Great. Well, next up, it's my pleasure to have Vontier Corporation, Mark Morelli, President and CEO, and Anshooman Aga, CFO. So appreciate both of you coming down here. Maybe start off with, you know, a topic that's generated a lot of discussion in the last sort of month or so, in particular, around, you know, your software exposure. You know, maybe kind of frame for us the scale of that software business in the overall sort of Vontier revenue mix, and, you know, help us understand why you think AI-related concerns are probably not merited in this case.
Yeah, Julian, thank you for having us. I really appreciate getting this question 'cause it's something that, we're really happy to talk about. Look, we are not a generic enterprise software company, nor are we do we have thin capabilities in SaaS. Our total software as a percent in sales is between about 10% and 12%. The important thing to think about our software is we have industrial software that is tightly linked to equipment. The best way to think about this, our software platforms, is that they control, automate, and optimize the physical layer. In fact, they're actually sold with hardware. They work in conjunction with the hardware.
More importantly, this forms a critical application layer that is mission-critical for the people that use it, like convenience store operators or fleet operators, as an example, or charge point operators. This is how they're doing business. They're doing it through this. It's actually where payments are flowing through it. And so that type of application requires multi-levels of certification, like our FlexPay 6 iNFX requires three levels of certification.
And when our system goes down, you're bringing down all stores that have that capability. So you can imagine how carefully that is guarded, and that's the kind of software we do. More importantly, this physical application layer, this foundational layer, what we call it, is also where we aggregate data. It's enabled by AI.
We can either embed those in, and we have great applications that manage uptime or preventive maintenance, like in the Hub, as an example. But also, it's an open system architecture where you can enable applications from AI to tap into it. Of course, you charge an API fee, and that enables a very robust, innovative environment, but it's not something that's gonna be disintermediated from AI agent taking over your application and commoditizing it.
You know, maybe remind us kind of what are the specific kind of pure software applications? You know, not, not what's embedded inside the hardware, but that standalone 10%-12%. You know, where does that sit in terms of the different brands, inside the company?
Yeah. So one of the areas that we're talking about, that you saw in our investor day last fall at the NACS show, the National Association of Convenience Stores show, was unified payment. Here's a great example of a Lego building block of typically, it's FlexPay 6 and NFX, that enables this backbone of a payment to be enabled, whether you're inside the store doing a transaction, whether you're at the dispenser or the fuel dispenser doing a transaction, whether you're at the car wash or the EV charger, whether you can enable ordering at the pump, through you know, food, as an example. It enables media and also loyalty, where it's a connection to loyalty.
All that software enabled, but once again, it's this durable software that's part of this backbone that is their critical infrastructure on how they do business. That's an example. On the fleet side, we have the vehicle identification system, which is a security of payment, application system that is a tight linkage between the vehicle and the fleet depot operator. They-- that, through that transaction, it's very difficult for that to get hacked. Can you imagine if you want people from the outside, just with an AI agent in there, running that application on security of payment? The whole reason why they have it and they pay for it is because it is a more secure payment, way to get things done. You know, on the, on the Driivz software side-
Mm-hmm.
This is a deeply embedded software platform by which the operators are now experiencing nearly 100% uptime for the adoption of that network. And about 1 TW of energy is going through that, and about 20% of all drivers outside of China are using that network. But it enables payment, enables customer interface, it manages the how it backs into the grid, it pays taxes.
Mm-hmm.
This is all, like, a really difficult thing, and the reason why we're getting more customers on it is because it's so difficult to get right. So it's really this foundational layer that, and by the way, is being AI-enabled for uptime, so we're embedding that into it as an example.
How are you kind of-- you know, you mentioned the AI-enabling aspect. You know, how are you kind of pushing that across the various businesses to make sure that, you know, they're helping out customers or getting some value from it in the selling process?
