weeks late in the quarter.
This event was beyond the scope of the disruptions in already stressed supply chains. Our teams responded actively to replan our operations into the final days and hours of the quarter, but the timing of the disruption limited our ability to fully recover at the end of September. The supplier has resumed normal production, and we do not anticipate this supply disruption to impact our Q4. Broader supply chain conditions continue to stabilize with modest sequential improvement in some components and logistics. I'm incredibly proud of our team's performance in mitigating this anomaly. EMV core revenues grew low single digits% with solid performance in our fueling aftermarket and service business and sequential improvements at Matco. However, we also experienced pockets of softer demand related to slower capital spend from independent fueling operators and larger customer project delays in our environmental business due to extended industry lead times on underground equipment.
We continue to see momentum from strong price realization consistent with the trends we've seen year to date. Our backlogs remain healthy and our lead times are beginning to normalize. That said, while non-EMV growth did not meet our expectations in Q3, we are confident that non-EMV core growth will return to the mid-single digit range for Q4 and the full year. Anshooman will walk you through the details of our updated guidance as we are revising our full year outlook to reflect our more cautious assumptions for EMV adoption. As the macro backdrop is weakening, disproportionately impacting small fueling operators in the U.S., we felt it prudent to proactively refresh our modeling assumptions. The net result, 2022 will now be roughly $100 million, and the 2023 headwind will be closer to the low end of our prior range or about $300 million.
There is no change in the peak to trough decline, which would put us at a base business in U.S. dispensers of approximately $250 million. Given increased clarity on the timing of the EMV wind down, we're accelerating cost actions already in flight. We're also implementing a new set of actions with the intent of right-sizing the fixed cost structure and ensuring the appropriate allocation of resources. A benefit of this earlier than expected decline is that the EMV chapter will soon be behind us. U.S. EMV has been a great upcycle for us. Bringing it to a close enhances our focus on profitable growth initiatives, structural cost improvements, and effectively deploying capital. We're committed to returning capital to shareholders through a balanced plan over the long term. However, at current valuation levels, share repurchase is unquestionably our top priority.
Year- to- date, we've completed nearly $300 million in buybacks and have just shy of half a billion dollars remaining under our existing share repurchase authorization. As supply chains continue to stabilize, the working capital headwinds we've experienced year to date should improve, and free cash flow conversion will begin to normalize beginning next year. Over the next three years, Vontier will generate roughly $1.5 billion in cash, providing us with significant strategic and financial flexibility. Before I turn things over to Anshooman, I'd like to take a moment to begin to set the foundation for the next phase in the journey of Vontier. We're now two years post-separation, and I couldn't be prouder of what we have accomplished or more excited about the path forward.
Over these past two years, we focused a lot of our attention capitalizing on the inherent opportunities within our legacy operating companies and initiating a strategy-led portfolio transformation designed to enhance profitable growth through delivering smart, sustainable solutions with a tighter focus on the mobility ecosystem. Since well before the spin, we've been capitalizing on an accelerated replacement cycle in our U.S. fueling dispenser business, driven by required EMV upgrades. Having gained considerable share, we've expanded our U.S. installed base to nearly 450,000 units across more than 90,000 fueling sites and strengthened our relationship with key customers. This provides a long tail of opportunity for aftermarket parts and service, as well as upgrade and replacement equipment.
As we've been preparing for this tail end of the curve for the past two years, we proactively launched a new set of initiatives aimed at accelerating top line growth and profitability. We call these our profitable growth initiatives and platform strategies, which are ultimately aimed at maximizing shareholder returns. Through the end of this year, our profitable growth initiatives will have largely been responsible for driving non-EMV core growth from low single-digit decline pre-spin to positive low double digits and 130 basis points of operating margin expansion in spite of significant EMV headwinds. We've also grown earnings 23% post-spin. We more deeply deployed the Vontier business system, introducing a program we refer to internally as the focus and prioritization process across the organization. That's enabling us to determine where best to focus for growth and where we should trim costs.
An early focus was strategic pricing, giving us a head start on addressing inflation and helping us to stay in front of price cost curve. We recognized product line simplification as an opportunity and put in place a program to significantly reduce the number of fuel dispensers globally from 32. So far this year, we've rationalized 10 dispenser lines. We will have also achieved more than $25 million in cost savings through restructuring and other actions. On the top line growth side, by more efficiently leveraging our engineering investment, we've been able to accelerate innovation in our environmental business, Veeder-Root, resulting in a two-year revenue CAGR of more than 10% through the end of 2022.
