Vontier Corporation Common Stock (VNT) Q4 2020 Earnings Call Transcript

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Vontier Company Widespread Inventory (NYSE:VNT)
This autumn 2020 Earnings Name
Feb 11, 2021, 8:00 a.m. ET

Ready Remarks:

Operator

Girls and gents, thanks for standing by. My title is Maria, and I will be your convention facilitator this morning. Presently, I wish to welcome everybody to Vontier Company’s fourth-quarter 2020 earnings outcomes convention name. [Operator instructions] I might now like to show the decision over to Ms.

Lisa Curran, vp of investor relations. Ms. Curran, you could start your convention.

Lisa Curran — Vice President, Investor Relations

Thanks, Maria. Good morning, everybody, and thanks for becoming a member of us on the decision. With me at this time are Mark Morelli, our president and chief government officer; and Dave Naemura, our senior vp and chief monetary officer. We are going to current sure non-GAAP monetary measures on at this time’s name.

Data required by SEC Regulation G relating to those non-GAAP monetary measures is out there on the Buyers part of our web site, www.vontier.com, underneath the heading financials. Please notice that until in any other case famous, the offered monetary measures mirror year-over-year will increase or decreases relative to the supplemental normalized monetary knowledge additionally posted on our web site underneath the heading Financials. These supplemental normalized financials are adjusted for estimated stand-alone public firm prices. Through the presentation, we’ll describe sure of the extra important elements that impacted year-over-year efficiency.

The supplemental supplies describe extra elements that impacted year-over-year efficiency. All references to period-to-period will increase or decreases and monetary metrics are 12 months over 12 months. Through the name, we’ll make forward-looking statements throughout the which means of the federal securities legal guidelines, together with statements concerning occasions or developments that we count on or anticipate will or might happen sooner or later. These forward-looking statements are topic to quite a few dangers and uncertainties, and precise outcomes would possibly differ materially from any forward-looking statements that we make at this time.

Data concerning these elements which will trigger precise outcomes to vary materially from these forward-looking statements is out there in our SEC filings and subsequent annual report on Type 10-Okay. These forward-looking statements communicate solely as of the date they’re made, and we don’t assume any obligation to replace any forward-looking statements. With that, I might like to show the decision over to Mark.

Mark Morelli — President and Chief Government Officer

Thanks, Lisa. Good morning, everybody and welcome to our fourth-quarter earnings name. Earlier than we get to the outcomes for the quarter, I wish to acknowledge our group’s extraordinary efficiency, marking the tip of a really unprecedented 12 months. The COVID-19 pandemic induced appreciable financial, operational and private challenges.

And so I wish to first thank our workers and enterprise companions who made it potential by way of their dedication and tireless actions and proceed to take action with the continuing pandemic. Not solely did the group work by way of important headwinds, we’re benefiting from the alternatives in entrance of us in addition to posting wonderful outcomes. Our group delivered one other quarter of double-digit earnings development and a powerful end to 2020. The Vontier Enterprise System continued to drive excellent adjusted free money move conversion of larger than 140%, core income development of 8.5% and adjusted core working margin enlargement of 240 foundation factors.

These top-tier outcomes underscore the resiliency of our portfolio as key secular drivers and market share positive factors drove outperformance. A proof level of the standard of our enterprise and strategic focus is that even when excluding the good thing about EMV within the quarter, we nonetheless delivered excessive single-digit core development. Moreover, we ended the 12 months with backlog development of 40%, reflecting accelerated EMV adoption at Gilbarco Veeder-Root in addition to continued robust demand throughout the product traces at Matco. Importantly, we realized these outcomes whereas persevering with to place our portfolio for the long run and investing forward for worthwhile development alternatives.

Not solely have been we in a position to ship excessive single-digit core income development throughout the platforms, which exceeded our earlier outlook, we additionally drove structural price management and dealing capital productiveness, which can proceed to supply advantages into 2021. We’re additionally making regular progress bettering our innovation efforts by deploying lean portfolio administration, launching development accelerator dash processes to realize market insights and including expertise targeted on development and product improvement. Our portfolio is strategically positioned throughout enticing markets. As secular drivers evolve towards rising regulation and the rising want for clear, environment friendly mobility options, our enduring enterprise mannequin will present even larger stability and development by way of financial cycles.

