Good morning, ladies and gentlemen, and welcome to the Vontier First Quarter 2024 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, May 2, 2024, and a replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us on the call this morning to discuss our first quarter results. With me today are Mark Morelli, our President and Chief Executive Officer; and Anshooman Aga, our Senior Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com. Please note that during today's call, we will present certain non-GAAP financial measures. We will also make forward-looking statements within the meanings of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward-looking statements that we make today, and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward-looking statements is available on our website and in our SEC filings. With that, I'd like to turn the call over to Mark. .

Thanks, Ryan, and good morning, everyone. Thank you for joining us to discuss our Q1 results. I'll start with some high-level commentary on the quarter, beginning on Slide 3. Our teams delivered a solid start to 2024 with first quarter results that achieved the high end of our core guidance and exceeded our profitability targets. Core sales increased 4%, and we delivered 130 basis points of margin expansion. Volumes contributed the bulk of our core growth, although price remains positive. We continue to capitalize on the momentum we are seeing across most of our key growth verticals, particularly within convenience retail, fueling, fleet management and alternative energy. Successful convenience store chains and fleet operators are engaged in multiyear expansion plans and accelerating a transition to a more modern mobility infrastructure. Vontier's deep domain expertise and broad portfolio of innovative solutions allow us to leverage connected hardware and application software to deliver enhanced productivity and automation, as well as multi-energy solutions that enable decarbonization. The results of our impact are most evident in our Environmental & Fueling Solutions segment, which drove a majority of the outperformance in the quarter as well as in our Invenco business. EFS core growth of 10% was broad-based across the portfolio, benefiting from strong new build activity and ongoing industry consolidation, as well as environmental compliance and traction on our aftermarket parts growth initiatives. Order momentum at Invenco accelerated led by strength in our payment business. We also saw strong demand within our enterprise productivity business, which includes connected hardware and software offerings that help C-Store and fueling operators automate workloads across their footprint. We are seeing ongoing demand within most of our end markets. Leading indicators for our businesses suggest that momentum continues. Our book-to-bill inflected above 1 in the quarter earlier than anticipated, with…

Thanks, Mark, and good morning, everyone. I'll start off with a summary of our consolidated results for the quarter on Slide 6. I'm pleased with our performance in the first quarter. Core growth of 4% was at the top end of our range and included solid volume growth as price contributed about 160 basis points. Adjusted operating profit margins expanded 130 basis points year-over-year, primarily the result of positive product and geographic mix and strong operational rigor. The strong profitability resulted in adjusted EPS of $0.74, up 9% from the prior year and above the high end of our guidance range. Free cash flow of $78 million is in line with the prior year, reflecting 68% conversion or 10% of sales. Let's review our segment results, starting on Slide 7. Environmental & Fueling Solutions core growth of 10% was driven by broad-based strength across the portfolio as we continue to leverage our market-leading positions and innovative solutions to drive higher volumes. North America dispenser sales increased high teens this quarter with continued strength in new build activity from large national and regional players, where we maintain a leading market share. Refresh and rebuilt and normal replacement activity was also solid as was growth from smaller operators. Aftermarket part sales were up low teens, leveraging a large and expanding installed base. Environmental Solutions also experienced healthy growth, up high single digits year-over-year. We continue to benefit from a dynamic regulatory landscape and continuing our emphasis on new product development, which contributed to growth in the quarter. Segment operating profit increased nearly 21% year-over-year, with margins up 370 basis points, resulting from favorable mix related to the timing of shipments, carryover benefits from prior cost actions and positive price/cost. EFS results are a terrific example of VBS in action. I'm confident in…