We established a local sales and manufacturing presence in certain high-growth markets and are better positioned with better product to benefit from increased regulation and investment in cost-effective petroleum-based infrastructure in the coming decade. We created a designated team to drive aftermarket within GVR to capitalize on our growing installed base of fueling equipment in the U.S., resulting in revenue growth in the third quarter of 38%. We've also made progress on turning around the Teletrac Navman business, which is now returning to growth and expanding operating margins, and increased product vitality at Matco, which announced a new strategic supplier relationship with Milwaukee Tool in September that will contribute several points of growth next year. Initiatives demonstrate success in the initial phase of our portfolio transformation, which includes both organic and inorganic actions to better position Vontier to compete in attractive growth markets that are not ICE dependent.
The acquisition of DRB, which closed a year ago, September, has surpassed our original expectations, growing their top line by over 30% and expanding operating margins by over 400 basis points. DRB's industry-leading technology enhances our capabilities in deeply embedded point-of-sale systems, including productivity software and payment facilitation. The Driivz acquisition earlier this year brings us best-in-class EV charging network software with tens of thousands of plugs under management and continues to gain traction with customers that have significant potential to scale. We believe we have a premier asset to capitalize on the build-out of the EV charging infrastructure globally with hardware-agnostic solutions. We're also making organic investments in other alternative fuel solutions in support of our vision for a multi-fuel future for the car park.
Our ANGI Energy business is a leading supplier of compressed natural gas dispensing technology with nearly $75 million in projected revenue this year, up about 40% from prior year levels, and expected to remain a strong contributor in the next year. In addition to being a strong business in its own right, ANGI also provides us the domain expertise and channel presence to hydrogen fuel infrastructures. In Q3, we received our first commercial orders for our hydrogen dispensers, which we'll expect to begin shipping next year. With respect to capital allocation between acquisitions and share repurchase, we've deployed roughly $1.5 billion in capital, and we are on pace to generate continue building our track record around capital deployment. We will remain disciplined on our fundamentals, focusing on returns while we do have an attractive pipeline of both on M&A opportunities and deleveraging the balance sheet.
Our strategy is on track. I'm very proud of the progress we've been able to demonstrate on accelerating top-line growth and improving profitability in our journey, and we have unique competitive advantages to lead in many market segments across the mobility ecosystem. With that, I'd like to turn the call over to Anshooman to provide the[inaudible]
Thanks, Mark. I'll get started with a summary of our performance in the quarter. Adjusted net earnings for the third quarter were $136 million [for the period]. This translated to adjusted net earnings per share of $0.86, an 8% increase over the prior year. Reported revenue grew 2.5%, driven by strong growth at DRB and partially offset by a 3% headwind from FX, with the core revenue declining 1.9%. Our non-EMV core growth was up low single digits. Revenue was impacted by the anomalous cyber event we discussed earlier, some softness in demand from small independent fueling operators that impacted both EMV and non-EMV, and environmental customers delaying projects in the quarter as industry lead times for underground fueling equipment extended.
Non-EMV core growth was led by mid-single-digit growth at GVR, with strength in aftermarket and our CNG business, and Matco, which grew nearly mid-single digits in the quarter. DRB was acquired in Q3 of the prior year, so will not be included in core growth until Q4, but continued to outperform revenue, up 30% in the quarter. Adjusted operating profit for the third quarter was $196 million, an increase of 4% year-over-year. Adjusted gross margin expansion of 40 basis points reflected continued effective price-cost management and the benefits of DRB and other higher-margin solutions. These favorable items helped offset continued production inefficiencies from another back-end loaded quarter driven by timing of supply. The increase in operating profit and strong execution drove incremental margin of nearly 40% and 20 basis points of adjusted core operating margin expansion.