We stay targeted on constructing a greater, stronger Vontier by using our stability sheet and deploying our important acquisition capability. With that, we’re initiating our full-year 2021 information, which incorporates our core income development expectation, starting from a decline of 1% to development of 1% and adjusted core working margin enlargement of larger than 25 foundation factors. This core development outlook features a extra favorable view of the 2021 EMV headwind of $100 million to $150 million. Excluding the EMV impression, core income development is anticipated to be mid-single digits regardless of our tougher comps within the second half.

Moreover, we anticipate full-year adjusted free money move conversion of roughly 95%, reflecting the timing of tax funds and dealing capital headwinds ensuing from a really robust 2020 efficiency. All this leads to our full-year 2021 adjusted diluted internet earnings per share steerage vary of $2.35 to $2.45. The information quantities to a story of two halves, reflecting the continued first half development in demand for EMV forward of the April adoption deadline in Q2, coupled with a positive comparability because of the impression of the pandemic within the second quarter of final 12 months. The place within the second half, we have now principally the other dynamic as we benefited from the V-shaped restoration and accelerated demand for EMV and Mexico regulatory options.

In sum, this equates to expectations of first half adjusted earnings-per-share development of larger than 20% and a second half decline within the mid-teens vary. As I outlined in October, we recognized quite a few worthwhile development initiatives to assist offset the anticipated impression of the EMV sundown. These embrace simplification and productiveness actions in addition to additional penetration in high-growth markets, regulatory and innovation strategic imperatives and continued enchancment in companies reminiscent of Hennessy and Teletrac Navman. We have made vital progress advancing these initiatives, and I am assured we’ll ship.

As such, our information displays our potential to greater than offset the highest line and earnings impression from EMV and expectations of inflation. Dave will stroll you thru the important thing drivers and assumptions of our full-year 2021 information in his remarks. We’re additionally initiating our first-quarter adjusted diluted internet earnings per share steerage of $0.52 to $0.55, which incorporates assumptions of excessive single-digit core income development and adjusted core OMX of larger than 200 foundation factors. With that, I will flip it over to Dave to supply the monetary outcomes.

Dave, take it away.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Thanks, Mark. Our adjusted internet earnings for the fourth quarter have been $147 million, a rise of twenty-two% and from $121 million within the prior-year interval. This translated to adjusted internet earnings per share of $0.87 in comparison with $0.72 within the prior-year interval. The double-digit improve in earnings was primarily pushed by quantity development with robust fall by way of, which led to 240 foundation factors of adjusted working margin enlargement within the quarter.

Core development within the fourth quarter was eight and a half p.c, pushed by the continued energy of the EMV rollout in North America, regulatory-driven demand in Mexico and continued robust demand at Matco. The robust restoration that we skilled within the third quarter continued by way of the fourth quarter with each GVR and Matco experiencing double-digit core development in This autumn. And we additionally noticed high-growth markets return to development, posting mid-teens core development. For the total 12 months, we had core development of minus 1.2%.

Nevertheless, we nonetheless proceed to increase gross and working margins for the total 12 months, underscoring the facility of VBS. The sharp restoration that we skilled within the full second half of 2020 displays the resilient nature of our companies within the markets they serve. Our adjusted working revenue for the fourth quarter was $201 million in comparison with $165 million within the prior-year interval, primarily pushed by robust core development and continued price administration in each price of gross sales and working bills. We delivered gross margin enlargement of 70 foundation factors, which contributed to the robust working margin enlargement, much like the efficiency that we demonstrated in Q3 and a perform of the group’s continued utility of VBS in what stays a dynamic surroundings.

And though we have now demonstrated prudent price actions on this surroundings by way of the 12 months, we have now continued to fund our highest priorities to allow us to exit 2020 effectively positioned for extra worthwhile development. Our earnings development continued to translate by way of to robust money move efficiency with adjusted free money move of $207 million, a conversion of 141% within the quarter. And whereas our efficiency in This autumn was robust, it’s consistent with regular seasonality. For the full-year 2020, we generated adjusted free money move of $616 million or conversion of 147% of adjusted internet earnings.

A key underlying issue driving this excellent full-year free money move efficiency was how effectively our groups executed on this pandemic surroundings. In the end, the most important lever in driving the free money move efficiency all through 2020 was distinctive working capital administration. We exited 2020 with working capital ranges at a historic low. And whereas we anticipate sustaining top-tier working capital metrics, we count on to see some improve in stock ranges to tempo with demand, which can possible improve working capital wants in 2021.