Yeah. There's two layers to it. The first one is certainly how we can enable a better customer experience. I'll just throw another one out. In DRB, we have something called NoPileups, where you get into the car wash, and you can run a very fast throughput through your car wash, and it prevents vehicles from knocking into one another, which is actually a thing. So be careful, Julian, if you're ever in a accident in a car wash, it's actually your insurance that pays. But you can actually increase the throughput there, and I wouldn't get into a car wash without that, but it's definitely AI-enabled.
We have the Hub, which is for underground equipment; we call that environmental. That is providing remote diagnostics, and those are a couple other applications. But we're also getting a lot of cost benefit and pickup. You know, and Anshooman, you wanna talk about that?
Yeah. Especially in our R&D organization, we have over 1,200 software engineers that are 90% + are using AI as part of their standard work process.
Yes.
We have seen that the velocity of our sprints or epics, a series of sprints, has gone up well into the double digits as we've used AI for code generation of code, and we're also using it for automated testing. So as a result, when the velocity of the sprints goes up that significantly, you have one, an option to increase the amount of R&D you're doing, but second, you can start lowering your cost. And so we are actually going to be reducing cost in R&D, which is part of our $15 million in-year savings that we've talked about, where the cost is actually coming out. Another quick example is for our internal IT organization. We're rolling out AI for answering your help desk tickets.
So we expect, very conservatively, over 30% of our tickets will be handled via AI without human intervention, and even where human intervention is needed, the analysis that you can pull through that used to take 4 hours -8 hours can be done in less than 30 minutes. So it really helps with the productivity out there.
We're using AI for cybersecurity, for monitoring, looking at unusual data patterns, et cetera. But, you know, the next opportunity for us is around our customer service. We have a large customer service organization, and, using AI enablement for basic level one help desk support for our customers is not only a good benefit for us from a cost perspective, but will also lead to higher customer satisfaction if you can get an, instant answer. So the, there are multiple layers.
Some of them are already embedded in our guidance and in execution as we speak, and some are to come, and that's why we feel there's a runway of opportunity on self-help ahead of us.
Fantastic. You know, maybe on the very near term, you know, switching to the sort of overall Vontier, company-wide, you know, it says the guidance looks a little bit, you know, back-end loaded at first glance, whether on the top line or the EBITDA margin progression. So maybe help kind of flesh out, you know, why that's the case and, and the sort of confidence in that improvement.
Yeah, Julian, there are a couple of ways to break down our guide for Q1, and we kind of gave an implied model for Q2 in there at our earnings call. One is obviously the traditional way, if you look at it year-on-year, and we do have harder compares in half one because of a couple of larger projects last year that drove revenue earlier in the year than typical. The second way is, if you just look at our traditional seasonality, Q1, Q2, Q3, Q4, and if you really look at 2021 through 2024, those four years, we did roughly a little over 48% of our revenue in half one, which is what we guided to for half one of this year. If you...
Back then, in those four years, Matco Expo used to be in Q1, so if you physically moved it from Q1 to Q2, which is where it has been in 2025 and now in 2026, we typically do 23.5% of our revenue in Q1, which is exactly squarely where our guide is at the midpoint for Q1. Margins also, last year was a little atypical, where margins in Q1 were the highest all year. You know, as volume develops this year-
Mm-hmm
... normal seasonalities, we get some of the benefit of that. Additionally, you know, the $15 million in-year savings, we're in process of executing those right now.
Yeah.
So the benefit, there'll be some benefit in Q1, but most of the benefit starts in Q2 and fully ramps up in Q3 into Q4. So, you get some tailwind from that. And then the additional comfort, I'll say, is if you step back to how our end markets are performing, and jumping from the segment view to the end market view, the three end markets we serve, convenience retail, you know, our exit rate was pretty attractive.
The market remains constructive, and innovation is really reading through, and that's why we're growing above market and taking share. So that, that, that we expect will continue. Fleets, where we have the vehicle identification system, what Mark had also referenced, we had a very large project there last year in the Middle East in half one, both Q1, Q2.