Thanks, Anshooman. I'd like to wrap up with 3 key takeaways. First, we're off to a strong start in 2024. I'm proud of the way our teams executed in the quarter, driving attractive core growth and margin expansion, demonstrating traction on our strategy and our ability to deliver differentiated solutions for our customers. Our end markets are constructive, underpinned by strong secular drivers, and we're advantaged for our leading share positions with the largest players in the mobility ecosystem. As our customers aggressively expand their footprint, they increasingly need our integrated solutions that improve site productivity and profitability. Second, Vontier has a unique competitive advantage within the mobility ecosystem, which puts us in a solid position for attractive mid-single-digit growth and strong free cash flow generation. Lastly, our balance sheet is healthy, and our strong cash generation provides plenty of optionality for accretive capital deployment. Our outlook for 2024 puts us squarely on the path to achieving our long-term targets. I am confident we have the right strategy in place to continue to deliver differentiated solutions for our customers and unlock significant value for our shareholders. With that, operator, we're ready to open the line for questions.

[Operator Instructions] Your first question comes from the line of Nigel Coe from Wolfe Research.

Thanks for the question. I appreciate it. A very comprehensive overview. Maybe talk about 2Q in a bit more detail. It looks like margins are ticking down by about 80 basis points Q-o-Q. I think we just see that margins would pick up sequentially. So maybe just talk about what we need to bear in mind for the second quarter.

Thanks, Nigel. As we communicated last quarter, Q2 should be in line with our Q1 guide and it's largely playing out as anticipated. From a historical perspective, the seasonality is in line with half 1 being about 48% to 49% of revenue and 45% of EPS. Also keep in mind, from a sequential perspective, Matco has their expo event, which is the largest stocking event of the year. And there's about a $20 million to $25 million decline in revenue sequentially because Q1 has incremental revenue from Expo and the Matco margins are pretty attractive margins. So that does impact seasonality between Q1 and Q2.

Okay. So it sounds like pretty stable for the 2 segments. I would say Repair, where we should see some pressure Q-o-Q. Okay. That's really helpful. And then just obviously, the strength we're seeing in North American retailing -- Retail Fueling is really impressive. And it seems that you're gaining a fair amount of share here. So I'm just wondering what you think is driving those share gains? And I'm actually more curious if perhaps the Invenco acquisition is maybe helping some of the go-to-market there.

Nigel, it's Mark. Thanks for the question. I think we're really happy about the results in EFS. It's really our first quarter that we're reporting without the EMV compare. And so I think you can see some pretty clean numbers there. And then I do think that the team is doing a great job. We've got a lot going on with the build-out of the convenience store operators. The successful formats are continuing to plow forward. And I think the folks in that business are looking at new build sites that are either greenfield or they're doing more acquisitions, as we said in some of our prepared remarks. And these folks are looking out well beyond this year, with buying up real estate and putting capital to play. You see a very successful franchise like Wawa, as an example, making announcements. So I think it's pretty easy for people to follow. And the reason why that's highly relevant is that we have the majority share both with above ground and below ground. And as they're building out their formats, fueling is a part of that, and a moderate convenience store format is clearly benefiting there. And then on the Retail Solutions side with solutions like what we call enterprise productivity or payment solutions with our Invenco by GVR business, they're providing more site management capabilities, as many of these operators look for digital transformation to manage their assets better. It's a very complex footprint. And so as they manage that better with enterprise productivity solutions that we offer as well as payment solutions, also the new FlexPay 6, which is a great offering that's coming out as well. And the thing that they're also really trying to do is they're trying to be more consumer friendly. And the words that they use around that is they really want to be personalize guest experiences. And so we enable that with our technology. So it's a really integrated approach, and I think that that's really bearing fruit.

Your next question comes from the line of Andrew Obin from Bank of America.

This is David Ridley-Lane on for Andrew. Could you talk about -- a little bit more about the national electric vehicle infrastructure program, how you see that funding playing out over the next years and how you are positioning to capture a pretty good share of it.