Additional, I’ll remind you that 2020 free money move benefited from solely three federal revenue tax withholding funds, whereby 2021 can have 5 funds. It is a perform of the timing of our spin and can create a headwind to free money move on a year-over-year foundation. Nonetheless, we’re extraordinarily happy with the work carried out by many people on the working firms to leverage VBS to drive this money move efficiency. Wanting on the top-line efficiency of our two platforms.

Mobility applied sciences had core income development of 8.3%, led by low double-digit development in GVR the place we continued to see robust momentum from EMV demand and high-growth markets. As anticipated, we noticed robust demand out of Mexico, pushed by the fiscal safety laws we have now beforehand talked about and continued sequential enhancements extra broadly in different components of the enterprise, together with a return to robust development in high-growth markets. General, our high-growth markets, that are traditionally fairly lumpy, grew mid-teens with India and Mexico being the primary drivers. In our diagnostics and restore applied sciences platform, core development was 9.2% and pushed by the continued robust demand at Matco.

Matco skilled low double-digit development as we noticed demand proceed to speed up from the robust efficiency that we noticed in Q3. The technician employment surroundings stays wholesome. And with new merchandise coming on-line and having file internet additions to our franchise base in This autumn, we really feel we’re effectively positioned for 2021. We additionally exit the 12 months with robust backlog in each platforms.

Order development exceeded income development for the second quarter in a row with Matco orders rising within the low teenagers and GVR orders rising within the mid-teens. And we proceed to work by way of each the momentum at Matco and ordering for EMV forward of the upcoming deadline in April 2021. I discussed the return to development in high-growth markets, and we usually noticed sequential enchancment in most of our important working areas. North America grew excessive single digits as did our developed markets in whole, and high-growth markets grew mid-teens after declining mid-single digits in Q3.

Final quarter, we famous that we might start a sequence of restructuring actions in This autumn, aligned with driving focused operational enhancements. We acknowledged a cost of $4.8 million throughout This autumn, which is excluded from our adjusted internet working revenue. We anticipate extra actions over the course of 2021 with a complete full-year cost of round $20 million, which we’ll exclude from adjusted working revenue. Earlier than turning it again to Mark, I’ll stroll you thru our 2021 EPS bridge.

As Mark talked about, our worthwhile development initiatives are a key driver of earnings development. On the midpoint of our steerage, we would count on these initiatives, mixed with a better evaluate and worth actions, will greater than offset an EMV headwind of about $0.38. Additionally, the impression of the return of the short-term prices that we took out in Q2 of final 12 months is anticipated to be offset by the advantages of the restructuring actions in This autumn of 2020 and people who will probably be accomplished throughout the course of 2021, together with different price measures. We count on foreign money to be roughly $0.05 favorable.

Lastly, beneath the road and different gadgets are anticipated to be a headwind of about $0.12 to $0.13, primarily reflecting a better tax charge. With that, I will flip it again to Mark.

Mark Morelli — President and Chief Government Officer

Thanks, Dave. There is no query that 2020 was a historic 12 months that offered many challenges. I am happy with our group for rising to the event and delivering protected working environments for our workers, substantial working capital productiveness, operational execution and development as we continued to spend money on our future. The sturdiness of our enterprise mannequin by way of financial cycles was definitely confirmed out this previous 12 months.

We realized sequential enchancment since final quarter in almost all metrics, creating not solely momentum, but additionally a excessive leaping off level as we head into 2021. I am enthusiastic about our path ahead, together with the progress we have made since separation towards constructing out and resourcing our ESG programmatic initiatives and technique. We’re placing a variety of vitality into this, and we welcome the chance to interact with all of our stakeholders on these efforts and to associate with you as stewards of your capital. To wrap up, 2021 is a vital springboard to a multiyear transformation with a protracted runway of alternatives.

As Dave highlighted, we’re effectively positioned for the expansion and comparability dynamics as we progress by way of the 12 months. And whereas there’s a lot work to be achieved, our groups are battle-tested, prepared and consider that the most effective protection is an effective offense. We are going to proceed to spend money on natural and inorganic alternatives and stay prudent and disciplined in our method. We’re additionally effectively conscious of the evolving secular drivers in our markets and acknowledge the worth of optionality, fast decision-making and inventive capital constructions on this surroundings.

And we stay hyper-focused on unlocking shareholder worth for the long run. With that, I might like to show the decision again over to Lisa.