We won another project in vehicle identification system. That delivery will start in the back half of this year. The reason is, we have to deliver the proof of concept, the customer pilots it, they go through their certification, and then you start a rollout. Again, these are handling payments in a very secure fashion, and if payment isn't working, your store isn't working. So it takes a little bit of phase, but we have a track record of delivering these projects on time, so we feel pretty good about those end markets. On repair, we saw stabilization of that end market, and we have initiatives in place that we're doing to really help ourselves in that from a volume perspective, and we're guiding to roughly flat for the year on in there.
Perfect. That's very helpful. Thanks, and Ansh. And maybe sort of dial into, you know, in Invenco a little bit. It's been a, you know, very strong growth. How do we think about the sort of trend growth ahead? You know, what's the pipeline of wins looking like in terms of sort of projects that you're going for?
Yeah, let me start off with just a little bit of background on what you're seeing currently in the business. So, Vontier is doing a great job, particularly in two areas, but both of them are thematically around the same thing. We are essentially making investments, solving customer high-value problems around people that are trying to scale the infrastructure, whether it be inside of the convenience store operator, where the large regional, national, multinational oil companies are building out their footprints, buying up smaller players, and they're having to manage that network and doing it in a more effective way.
Unified payment that we talked about is a great example of them being able to do that, or when we talk about FlexPay and NFX working for Costco as an example, to speed up their transactions. That those are great examples of that.
The other one is on the fleet side and fleet operator that we also discussed.
Yeah.
And so what you're seeing happen with the business is a result of us putting development in place a couple of years ago, and you saw, you know, an increase in our R&D expense, but now you're beginning to see those green shoots coming through.
Mm.
You know, these are also mission-critical capabilities that we're talking about, and folks take a bit to digest it, what and how they want to go after it, and then they roll it out. So it's a little bit difficult for us to tell exactly when in our guidance that, you know, some of these rollouts will occur.
Mm.
But I think what you should take away from what you've seen, particularly in things like Q4, is that there's a great runway of these opportunities. Another thematic around this that shows up in Mobility Technologies is DRB and Patheon. So all of this is innovation-driven growth. All of this is at a relatively, you know, early stage-
Mm-hmm
... in terms of the penetration in the industry for these kind of applications. And it's also indicative of our differentiation, where you look at we're providing solutions from being either number one or number two in our brands in these siloed ways that are now coming together, and we've reorganized around this last year.
We have an organization around convenience retail, where we have a head of sales for convenience retail, chief product officer for convenience retail, chief technology officer for convenience retail. Same thing for fleets. And so we're bringing these solutions to market also in a more concerted way so they can also work together, and I think you're seeing that growth uplift as a result.
And so I think sort of what, double-digit revenue CAGR is realistic?
Yeah, I think, for 2026, we think Invenco is more mid-single digits after, you know, 2025 being north of 20% and 2024 being-
Yeah
somewhere similar to that. So, but I think longer term, this should be a high single-digit kind of growth business because of-
Yeah
the innovation we're bringing and the high customer pain points we're solving that are really driving productivity and automation. It's. And the interesting thing is, it's like Lego building blocks that take a slightly different shape and solve different problems for our customers. We talked about Shell and Chevron in the past.
Mm-hmm
where they did countrywide adoption because it helped them manage their payment complexity. Costco Canada was a slightly different use case for them, where we significantly improved the throughput by speeding up the transaction. And there are other customers where we have a large national account, which is looking at the same payment terminal across to simplify their complexity but also improve the consumer experience.
Mm.
You can drive down media, you can drive down loyalty, and start steering the consumer at the end of the day. All of these are playing out as we speak.
You know, one of the things that maybe what people miss in this is one thing that is very helpful is that we have a very extensive service network of technicians that know how to work on our products. And in fact, that's best in class, what's available. That happens through our partnerships and our two-step distribution model, even though these sales are made direct.
Mm.
And that's also a really important part, where when you do these rollouts, they wanna see that, that you can stand behind this with a really strong service network. And, because it is, like we're saying, that foundational layer that we're providing is so mission-critical. And so it—
Mm
... it's something, as we build this ecosystem out, that we can continue to add to it, and particularly because we have such a strong service network.