This includes the dilutive impact of our early-stage energy transition investments, which impacted EPS by $0.02 and operating profit by $3 million-$4 million. Looking at the top-line performance of our two platforms: Mobility Technologies core revenue declined 3% driven by the factors I mentioned earlier. Sales in our aftermarket parts business were up more than 30%, and our CNG business grew low double digits. Total growth in Mobility Technologies was 2.5% as DRB continues to benefit from strong end market demand for car wash technology upgrades. In our Diagnostics & Repair Technologies platform, core revenue grew 1.5% in the quarter, with Matco growth of 3%, partially offset by a decline at Hennessy. We saw sequential improvements at Matco, including the improvement in net franchisee adds and solid growth in our same-store sales.
During the quarter, we began an important strategic supply relationship with Milwaukee Tool that will enable our franchisees to carry Milwaukee Tool's leading cordless tools, strengthening our offering in a key product category. This will be an important growth driver for Matco in the upcoming quarters. End market fundamentals remain very healthy with repair activity, service technicians, and technician wages strong. As we are seeing supply chain for Matco recover and we continue to add new SKUs to our mobile stores, net franchisee adds are turning positive with the help of company-owned stores. We believe we are well positioned within this market. Adjusted free cash flow conversion in the quarter was 64%, up sequentially but below normal seasonality, as we experienced another quarter that was significantly back-end loaded. Unfavorable linearity created by ongoing supply chain disruptions and the isolated supplier impact in Q3 has pressured working capital year-to-date.
While free cash flow conversion will improve materially in Q4, we are now expecting our full-year conversion to be approximately 70%-80%. Moving on to the balance sheet. We ended the quarter with a cash balance of about $120 million and had $50 million of borrowings under our $750 million credit facility. Our net leverage was 3.3x adjusted EBITDA, consistent with the first half and temporarily elevated due to the timing of free cash flow generation. We maintain our commitment to investment-grade credit ratings and still expect our leverage will end the year at 3x, with our targeted range unchanged at 2.5-3x net. To further enhance our liquidity profile, we executed a three-year $600 million term loan, which replaces and extends our September 2023 maturity to as late as December 2025.
Our nearest debt maturity is now our $400 million term loan maturing in October 2024. In Q2, we refreshed our repurchase authorization back up to $500 million and have deployed $31 million against that. Our year-to-date share repurchase stands at $288 million. Once closed, we would expect to deploy proceeds from our previously announced divestitures to gross debt pay down and share repurchases. Turning to the outlook assumptions. We're initiating Q4 guidance for adjusted EPS of $0.73-$0.78, which assumes low single-digit core growth or mid-single digits excluding the impact of EMV. We expect adjusted core operating margins to be flat to down 40 basis points, but in line with the full year average. As a reminder, we will have a full quarter of acquisition contribution from Invenco.
We are assuming an FX headwind similar to what we saw in the third quarter. For the full year, this translates to adjusted EPS guidance of $3-$3.05, which compares to our prior guide of $3.20-$3.30. We are now assuming core growth to be roughly flat for the full year and up mid-single digits, excluding the impact of EMV. Taking a closer look at some of our other assumptions. We expect full year 2022 weighted average share count to be approximately 161 million, which reflects the impact of the share repurchase activity conducted to date in 2022. Interest expense is anticipated to be $70 million, reflecting an increase in interest on the variable portion of our debt.
Our guide also reflects modestly higher FX headwinds, which is roughly a $0.03-$0.04 dilutive impact relative to our last update, including the headwind in Q3. Let's turn to slide nine for a quick visual on our updated assumptions for the EMV impact on our U.S. dispenser business. As Mark mentioned, we are taking a more cautious outlook, and we are proactively refreshing our modeling assumptions for EMV conversions to assume lower adoption rates. As part of this process, we continued extensive voice of customer and channel checks. From the peak of $740 million in U.S. dispenser revenues, we have communicated our expectations of a $450-$500 million peak-to-trough decline to a base business in the $250 million range. Ultimately, that expectation has not changed.
What has changed is the pace of the drawdown in revenue, which accelerated by roughly one quarter versus our prior assumption. Given the changes we've discussed, we now anticipate EMV revenues to decline a little over $100 million year-over-year and materially an end to EMV upgrade activity. This reflects $50 million worth of headwind accelerating into 2022. In 2023, we are now calling for a decline of about $300 million compared to our prior range of $300-$350 million. It is important to note that we are getting visibility into core U.S. fueling dispenser demand for 2023, which is reflective of the convenience store national accounts new site builds resulting from ongoing industry consolidation and the next wave of refresh and product upgrade activity, which will also drive growth in the years to follow.