Lisa Curran — Vice President, Investor Relations

Thanks, Mark. That concludes our formal feedback. Maria, we are actually prepared for questions.

Questions & Solutions:

Operator

[Operator instructions] Our first query comes from the road of Nigel Coe of Wolfe Analysis.

Unknown speaker

Good morning, all people. That is Brian on for Nigel. If we might simply perhaps speak about GVR within the quarter, particularly in India, what drove that development? Was it the brand new product introductions or simply an bettering macro backdrop and entry to websites and issues like that? After which additionally, how are you interested by the outlook by geography into ’21? That might be nice. Thanks.

Mark Morelli — President and Chief Government Officer

Yeah. Glad to take action, Brian. Sure, India returned to development. As you realize, it has been a lumpy enterprise.

It has been impinged by quite a few issues, COVID being one among them, for positive. And positively, the entry to the client website, as you talked about, is sort of a giant deal so we will do installations. However I feel sort of that may even out. However extra importantly, we have an excellent product there known as Latitude, that is effectively positioned into {the marketplace}.

It is doing very well. We have responded very effectively to the tenders out there, and we picked up tenders, and so we have an excellent backlog there to serve off as effectively. So I feel our place in India is sort of distinctive, and I feel we’re starting to capitalize on that, which is nice to see. To get to the second a part of your query in regards to the geography, the — whenever you stroll around the globe, in the event you have a look at the developed markets, we’re excessive single digits.

The Matco and GVR in North America grew excessive single digits in addition to Western Europe had mid-single-digit development and that was a sequential enchancment. After which whenever you look sort of on the growing markets, as David stated, that additionally had sequential enchancment, mid-teens development. Mexico additionally grew as a result of there was an excellent secular driver there that is performed by way of, that is persevering with to play by way of in Q1. India was up sequentially, and China was just a little bit down.

So with that Dave, do you wish to speak about 2021?

Dave Naemura — Senior Vice President and Chief Monetary Officer

Yeah, that is nice. We talked about a number of the dynamics with EMV, and admittedly, a number of the evaluate points that we’ll have subsequent 12 months or this, 12 months 2021, in comparison with 2020. And people actually are North America-driven with each EMV and a number of the energy we noticed to Matco. And so once we look ahead, we expect a lot of the development for subsequent 12 months will probably be pushed exterior the U.S., and we’ll see a few of these headwinds offset, however extra of the expansion coming from exterior the U.S.

from these — the headwind of EMV and the evaluate being North America-centric. With that, we do anticipate development in high-growth markets and proceed to see recoveries in different areas, together with developed markets exterior the U.S. as effectively.

Unknown speaker

Nice. Thanks, all people.

Operator

Our subsequent query comes from the road of Andy Kaplowitz of Citigroup.

Andy Kaplowitz — Citi — Analyst

Good morning, guys.

Mark Morelli — President and Chief Government Officer

Hello, Andy.

Andy Kaplowitz — Citi — Analyst

Mark or Dave, might you replace us in your work on enterprise simplification utilizing VBS and what’s baked into your ’21 steerage? You clearly reported robust incrementals in This autumn. It did seem like they have been nearer to 50%, which looks as if you are guiding to once more in Q1. I feel you have informed us earlier than to assume extra about 30%. So are you discovering extra alternative than you thought to extend productiveness as you scale back complexity? Have you ever elevated profitability quicker in a few of your smaller companies? And does that imply we will begin interested by greater inherent incrementals going ahead?

Mark Morelli — President and Chief Government Officer

Yeah. Andy, I really like that query. What we actually discovered by way of digging into our portfolio right here is that we have now extra alternatives. And this simplification initiative actually is about how we sort of ferret out the areas the place we will do higher.

And I feel the separation actually exhibits that focus works, and the deeper utility of VBS right here and the instruments that we’re utilizing is absolutely uncovering that. I feel you are starting to see a few of that coming by way of. I feel I am very inspired by what we see into subsequent 12 months as we get our backs absolutely behind a few of these alternatives. When it comes to the entire steerage, I feel I will depart it to the information numbers we put on the market.

However net-net, I am simply very inspired on what we’re seeing, and I feel there’s a wonderful runway of alternatives forward.

Andy Kaplowitz — Citi — Analyst

Straightforward sufficient. Thanks, Mark.

Operator

Our subsequent query comes from the road of Julian Mitchell of Barclays.