Yes. So thank you for that question. About $400 million of the NEVI funding has been awarded so far of about $7.5 billion. So it's very early innings. If you track that and follow that, you're able to see that 60% of the awards so far have gone to a convenience store operator footprints. And I think that shows really the viability of the convenience store in a multifuel future. And what's really interesting, too, if you peel the onion even further, you'll notice that we're also picking up really good share because we provide network software to charge point operators, whether it's a convenience store operator, like Circle K, which chooses to be a charge point operator, or a Shell that chooses to be a charge point operator or charge point operators like EVgo or Francis Energy, examples in the United States, of course -- or United States-centric. These folks can either decide to develop their own network software or they can decide to outsource it. And we are the leading provider when folks look at outsourcing that. And I think it's because our solution really works well with high reliability. And so we've got about 60,000 plugs under management for high-speed charging. And just to put that in comparison, that's about the number of charge points -- or charge plugs excuse me, not charge points, that's a number of charge plugs that Tesla has. So we've got about the same number of high-speed charging points under management. And I think we see a multifuel future with a lot of different charging operators that are going to grow worldwide. So I think we're really positioned well to pick up and be an indirect beneficiary of the NEVI funding because we are a supplier to that. And also on a worldwide basis, we're about doubling our plugs under management every year. And I think you'll see our EVolve business, with the Driivz platform being one of them, start being accretive to revenue growth this year.

Excellent. And then as a quick follow-up on Invenco, how do you see the revenue trend as you go through the year, i.e., do you expect to accelerate from here? And also, any update on the pipeline?

Yes, David. Invenco revenue should accelerate from Q1 onwards, Q2 will be higher and Q3 roughly in line with Q2, and then a strong end to the year, so some sequential improvement through the year. The pipeline at Invenco continues to be strong, both for the enterprise productivity solutions, where iNFX is in there and also from a payments perspective, including security of payment opportunities in an international market. On iNFX, as we have previously said, we're in pilots with a handful of customers, both in the U.S. and outside of the U.S. And we expect this year to have a couple of announcements of successful completion of pilots and move towards a fuller rollout.

Your next question is from the line of Joseph Donahue from Baird.

Could you just walk through your expectations by segment for the second quarter? I know you kind of went up from Matco, but could you cover Environmental & Fueling and Mobility Tech?

Sure. So starting off with Mobility Tech, we expect revenue to be mid-single digits, up year-on-year. Operating profit should be down slightly versus prior year on a tough compare. Repair Solutions should, from a revenue perspective, should be flat to low single digits up in the quarter. Margins up sequentially slightly, but down year-on-year. And then Fueling should be up low single digits to mid-single digits and margins should expand 50 basis points plus in that segment.

Great. Great. Okay. And then digging into Matco's performance, obviously, pretty impressed this quarter, but you guys outperformed your main competitor there pretty notably. We see the same things that you do on end customer being healthy, but have you seen kind of what they discussed in terms of any turn in sentiment or anything like that?

Can you repeat that last bit again, in terms of what?

In terms of like end customer sentiment, that was kind of something like outside the lot there.

Sure. We're just coming off our Matco Expo in Q1. So spending a lot of time with our franchisees as well as some service technicians as well. Look, the backdrop for Repair, no question, is strong. There's -- vehicle models traveled is up. The car Parc is aging even more as people are maybe not buying as many new cars and they're stretching out their car for longer, which adds to the sweet spot of the Repair segment. And these things bode well. We know the complexity of repair is also up, which adds to the size of the toolbox. So some really good drivers there. I think at the same time, when you look at service technicians, they're also -- in the United States, these folks have to pay more for food with inflation. Their cost of housing is up. So there's more competing demands for the service technician in terms of where they're going to spend their money. I think what we found from the Matco Expo coming right out of that is that if you have a good lineup, we had a strong expo, really strong bookings. And when you have things to offer of value, and we lead the industry in product vitality, which means that we're constantly refreshing our product line and trying to be really in tune to what service technicians need, and they will spend money if they find it compelling. And I'll give you a couple of great examples. Anshooman talked about specialty products, which certainly adds, no question to the toolkit with capability on providing productivity solutions for a technician. And that category is up, and that's appreciable part of our sales. As well as our new Max 5 diagnostics, which is a high-ticket item that we launched in December, and that sold really well in Q1 as well. And we're still selling toolboxes at a pretty good clip in Q1. So I think that net-net, we see low single-digit growth out of Matco this year with a little bit softening environment for the service technician. But I think we're pretty happy and very proud of the team's results here to continue with high vitality and be really compelling to our service technicians.