And then, you know, Driivz and telematics came up a little bit at the beginning of our discussion. You know, how satisfied are you with the sort of turnaround effort, as it was at Telematics, and is that kind of steady state, and growing decently? And then Driivz, you know, what should we expect there, kind of medium-term top-line growth?
Yeah. So on the telematics side, we had to get out of some technology debt. We've launched TN360. Then we also ran into some countrywide transition from the 3G to 4G network.
Mm-hmm.
When telecom companies were cutting over on a countrywide basis, you know, we, we had some churn as a result of that, and I think all that's behind us. Last year, we grew operating profit by 50%. For the first time, cash flow positive, churn rates have dropped. We had a really great bookings in Q4.
Yeah.
We started this year really, strong. So I'm glad-
Mm-hmm.
that, you know, those things are beginning to come together.
Yeah.
It's well below fleet margin, so we have real opportunity there for uplift. On the Driivz side, you know, this is when we bought it at its infancy, we've really moved that into the number two player worldwide, with plugs under management.
Mm-hmm.
We're seeing some really steady growth. You know, it's still. If you look at EVs, they're still relatively in their infancy. In Northern Europe, Nordics, you know-
Yeah
... clearly U.K., it's, you know, we're the market leader there, and adoption is going really well. But, you know, in the U.S., it certainly had a slowdown.
Yeah.
But we believe EVs are here to stay. We think this is a very sticky way by which operators of charging networks have to be able to manage their networks, and, and we continue to get really good growth out of that business. And as a consequence, if you look at also what's going on in fleets and convenience retail, you know, particularly on the convenience retail side, a lot of these folks sit on the right street corners, and for them to incorporate EV into that, into their offering-
Mm
... is kind of a no-brainer. We saw this actually in areas which were more mature on-
Yeah
EV charging, and they wanna have the benefit for the consumer to accrue to, to the people that own that property, not necessarily just the charge point operator. So we've definitely seen a trend where the convenience store operators are also getting into that business. So I think it's got a long road-
Okay
... for EV. I really like the position that we're in because we don't have to play political football when it comes to... or guesswork, whether we know who's gonna be in favor and which incentives are gonna be in favor. We're selling a lot of high-flow diesel pumps right now-
Mm-hmm
... because contractors are, you know, using those kind of trucks, and they're servicing your neighborhoods with, you know, plumbing contractors and yard contractors-
Yeah
... and they're driving a lot of diesel vehicles. But at the same time, we're advancing our EV charging network in areas of the world that appreciate that. And I think the important thing, Julian, is not to be able to guess what is gonna be in favor, but to have the right portfolio and do it at the right return on capital. I mean, we're doing this in a way that we're in the right profit pools, that I think are sticky for the long term, and we couldn't have said that about the portfolio 3 years , 4 years ago.
You know, you mentioned the aspect of some, you know, good revenue synergies across the business. If you think about the total kind of gas station pad and C-store attached there and so forth, you know, how are you thinking about the Vontier firm-wide, you know, dollar that's addressable or dollar content per station?
Yeah. I think the way we've organized in the back half of last year really gets at your question, because we see a lot more synergy by bringing our siloed solutions together and selling a lot more share of wallet. We know that, you know, after a couple hundred thousand dollars, we might have by selling, you know, dispensers and underground technology can be enhanced a lot when you look at all the other offerings that we have around car wash, point of sale, unified payment, new offerings on the Hub.
You know, we can get a couple hundred million dollar uplift by fully exploring our share of wallet opportunity there, and our new organization structure really helps us get at that. We have a similar kind of opportunity on fleet and fleet operators.
Mm.