Julian Mitchell — Barclays — Analyst

Hello. Good morning. Possibly only a query across the narrowing of that EMV headwind versus what you’d stated earlier than, what drove that? And will we simply assume a kind of greater headwind in 2022? And likewise, I feel you’d stated you had a excessive $0.30 headwind from EMV this 12 months in ’21. That suggests, I feel, a really, very excessive decremental margin, perhaps 50% plus.

Simply wished to double examine if I might misheard that.

Mark Morelli — President and Chief Government Officer

Yeah. Let me — I will begin with the query, and I will flip it over to Dave, too. So to start with, I feel we’re getting just a little higher visibility. So for us to sort of slim that vary on a little bit of an improved outlook to the $100 million to $150 million is definitely excellent news.

However I feel that is the issue that we’re up towards. One is the adoption charge is absolutely arduous for us to inform. So the opposite two is we had a greater leaping off level. It was a decrease quantity when it comes to leaping off level.

I feel we have now constructed a greater backlog. And a part of that, too, is we have been gaining share. After which the opposite factor that is sort of troublesome right here is that you have a combination between what’s known as EMV kits and dispensers, and that is additionally arduous to name. And then you definitely’ve bought the smaller community retailers, and there is 1000’s of those people that promote by way of two-step distribution, and so it’s kind of of a name when it comes to whole adoption charge on it.

So I feel what we’re doing as we’re working by way of this downside, we’re — as a lot transparency as we will, we’re updating you on the place we’re and what has modified when it comes to what we’re seeing after which what our outlook is. So it is fairly arduous to name even what occurs after April, however I feel we’re doing the most effective we will. I feel we’re assured in what we see. However as we get smarter, as a few of these dimensions develop into higher identified, then we’ll definitely replace you as we undergo it.

Dave, do you wish to add something on that?

Dave Naemura — Senior Vice President and Chief Monetary Officer

Sure. I feel on the decremental margin piece, Julian, I feel you are proper round it there, about 50%. These merchandise within the U.S., with the moderately greater know-how part, have a tendency to return off at just a little bit greater charge. But additionally, as we stated within the information, our profitability actions, our development initiatives and — collectively are offsetting that impression.

So we really feel fairly good about that.

Julian Mitchell — Barclays — Analyst

And perhaps only a follow-up round kind of broader portfolio ideas, I suppose, in two respects. One is perhaps a number of the markets you are seeking to purchase in, in EVs or telematics, very, very frothy valuations. So are you sort of altering in any respect how you concentrate on acquisitions? And likewise then on that time on electrical vehicle-related valuations out there, does that change how you concentrate on the stakes in issues like Tritium and Driivz and how you can crystallize that worth?

Mark Morelli — President and Chief Government Officer

Yeah. So to start with, we could not be extra enthusiastic about these very growthy markets. It is fragmented. As lots of you realize, it is a couple of $27 billion TAM that we function in.

And we’re excited in regards to the portfolio alternatives round sensible cities, round telematics and adjacencies and logistics and provide chain and constructing out the portfolio across the comfort retailer and truck stops. As a result of as lots of you realize, we’re not only a gas meting out enterprise. We have gotten into sort of the retailing aspect with point-of-sale and with SaaS alternatives there. In addition to e-mobility, I feel represents a possibility.

So I do not assume there’s any kind of new updates there. We’re definitely out there doing technique work. We have a full technique group now engaged in engaged on that stuff and really thrilling to sort of peel the onion on that. After which as we sort of transfer ahead, it is the continued cultivation.

And the M&A is just about the identical. And we’re bolt-ons, near-in adjacencies, strategic acquisitions. And we have an excellent stability sheet to have the ability to untap that. I feel the factor that you just talked about there about EV and the valuations, I imply, definitely, we’re seeing valuations, and we’re clearly being attentive to what’s occurring within the market.

The nice factor is that we have got these two minority investments. One in Tritium, which as lots of you could know, is a DC fast-charging firm there. And the opposite is in Driivz, which is a software program firm round managing — vitality administration within the house, too. And so that gives us actually a front-row seat the place we’re in a position to actually be taught.

And remember, it’s totally early innings out there.

Julian Mitchell — Barclays — Analyst

Nice. Thanks.

Operator

Our subsequent query comes from the road of Jeff Sprague of Vertical Analysis.

Jeff Sprague — Vertical Analysis — Analyst

Thanks. Good morning, everybody.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Good morning.