[Operator Instructions] Your next question comes from the line of Julian Mitchell from Barclays.

So you gave a lot of detail on Q2, and understand that I think a lot of people sort of missed somehow the sequential comments you gave on the last call for Q2. So just focusing maybe on the second half for a minute to try and avoid the same thing happening, should we think about the sequential earnings cadence within the back half as being a step-up in earnings sequentially both Q3 and Q4, but with a sort of a much heavier weighting step-up in Q3 versus the fourth quarter? Just wanted to make sure is that the right way to think about the sort of second half here.

Thanks, Julian, and thanks for the comment. So our fourth quarter will be our strongest quarter both from a revenue and operating profit margin perspective. Typical seasonality for us. So we'll see a step-up from Q2 into Q3 and then another step-up from Q3 into Q4. A lot of it is tied to the timing of rollout of some of the projects, for example, the Shell and Chevron iNFX rollouts continue with stronger revenue in Q4 on those, but also the timing of some other projects, including some larger projects in backlog for our ANGI business.

That's helpful. And then just as we're thinking about the organic growth rates for the year as a whole, particularly, I suppose, mobility. I just wanted to check sort of the latest thoughts on the organic guide for the year. And within that, what's assumed for DRB after that 10% drop in the first quarter? And EFS, a very strong start to the year on organic growth. That moderates in Q2, as you mentioned. Is it sort of a mid-single-digit growth rate for the rest of the year aside from just Q2?

Yes. Thanks, Julian. On Mobility Technologies, we're expecting the full year to be mid-single digits. We're seeing continued strength in the convenience store, as Mark talked about in the prepared remarks. And we're seeing good uptake of our Invenco by GVR solutions. So we expect good growth out there. Also our alternative energies business, which is really our CNG, RNG business and starting to see some hydrogen. We see a continued demand as our fleet customers continue to think about sustainability. That business is growing double digit, and we have strong growth for the back half of the year also in that business. And then also EVolve, which are driven by Driivz, we're starting to see that starting to add as it continues to scale to our growth rates. So overall, mid-single digits growth in that business. Our Fueling business, that should be growing mid-single digit, mid-single digit plus this year. We see continued strong build-out of convenience stores, but also, as Mark said in the prepared remarks, the replacement cycle is also going to be supportive for long term in that business. So we're seeing good growth. Aftermarket parts continues to grow well and also good legs in our environmental business, which grew high single digits in Q1. Q2 in Environmental had a tough compare, but then again, growth in Q3 and Q4 in Environmental.

Yes, Julian, I just want to jump in on the back of that. I think one of the things that's happening this year is we're seeing the benefit of some new product introductions. They're really gaining scale, particularly as we progress into the year. I think we've, with our Q1, we've kind of derisked our year a bit. And we feel like with the investments we've been putting in, we're really driving significant new product development in environmental in [Indiscernible] business as well as Invenco. And I think that traction we're definitely seeing an uptake with customers, so that should certainly build through the year.

There are no further questions at this time. And I would like to hand the call over back to Mark Morelli for some closing comments.

Yes. Thanks, operator. Thank you for joining us on today's call. I'm really encouraged by the start that we've had to the year, and I'm confident in our ability to execute on growth and margin expansion. And we continue to progress what we're calling the Connected Mobility strategy. I think it's great for growth, but it's also highly differentiated. And I want to thank our teams for our continued strong progress, their dedication to achieving results and executing our vision. So we look forward to seeing many of you in the coming weeks in person. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.