Through the U.S. EMV replacement cycle, we have taken share over the last several years in our dispenser business and built a formidable installed base. We are well positioned for future upgrade activity, aftermarket parts and service, and replacement equipment. Moving to slide 10. As we have provided a post-EMV framework for 2023 on previous calls, given the changing macro environment, we feel it's prudent to provide a preliminary update. Starting on the left-hand side of the bridge of this framework, we normalize our updated guides for 2022 by removing the estimated earnings for Hennessy and GTT from the base. Given the current interest rate environment and allowing for additional increases to the federal funds rate to 5% next year, we currently estimate interest expense being roughly a $0.20 headwind year over year.
As mentioned earlier, the headwind from EMV is now at the low end of the prior range. As Mark referenced, we're accelerating and increasing actions to rightsize the cost base in response to the wind down of EMV. Additionally, at this stage, we're anticipating non-EMV core growth to be mid-single digits, driven by our profitable growth initiatives and platform strategies, which compares to high single digits growth previously expected. We would expect free cash flow to improve as supply chain conditions ease and demand patterns become more predictable, which will allow us to work down inventory levels and alleviate pressure on working capital. From a capital deployment standpoint, we will carry over the impact of shares already purchased. Future capital deployment and share repurchases and debt pay down from our strong cash generation and proceeds from the sale of Hennessy and GTT.
As we continue to work through our assumptions over the next few months, we will come back to you with our formal guide on the Q4 call in February. With that, I will turn it back to Mark.
Thanks, Anshooman. On slide 11, I wanna give you a bit of a preview of the future of Vontier. We serve a diverse and growing set of mobility ecosystem customers such as car wash operators, convenience store retailers, auto repair shops, fleet operators, and EV charging operators. These customers look to us to solve their most pressing challenges, labor and skill shortages, increasing car park complexity, increasing regulations, increasing focus on sustainability and ESG, and consumer demands for personalization and a frictionless experience. Our strategy is underpinned by these secular drivers and positions us to win in a $28 billion market growing at an attractive mid-single digit CAGR. Vontier's smart, sustainable solution strategy is focused on moving up the technology stack to solve high-value customer problems, drive profitable growth, transform the portfolio, and generate top-tier shareholder returns. The strategy has three pillars.
First, optimize the core is a set of self-help initiatives where we are demonstrating significant momentum and have a long runway of opportunities ahead. Next, expand and diversify leverages our significant installed base to grow where we have a legitimate right to win. GVR is an excellent example of this. Finally, accelerate growth by moving into adjacent markets increases our growth profile and further reduces our ICE exposure. Examples of this include our organic investments in hydrogen dispensing solutions and our Driivz EV charging and smart energy management platform, which was selected by Shell this quarter to build out new charging locations in more than 10 European countries. Our team is galvanized around our smart, sustainable solution strategy and our purpose of mobilizing the future to create a better world.
We're excited about the road ahead as we harness the resiliency and strategic optionality inherent in our businesses to build a better, stronger and growthier portfolio. We look forward to sharing additional perspectives and details during our future engagements and our 2023 Investor Day. With that, operator, we're ready to open the line for questions.
At this time, if you would like to ask a question, please press the star and one on your touchtone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one if you would like to ask a question, and we will take our first question from Andrew Obin with Bank of America.
Good morning. This is David Ridley-Lane standing in for Andrew. Could you maybe just bridge the change in the 2022 guidance? I know there's $50 million of lower EMV revenue, but are there some other items as well? You know, as a follow-up to that, is there a possibility of getting catch-up revenue here in the fourth quarter from the printed circuit board supplier disruptions?
I'll start off the answer, and I'll turn it over to Anshooman. Essentially the main major change in what we're trying to provide, by the way, we're trying to add better transparency into 2023, even though we don't consider it a guidance. Essentially what we're doing is we're sunsetting EMV earlier, so we're pulling forward that $50 million of impact into this year, which next year our peak- to- trough will essentially be the same within our range, you know, of what we provided for a little bit on the higher end of that range.
you know, the carryover impact into Q4 of that, the supplier issue that we mentioned in our prepared remarks are essentially being absorbed in sort of this EMV, you know, in pull in into Q4. Do you wanna comment on that, Anshooman?