Jeff Sprague — Vertical Analysis — Analyst

Simply two from me, please. Simply first again to EMV, perceive the entire sort of riddle or query on the place adoption finally ends up. However based mostly on the place you ended the 12 months and what you might have on backlog — and backlog, we might assume would clearly be delivered, the place does that roughly depart adoption, assuming nothing else occurs?

Dave Naemura — Senior Vice President and Chief Monetary Officer

After we have a look at our put in base, we have now transformed about just a little over 70%, about 71% of our set up base. We’d rely — we might then rely the backlog and subsequent 12 months’s exercise. So we would be over 80%, most likely the mid-80s exiting 2021 based mostly on sort of the midpoint of the vary we put out at this time.

Jeff Sprague — Vertical Analysis — Analyst

Nice. And only a follow-up on the minority stakes, and once more, it is good to have sort of just a little play there. However what are the dynamics round these companies if the bulk proprietor desires to sort of go elsewhere? The danger of these items perhaps like buying and selling away from you, so to talk. It is unclear in case your ambition is to in the end purchase these items outright or they’re simply sort of channel-and-partner performs, proper? However again to the sooner query, a number of the stuff is tremendous scorching.

You might probably simply see this going elsewhere at some frothy valuation.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Yeah. It is troublesome to hypothesize right here, Jeff. We — the phrases — the precise phrases of those agreements are confidential. However we even have industrial preparations with these people which are exterior of the present perhaps phrases of our possession.

So it is arduous to hypothesize, notably in a market that is this early stage and, frankly, this type of thrilling. However having stated that, I perceive that — I feel all of us agree on the dynamic, that we’re seeing a variety of exercise on this house. And in the end, we like our optionality, and we like our place being in these property.

Mark Morelli — President and Chief Government Officer

The opposite factor there I will simply throw in is our income, that we truly promote for — what we name e-mobility, which is usually electrical charging of Tritium merchandise at this time. And it is principally Central Europe. It is about $25 million. So it is grown rather a lot this previous 12 months and it is — actually represents wonderful studying.

And I feel that is sort of the easiest way to explain at this stage is that we’re studying a ton. However the market’s evolving rapidly. It is an thrilling market, and we’re on the lookout for the most effective methods to untap that.

Jeff Sprague — Vertical Analysis — Analyst

Nice. Thanks for that shade. Recognize it.

Operator

Our subsequent query comes from the road of John Walsh of Credit score Suisse.

John Walsh — Credit score Suisse — Analyst

Hello. Good morning.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Good morning.

John Walsh — Credit score Suisse — Analyst

Possibly circling again to the query round capital allocation. Simply wished to get your sense on the way you’re balancing sort of with the ability to discover these offers the place you’ll be able to sort of hit that 10% ROIC threshold versus share repurchase. It appears to be like like you’re guiding for some dilution within the share rely in 2021 relative to no less than what you probably did right here in This autumn on a median diluted foundation.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Yeah, we’re. And a part of that is a bit more impacted by the spin the place now we’re seeing the impression of stock-based compensation are available simply starting from the spin date. That is the dynamic that you just see there. However once we take into consideration capital allocation, I feel it is honest to say that M&A positively stays our highest precedence.

In the end, John, we’re targeted on shareholder return, and we expect M&A is our most well-liked car to get there. Having stated that, there may very well be instances when share repurchase is smart. However I feel the correct method to consider us is M&A positively remaining our precedence when it comes to including shareholder worth.

John Walsh — Credit score Suisse — Analyst

Nice. After which perhaps as a follow-up, a variety of give attention to EMV. I am sorry if I missed it. How — what did the point-of-sale enterprise do inside GVR within the quarter? After which how are you interested by the expansion for that a part of the enterprise into ’21?

Dave Naemura — Senior Vice President and Chief Monetary Officer

We did not discuss particularly about level of sale. As you realize, we have now an excellent place within the U.S., and I feel we did effectively there. I haven’t got the precise share development on that product. However once we are speaking EMV, simply to be clear, we’re speaking in regards to the dispenser and the fee system embedded within the dispenser, so exterior the factor you place your bank card in.

We like our point-of-sale place. We like our place within the U.S., which is robust, and I knew we grew effectively there. And out of doors the U.S., we have now some new merchandise coming on-line, so it is an thrilling house for us. However I feel to the center of your query, point-of-sale will not be thought of a part of this EMV dynamic.

