Vontier Corporation 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone, thank you for joining us on the call this morning to discuss our second quarter results.

With me on the call today are Mark Morelli, our President and Chief Executive Officer, and Anshooman Aga, our Executive Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we'll 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 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 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, please turn to slide three, and I'll turn the call over to Mark.

Thanks, Ryan, good morning, everyone. Thank you for joining us today. Let me begin with a few high-level takeaways from the quarter. We delivered a strong second quarter with results that came in ahead of our expectations on both the top and bottom line. We see healthy underlying demand across much of the portfolio, particularly in the convenience retail-facing businesses, made important progress on our cost and simplification actions, and remain disciplined in how we deploy capital. Our performance this quarter reinforces our confidence in the full-year outlook and in the second-half growth expectations. Core sales were flat in the quarter, slightly ahead of our guide, driven by upside in Environmental & Fueling Solutions. This performance came against a difficult prior year comparison, with approximately 11% core growth in the second quarter of last year.

Adjusted operating margin increased 190 basis points year-over-year, led by strong performance at Mobility Technologies. Notably, after adjusting for tariff refunds in the quarter, we exceeded our expectations. Orders were up low single digits in the quarter, and book-to-bill was above one, led by strength in Mobility Tech and Environmental & Fueling Solutions. In Environmental & Fueling, we've seen strong growth in dispensers and aftermarket parts. The broader backdrop is strong, with customers continuing to invest in site modernization, new store expansion, and replacement activity tied to more advanced forecourt and payment technologies. Consolidation also remains a tailwind as operators standardize equipment across acquired sites. Within Mobility Tech, core growth was affected by the difficult comparison associated with elevated vehicle identification solution shipments in the prior year. Absent that compare, Mobility Tech grew mid-single digits in the second quarter and the first half.

We expect this momentum to continue and further supports our outlook for the second half. Demand for our in-store payment, point-of-sale, and asset management offerings is robust, which speaks to how our portfolio is aligning with customer priorities. It also speaks to the success of our strategic growth initiatives and new product introductions and our unique positioning in the marketplace. With respect to Repair Solutions, sales trends continue to stabilize, but margin performance in the quarter was below our expectations and remains a clear area of focus. Put simply, the business is not performing where it needs to, and we are taking actions to address that. During the quarter, we announced a leadership transition at Repair Solutions. Cameron Richardson joined us from NAPA Auto Parts and brings more than 25 years of global experience in the automotive aftermarket and retail industry, with a proven track record of leading successful turnarounds.

We are focused on the key operational levers within the business and expect the actions now underway to strengthen execution and improve profitable growth. Turning to capital allocation, we increased our share repurchase authorization to $1 billion and accelerated buyback activity during the quarter. Given the current valuation and supported by our strong free cash flow profile, we continue to view buybacks as a very attractive use of capital. At the same time, we completed the sale of Teletrac and announced the acquisition of EKOS, both of which better align the portfolio with our connected mobility strategy and our returns-driven philosophy. Approximately 80% of our portfolio is aligned to end markets that are supported by favorable secular trends and durable underlying demand, particularly convenience retail and fleets. Across these markets, operators facing greater complexity are increasingly investing in a network of connected, intelligent, and integrated operating environments.

We are winning with customers who are prioritizing solutions that enable productivity, growth, and scale, which plays to our competitive advantages. Our connected mobility strategy is becoming increasingly tangible in the business. One example is asset management, where we bring together connected hardware and software to help customers remotely manage and maintain fueling assets across their networks. Year-to-date, connected assets managed through our applications are up more than 20% versus last year, and in Q2 alone, we brought more than 2,000 new sites online for several existing customers. At Kwik Trip, a key strategic partner, deployment of our asset management platform across its forecourt has reduced truck rolls for service events by more than 80%. Our value proposition is resonating as operators look for ways to ensure higher equipment uptime, address labor constraints, and improve operating efficiency.

The rollout of our next-gen payment kit offerings is in full swing. In Q2, nearly one-quarter of the new dispensers that left our factory were equipped with the updated FlexPay 6 terminal that launched late last quarter. We anticipate this mix to accelerate as retailers prefer a more engaging common consumer experience and drive costs and complexity out of their payment technology. This not only supports top-line growth in Mobility Tech and EFS, but also our margin expansion assumptions for the second half. Taken together, these examples illustrate how our product development and simplification efforts are translating into higher customer adoption and improving quality and margins. Let me spend a moment on EKOS on Slide 4, which is a compelling addition to the portfolio and an important step forward in our connected mobility strategy for our fleet customers.

EKOS adds a high-growth fleet energy management business that integrates with our existing fuel and equipment and site management offerings. As an existing strategic partner, it strengthens our ability to provide a more comprehensive solution across private fueling operations. This combination is both differentiated and durable. By embedding software into mission-critical fueling hardware, it helps customers improve visibility, control, and operating efficiency. That makes the offering relevant as fleets continue to adopt more intelligent operating tools, including AI. EKOS also brings an attractive recurring revenue profile, with ARR representing approximately 80% of revenue and growing at a 25% compound annual rate over the last three years. The platform connects more than 1 million vehicles and manages approximately 10,000 customer sites, including for customers like Ryder, GFL, and XPO Logistics. As we look ahead, we remain confident in our full-year outlook and are raising our EPS guidance.

We enter the second half with the business in a strong position. Overall, order trends and a solid pipeline support our growth outlook for the balance of the year. Demand in Environmental & Fueling Solutions remains robust. Mobility Tech is inflecting positive as we move beyond the compare dynamics and underlying growth continues. We see a clear path to double-digit earnings growth this year, supported by stronger operational execution, delivering on our cost-savings commitments, and additional share repurchases. With that, I'll turn the call over to Ann Schumann to walk through the quarter and outlook in more detail.

Thanks, Mark, and good morning, everyone. Before discussing the quarter in more detail, I'd like to bridge our second quarter guidance to the results we reported today on Slide 5. There were two notable items in the quarter that differed from the assumptions embedded in our original guidance. First, the Teletrac transaction closed approximately one month later than we had assumed, which resulted in an additional month of contribution in the quarter. Second, we recognized a one-time favorable net impact from IEEPA tariff refunds related to inventory sold in the prior year. Importantly, after adjusting for the Teletrac divestiture timing and the tariff refund, our results exceeded the high end of our original guidance range, reflecting solid underlying execution. Turning to the consolidated results for the quarter on Slide 6.

Total sales were $757 million, with core sales approximately flat year-over-year, led by strong performance in Environmental & Fueling Solutions. Adjusted operating profit margin increased 190 basis points, including a net benefit of approximately 120 basis points from the IEEPA tariff refunds. Our underlying margin expanded 70 basis points, driven by solid performance at Mobility Technologies. We delivered approximately $4 million in year-over-year savings in the quarter ahead of plan and now expect to exceed our $15 million commitment for the full year. The progress we're making on our VPS-led simplification efforts, including 80/20, is showing up in several ways. In EFS, we are nearing completion of our move from 32 to eight dispenser platforms, with the remaining rationalization expected in the second half, alongside regional simplification that is consolidating production capacity needs.