Yeah. When you think of Q4 guide, really the few impacts, the EMV, obviously the $50 million pull in that Mark mentioned. We also have FX impacting us guide-to-guide, which is $15 million for the second half from a revenue perspective, about $0.04 from an EPS perspective. Interest up a little bit, and then just a little bit of other revenue which impacts us a couple of cents from an EPS perspective.
Understood. You know, wanted to check in on the Invenco acquisition. You know, what have you learned, I guess, in the kind of first month of ownership here? Any thoughts on EPS accretion for 2023 versus you're giving more color on that?
Yeah. I'll make a comment on the Invenco acquisition. I'll let Anshooman also jump in on that too. Look, we're pretty pleased with what we have. We know that this gives us two aspects, one of which is it enables us to advance our software initiative with what are called microservices. It's a modular-based approach that is got tremendous interest with some of our larger customers, which we think will win over the longer run. This module-based approach gives them the flexibility of choice. At the same time, there is a significant cost out element here because we can essentially collapse the costs on our payment hardware and software, and we can also advance and fill some of our gaps, particularly for high growth markets to offer a better offering.
We can leverage our existing channel to sell these offerings better. A lot of synergies with this deal. I think it's really a classic bolt-on that we're very excited about integrating. Anshooman, you wanna jump in here on the impact?
Yeah. As you remember, when we did this acquisition, we had talked about $0.05-$0.07 for next year. We actually feel more comfortable now given everything we've learned post-ownership, and we think the number is closer to $0.07-$0.10 for next year. If you look at the framework for 2023 that we've provided, those results are split between the restructuring savings, which is the synergy, and then the growth, where we also see good potential with Invenco as part of our portfolio next year. We feel very good about the acquisition, and it was capital well deployed.
Thank you very much.
We'll take our next question from Julian Mitchell with Barclays.
Cash flow conversion. See that's now guided at 70%-80% of adjusted net income. Could you help us better understand the path to normalization here?
Yeah, sorry about that. Could you repeat the question near the beginning? The sentence was cut off.
Sorry about that. Yeah. For cash flow conversion is now guided at 70%-80% of adjusted net income. Could you just help us better understand the path to normalization here?
Yeah. There's a couple of dynamics that impacted our cash flow. The first dynamic is the linearity of our sales. If you really think GVR, what that means is roughly half our sales for the third quarter for GVR came in the month of September. And even in September, little bit back-end weighted. That pushes a lot of the receivables working capital build up towards the receivables. Our real focus for the fourth quarter is to drive that linearity managed week by week, 13 weeks out, and we're starting to see progress, which helps with the cash conversion in the fourth quarter. The other aspect of uses of working capital has been the inventory levels are elevated, and part of that is because of the supply chain disruptions that we had. It leads to having higher safety stock, for example, on some of our hydraulics.
Our safety stock pre-pandemic used to be 45 days. We're up to 90 days. We are starting to work a lot of the safety stocks back down, and we have concrete actions to bring down our inventory levels. You'll see some of that start translating into Q4. Really, when you start thinking of our business, the thought has not changed. We're still a roughly 100% cash conversion business, and we see a lot of this converting back to more normal times by next year.
Okay. Thank you. That's very helpful. Just my follow-up. Can you help us better understand some of the additional cost actions needed to potentially reach the $0.20 restructuring savings tailwind for 2023 shown in slide 10? It's not like the restructuring spend guide for 2022 is unchanged at $0.11. Does that need to step up here in 2023?
Yeah. Let me give some color on this. We have a really strong set of activities that have been enabled by this self-help program and this focus and prioritization process that we've been working on really for some time. I've discussed the product line simplification, which is a great enabler of this. One great example is the dispenser line. There are other activities that have been underway, and this is not new for us. You know, we've been knowing this EMV was gonna roll off, and we've been setting these up. Now it's coming up a quarter earlier, so there are sets of actions here that we're looking to accelerate. Anshooman, you can certainly jump in here with some additional color.
You know, we've got a lot of momentum behind the cost out, and it's enabled through a lot of sort of fundamental things that we're rethinking and doing differently in the business to pull those costs out.