John Walsh — Credit score Suisse — Analyst

Nice. Thanks.

Operator

Our subsequent query comes from the road of David Raso of Evercore ISI.

David Raso — Evercore ISI — Analyst

Hello, good morning. My questions are in regards to the information. The backlog is up 40%, you talked about, on the finish of the 12 months. Do you might have a backlog development charge for ex EMV? Actually, I am making an attempt to determine the expansion for non-EMV.

It was up excessive single digit within the fourth quarter, however you are anticipating to gradual to mid-single. And I am simply making an attempt to determine that dynamic. After which second, on the information for EPS, it looks as if you are implying the again half of the 12 months is about $1.40, which implies the primary half of the 12 months is $1. And given you gave first-quarter EPS, you are implying the second quarter EPS is beneath the primary quarter.

And I am simply making an attempt to make it possible for’s what you are making an attempt to suggest. After which lastly, the stability sheet utilization, money move. Is any stability sheet use of money move actually within the information?

Dave Naemura — Senior Vice President and Chief Monetary Officer

Going again to those elements, perhaps beginning along with your level across the information, David. So look, we talked in regards to the story of two halves. And the primary half goes to be fairly a bit stronger right here, each on the simpler evaluate, but additionally as a result of we’re seeing the EMV volumes come by way of. And notice that we’ll see some everlasting prices come again within the second quarter.

So there’s nonetheless some places and takes. So we’re not guiding EPS by quarter past the primary, however there are some dynamics that most likely impression the second just a little worse than — that are not essentially there within the first. And the volumes popping out of your backlog, sort of tying it to your first level, are in the end, we’ll see a variety of that energy coming by way of the primary quarter. So the primary quarter is unquestionably going to be very robust, to your level.

Now the purpose about backlog that you just level out, EMV was a giant driver of the numerous development in backlog. However we had good development in Matco, and we had good development in different components of GVR as effectively that weren’t U.S.-related. So I feel that with out having the precise quantity parsed out in entrance of me, I feel it is fairly honest to say that we’re seeing development in backlog, albeit not at that charge. So there’s additionally another timing results right here occurring within the first half.

That is actually just a little bit because of the pandemic. Traditionally, we might have our expo at Matco, which is, frankly, a giant driver of demand and price. We’d have that within the first quarter, and we’re transferring that to the second. I do not assume the entire income will essentially transfer to the second as a result of we’ll nonetheless do a variety of that on-line.

However it’s a vital occasion for that group that pulls alongside a variety of prices, and that will probably be within the second quarter as effectively. So I feel directionally, you are right with out making an attempt to essentially put a greenback on it.

David Raso — Evercore ISI — Analyst

I am simply making an attempt to — and likewise the third query in regards to the stability sheet money move utilization, what’s implied within the information? Or is it extra simply no utilization implied and you are able to do what you need with the decrease internet debt in your mannequin? I am simply making an attempt to determine what’s within the information for the stability sheet utilization.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Yeah. So we talked about — Mark talked about conversion — free money move conversion of about 95% subsequent 12 months. And we had a giant working capital tailwind this 12 months. And we anticipate, as I used to be saying, just a little little bit of a headwind subsequent 12 months.

So we anticipate just a little decrease — effectively, considerably decrease free money move conversion 12 months over 12 months. However as you realize, we are likely to level folks towards about 100% conversion, so will probably be round that. So we see issues sort of normalizing with some trade-offs from a number of the advantages in 2020. So far as capital allocation for M&A, we’re not implying something in our information round doing any deal.

So this might be sort of a purely natural information. M&A can be upside, prefer it at all times is for us.

David Raso — Evercore ISI — Analyst

So no repo, no M&A, simply merely the 95% money move conversion and no matter that money would carry on curiosity revenue or no matter, short-term debt discount. There is no energetic use of the money move or stability sheet for M&A or repo.

Dave Naemura — Senior Vice President and Chief Monetary Officer

That is proper. That is proper.

David Raso — Evercore ISI — Analyst

All proper. I respect it. Thanks a lot.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Yeah, positive David. Thanks.

Operator

Our subsequent query comes from the road of John Inch of Gordon Haskett.

John Inch — Gordon Haskett — Analyst

Thanks. Good morning, all people. I am questioning if we might discuss just a little bit about simply M&A course of. I do know you have talked about this previously, and you have talked about this type of as Vontier was going public.