Now we've organized around that. Then there's a third dimension, is go look at developing countries versus developed countries. You know, a lot of developing countries have a fueling kiosk. They might have two dispensers. They have a person with a long stick, Julian, that tests the level-
Yeah
... of the fuel with a long stick. I mean, this is far from the modern convenience store experience with automatic-
Yeah
... tank gauges and having a convenience store experience. And when you start measuring the dollar content uplift, now I don't think-
Mm-hmm
... this is a two-year thing. I think this is over a 10-year+ thing. There's a major uplift in the content. And by the way, it's more sustainable. Governments are very interested in sustainability of this. I don't think leaching fuel into your groundwater is political football anywhere. I think pretty much across the globe, governments are really interested in that.
And the other thing that it's really tied to is payment, payment security. Governments and people are really interested in that because fuel theft is a really big thing on a global basis, and that is responsible for a lot of illicit crime rings that are involved with that kind of thing. Governments want to break that down. They also want their share of the tax revenue.
Mm.
And so none of this is... What we're talking about is political football. It's all about providing better, more sustainable solutions that the public is really interested in, and it creates great uplift for us. There's great regulatory drivers that we can able to latch onto, great margins provided, and I think great business model for the long term.
... Fantastic. Then, you know, on the repair side, you know, had very high margins just a few years ago. They're sort of bottoming out at 20% + right now. You know, what do you need to get the repair margins back to those prior levels?
Yeah, let's break down the margins from the mid- to high 20s down to the low 20s right now. So if you look underlying, the gross margin was around 50%. It's still the same. So it's not that we've discounted or we've lost price or-
Mm-hmm.
-cost has gone up. Our gross margins are intact. If you look at our SG&A at that level, at, at those years, earlier years-
Yeah
-It's relatively flat despite inflation. We've managed that. So really there's two aspects that's impacted profitability. One is the volume deleverage, as we've had two years where volume came down. It came down at that roughly 50% gross margin.
Yeah.
The second was post-COVID, when the amount of stimulus that was put in and with people didn't have anywhere to go, personal savings went up-
Mm-hmm
And the delinquency rates were at the lowest they've ever been, and write-offs were the lowest they've ever been.
Yeah.
We've seen delinquency and actually the write-offs move to the higher end of the range, but they're stable. 2024 to 2025, they haven't gotten worse, and we're managing that by having a better book of portfolio, more stringent underwriting standards. But over time, they'll start shifting back. Really, for us, as, as this business starts growing, the drop-through or the leverage on that's going to be pretty darn good because the, the infrastructure doesn't need to grow to scale that.
And then also with time, as we continue to focus on improving our underwriting standards, be a little more stringent, and that starts leading through the portfolio as the portfolio mix keeps shifting. But also as ultimately, we aren't counting on it, but ultimately, as the economy for the lower of the working-class consumer improves, we'll see some benefit. But really for us right now, it's stable.
We're excited that we're seeing this year we expect will be relatively flat from a volume perspective-
Mm-hmm
And that should hold margins also relatively flat.
Great. Thank you. You know, since last, the capital deployment, how are we thinking about priorities there?
Yeah, so our capital allocation policy is unchanged. We say it's dynamic because we will always go towards the highest return option for our shareholders. You know, at our current valuation, stock buybacks are very attractive, and we have an internal model where we look at our high confidence plan over the next two, three years and say, based on that, even keeping the same multiple, where should our stock trade, and what's the return?
And we compare that against acquisitions. So buybacks remain very attractive. At the same time, our M&A pipeline, we continue to work. We have... It's strategy-driven, but it's also very focused around making sure we get the returns. So it's usually you have to get the seller and the buyer to minds to meet, and sometimes-
Mm-hmm
... you know, we take a shot at the goal, but, the deal doesn't close because-
Yeah
-of that. We're very disciplined, and we're committed not to overpay for acquisitions, but do them right.
I think, Julian, about the only way we can truly demonstrate we believe that we're trading at a discount multiple is by really committing the buybacks.
Yeah.
I think we've done that. We'll continue to do that as we feel there's, you know, real opportunity for our multiple.
Fantastic. With that, we'll switch to audience response survey questions. The first one is around sort of current ownership.