Yeah. I'll just add, when you really think of the cost out program, think of $50 million-$55 million starting in this fiscal year. Obviously, we've been doing stuff prior to this year also. Of that, about $10 million in-year benefit for 2022, just under $10 million. Then jumping to 2023, roughly $40 million of benefit and then the remaining tailwind coming into 2024. Really our focus is about
Right sizing our cost to reflect the realities of EMV. All of this had been in place. We just accelerated it and then enhanced it a little bit.
Great. Thank you guys for the detail.
We will take our next question from Pat Baumann with JP Morgan.
Hi, good morning. Thanks for taking my questions. Maybe just focusing on slide nine. Thanks for the color and depiction here. Just wanted to follow up on the baseline, the $250 number. Just curious if you can give color on, you know, if this is an accelerated replacement cycle, why is, you know, $250 the right run rate for the U.S. in 2023? Is there a potential that it could be lower than that for a period of time since you were kinda well above the baseline for, you know, a long period of time? Curious, any color on that?
Look, I think that this baseline business is something that we're getting visibility into now. One of the things that gives us encouragement on this is the national accounts business in the U.S., which we have a very strong position on. They're continuing to consolidate in the industry, and they're also making investments to continue to build out this infrastructure. There's no question that this super cycle we've just been through with EMV has accelerated the replacements, and that's already in this re-baseline number for $250. Prior to the EMV, you know, big upcycle, which has been great for us over the last couple years, there was that business there. This $250 number is sort of down from what it was prior to EMV already.
It's sort of estimating it, and it will grow from that $250 base because we believe that there will be continued regulatory cycles here that will continue to drive growth in that industry. We feel really good about that $250 baseline number.
Got it. What was the pre-COVID, the pre-EMV base? Sorry, was it 300? Was it more than that? Just curious.
Oh, it's about 300. You know, keep in mind that was, you know, many years ago because this has been a pretty significant upcycle. It's, yeah, about 300 number.
We'll take our next question from Andrew Buscaglia with Berenberg. Your line is now open.
Hey, good morning, guys.
Morning.
You know, just piggybacking on that question, you guys have talked about, you know, just trying to understand why things would grow after, you know, once you reach that $250 million level. I guess there's like a steady repair and replacement story there. But as you now might have a little bit more visibility in 2023, what are some of those regulatory drivers which you are looking out for? I know I do think one was around emissions, but do we have more concrete understanding of like when those will hit or when those will start to come into play?
Yeah. There's no question that there's evidence that, you know, these national accounts are continuing to build out. I think you can certainly see this in your local infrastructure, where people are making investments to make these more attractive. You know, the issue, what's happening with these small network operators is they're not really able to keep pace on some of the investments for new sites. The consolidation is the major part of it. When they're doing the consolidation, they definitely wanna upgrade. That's definitely in the near term that we're seeing into 2023. More attractive, and also the dispensers that we're that we're launching are certainly more attractive, more convenient, and incorporate all of the security features that you would expect in there.
Longer term, these regulatory cycles will continue. I'll just give you an example about a regulatory cycle that is happening right now in Canada. You know, that regulatory cycle is driving more demand based on payment security. You know, these regulatory cycles don't end. We'll certainly see more to come in the U.S. as we're seeing them roll through. Of course, you're seeing some in high growth markets based on emissions. You know, vapor recovery is a big one in high growth markets. There's a strong regulatory cycle there. These have always been there. They kind of ebb and flow by certain markets. Mexico is an excellent example that played through about a year ago.
They come up, they kind of provide a wave, and then, you know, we ride that wave based on our strong installed base and our ability to have a leading position here to capitalize on that. Those regulatory drivers have driven this business for a long period of time and will continue to drive this business going forward.
Yeah. Okay. You know, just kinda like a high level sort of strategic question. You know, with your valuation continuing to decline, you're sort of in a conundrum with M&A in that your multiple can, you know, is less likely to be used as sort of currency to make some bigger deals, or find accretion on those deals. Why not just be fully deploying to share repurchase at this point?
I'll go ahead, and Anshooman, you can jump in. I think we said in our prepared remarks that's certainly our posture right now.
Yeah. You know, our capital allocation is based on driving returns.
With the dislocation in our valuation, M&A is going to be hard to compete with buybacks. Just buybacks provide a strong double-digit return. As we said in our prepared remarks, buybacks are our priority right now while maintaining a healthy balance sheet.