However I simply wish to — perhaps you may lay out just a little bit extra on the method and the way that is working. I do know you might have a few senior people driving this. And I do know one among you talked about the sensible cities initiative. However how are you — if you concentrate on ex — clearly, you will get into some adjacencies the C-suite — or c-stores and different issues with respect to fuel stations.

However how are you interested by the world of — such as you guys have a fairly clean canvas, proper? I imply it strikes me that you’ve a really vast alternative to take a look at quite a few various things and standards, probably even just a little overwhelming. How are you narrowing this? Simply perhaps you may speak about that, please. Thanks.

Mark Morelli — President and Chief Government Officer

Yeah. So it’s a fairly thrilling subject. And if you concentrate on our penetration in a few of these, GTT, whereas a small enterprise, it nonetheless places us into 90,000 intersections in the USA. When it comes to fleet monitoring administration, we’re on 0.5 million autos which are being monitored.

After which if — you spoke in regards to the comfort retailer with about 260,000 refueling websites globally throughout the common of each three to 4 dispensers per fueling website. So there’s a variety of knowledge coming in, and the power to kind of monetize that can be fairly thrilling. However I feel you introduced it up proper. I imply it is growthy.

These are fragmented. They’re all very excited. After which how will we slim the sphere is one thing that we wrestle with rather a lot. We have a group of oldsters engaged on this effervescent up priorities.

And as you realize, each — you wish to be satisfied of the technique within the house in addition to you wish to be what’s in these areas when it comes to properties, and M&A could be fairly episodic. So there’s quite a few elements that we have a look at. The excellent news is that they are all comparatively close to in. Like we have now a motive to be in these locations.

We now have one thing to leverage in these locations. And we have now one thing to leverage throughout these areas, too, which can be very thrilling. So I feel that does give us optionality. I’ll completely say that we have now a disciplined, rigorous method once we assume by way of these items and thru capital allocation as effectively.

It’s kind of of the heritage that we get, each by way of the cultivation side in addition to the executives that we have now onboard that basically assume by way of these sort of issues. And we wish to say no rather a lot on this course of, too. Meaning we’re simply ferreting out the most effective of the most effective alternatives at this given time.

John Inch — Gordon Haskett — Analyst

Mark, what would you say are Vontier’s core competencies that might lend themselves to you focusing on future acquisitions that aren’t quick or apparent adjacencies to each Matco and GVR?

Mark Morelli — President and Chief Government Officer

Yeah. We now have a wonderful core competency in fixing high-value issues with prospects on this house. Our manufacturers are effectively acknowledged. We have a variety of depth in how we serve our prospects there.

After which whenever you look throughout the companies, there’s fairly important scale that we will additionally leverage. After which the opposite competence we have now is also on this kind of M&A allocating functionality that’s deeply entrenched within the enterprise and likewise the appliance of VBS and the way we will apply that to new acquisitions. So we have rather a lot to work with right here, and so I am excited to leverage it.

John Inch — Gordon Haskett — Analyst

Thanks.

Operator

Our subsequent query comes from the road of Julian Mitchell of Barclays.

Julian Mitchell — Barclays — Analyst

Thanks rather a lot. So only one follow-up. I did not hear a lot point out of telematics. Possibly I might missed it, however simply wished to examine how did that carry out in This autumn and likewise what’s embedded in that information for this 12 months relative to the mid-single-digit development ex EMV.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Julian, it is Dave. Within the fourth quarter, I feel we noticed the progress we have been on the lookout for, and we stay on monitor. As you realize, it is a SaaS enterprise, and it was down within the fourth quarter, however that was extra a perform of sort of flushing by way of some churn income within the prior 12 months. And as we have talked about earlier, we have seen churn average.

It is a SaaS enterprise. It takes time to vary. However what we’re is the ahead indicators of the speed of churn and a number of the operational priorities we’re seeking to make. We have talked about actually beginning to see that move by way of the P&L extra within the second half of subsequent 12 months.

So it does not have a giant impact on the information subsequent 12 months as a result of it strikes slowly. However I might say, we’re positively nonetheless targeted on the operational priorities we have talked about and really feel like we’re on monitor with these.

Julian Mitchell — Barclays — Analyst

Thanks.

Dave Naemura — Senior Vice President and Chief Monetary Officer

Thanks Julian.

Operator

[Operator signoff]

Length: 43 minutes