Yeah. Okay. All right. Thank you.
We'll take our next question from Guy Hardwick with Credit Suisse. Your line is open.
Hello. Good morning.
Good morning.
Anshooman, I think you said in your preamble to the 2023 framework that expecting non-EMV core revenue growth of mid-single digits in 2023 versus the previous expectation of high single digits. Can you give us a little background to that? Because, in 2023, you'll have Invenco in there as well. Is that telling you something your channel checks are telling you that it's gonna be a fairly muted independent gas station CapEx outlook, excluding EMV?
Yeah. If you go back to our prepared remarks, one of the key things is we're being cautious given that the small independent fueling network operators are being impacted by the macroeconomic environment. Having said that, you know, we have very strong areas of growth. GVR should be growing double digits. Matco with the Milwaukee launch with our net franchisee adds the aftermarkets business. ANGI is already selling into half two of next year. Teletrac, we've had a great turnaround story out there as their ARR has been really strong, and that's going to start translating to growth. Ex EMV, we feel comfortable talking about mid-single digit growth next year, even in a potentially muted environment that's impacting the small independent retailers.
Okay. Just a follow-up. Can you just talk us through the timing of working down the inventory and what potential margin impact that could have on gross margins?
Well, the inventory we're managing that down, expected to be managed down over the next two, three quarters. We should not have a negative impact to margins because of managing inventory. We're managing it in a gradual manner. We still have very strong demand out of our factories, and we can redeploy production to areas of high demand and bring down inventory levels at the same time. Also, if you remember our cost out program is going to help protect our margins, so bringing down inventory will not be margin dilutive to us.
Thank you.
Once again, that is star and one if you would like to ask a question. We'll take our next question from Rob Mason with Baird. Your line is open.
Hi. Yes, good morning. I wanted to see if you could just update us on what you're seeing from your high growth markets and what kind of contribution from a growth standpoint or even detraction, just what you're expecting for the fourth quarter and how that may play into the 2023 growth component as well.
Look, our high growth markets have positioned us, you know, really well for growth. I think, I would say, more in the medium term. It has been ebbing and flowing quite a bit. When you look at what our outlook has been, it's not as strong coming into Q4 because of some of the push outs and orders that we have predominantly in India. You know, China is not a big market for us. It's a very small business at this point. You know, we have a bit of a muted impact on that into this year. As we go into next year, you know, I'll turn it over to Anshooman here a bit in terms of what we have in our model.
You know, it is something we feel very good about because it will pay off, like I said, over the more the medium term. At the same time, you know, I think this year we're certainly in a little bit of an ebb period at the moment. Do you wanna comment on 2023?
Yeah. Just to build on to what Mark said, it has been lumpy. A simple example is in Q2, India had very significant growth year-over-year, and then Q3 was slightly down. When you start averaging these things out, they are very attractive markets for us. For 2023, we expect some growth in the high growth markets for us next year.
I see. There was mention as well, I think earlier around just environmental, some projects getting pushed out. When do you have line of sight on when that project activity may resume? You know, is there a seasonal aspect that we need to get on the other side of as well if they get pushed too far over the next couple of quarters? I'm just curious what your visibility is there.
Yeah, you know, first of all, this is a great business for us. I think we've done outstanding with new product launches in the recent past. I think we've got just an outstanding position there and a very profitable business. This underground equipment supply issue is no question impacting this. You know, it's definitely a push, we think more into next year. You know, supply chains are getting better kind of across the board. They're getting better. You know, I think we're providing you the visibility we have in our guide.
I'll just add, this is not our equipment that's delayed. It's the projects are delayed because of tanks, pipes that the customers have to buy, and it's really driven by the resin shortage that's going on in the economy. As that resin shortage gets better, the tank, pipes, lead time will come in, which will help us ultimately.
Yep. Yep. Understood. Okay. Thank you.
It appears we have no further questions on the line at this time. I will turn the program back over to Mark Morelli for any additional or closing remarks.
Yeah. Thank you, Brittany. Look, thanks for joining us on today's call. I'm really encouraged by this track record that we're establishing in our business. I think we're making significant progress on our multi-year transformation, and our work is resulting in a stronger, more growth-oriented profile. Thank you all for joining, and have a good day.
This does conclude today's program. Thank you for your participation. You may disconnect at any time.