Vontier Corporation — 2021 Form 10-K Summary
Business context and reporting period
Vontier is a global industrial technology company serving mobility infrastructure markets, including fuel dispensing and environmental monitoring, car-wash software, fleet telematics, traffic management, and vehicle repair equipment. It reports one aggregated segment. This annual report covers the fiscal year ended December 31, 2021.
Vontier became independent from Fortive in October 2020. The 2020 comparison includes the businesses’ combined results before separation and Vontier’s consolidated results afterward; 2021 reflects a full year as a standalone company. Accordingly, comparisons are affected by different standalone corporate costs and are not fully like-for-like.
Financial performance and liquidity
| Metric | 2021 | 2020 |
|---|---|---|
| Sales | $2,990.7 million | $2,704.6 million |
| Gross profit / margin | $1,333.1 million / 44.6% | $1,188.1 million / 43.9% |
| Operating profit / margin | $582.2 million / 19.5% | $468.2 million / 17.3% |
| Net earnings | $413.0 million | $342.0 million |
| Diluted EPS | $2.43 | $2.02 |
| Cash from operating activities | $481.1 million | $691.3 million |
Reported sales rose 10.6%; sales from existing businesses increased 7.4%, acquisitions added 2.1%, and currency contributed 1.1%. Price increases contributed 2.4% to sales growth. Gross margin improved 70 basis points, while operating margin improved 220 basis points. Management attributed operating-margin improvement to volume, pricing, mix and other factors, and the absence of the prior-year goodwill impairment; higher standalone-company costs and inflation partly offset those benefits.
Operating cash flow declined $210.2 million year over year, largely reflecting working-capital and timing effects. Capital expenditures were $47.8 million; operating cash flow less capital expenditures was approximately $433.3 million. Cash and cash equivalents were $572.6 million at year-end, about 40% held outside the United States.
Long-term debt was $2,583.8 million net of discounts and issuance costs, representing $2.6 billion principal, plus $3.7 million short-term borrowings. Debt principal was $2.6 billion; cash less reported debt carrying value was approximately negative $2.0 billion. The company reported $1.0 billion of variable-rate debt and no borrowings under its revolving credit facility at year-end. The filing’s risk summary cites $670 million of additional borrowing capacity. Vontier reported compliance with debt covenants.
Material changes and significant transactions
- Vontier acquired DRB Systems, a car-wash point-of-sale and workflow software provider, on September 13, 2021 for approximately $955.8 million in cash. DRB contributed $57.7 million of sales and a $3.2 million pretax loss from acquisition through year-end. Purchase accounting remained preliminary; $584.7 million of goodwill and $405.6 million of acquired intangible assets were preliminarily recorded.
- Interest expense, net increased to $47.8 million from $10.0 million, primarily because of higher debt balances. Vontier issued $1.6 billion of senior notes at coupons of 1.8%–2.95% and repaid $1.4 billion of term loans; it also borrowed $600 million under a delayed-draw term loan to fund DRB.
- SG&A rose $113.2 million, including costs of operating as a standalone public company for a full year and DRB-related costs. Restructuring charges were $13.1 million, principally severance and facility actions.
- Net earnings increased 20.8%, but 2020 included an $85.3 million non-cash goodwill impairment charge related to Telematics. No goodwill impairment was recorded in 2021.
Outlook, commentary and risks
Management expected year-over-year growth in total sales and sales from existing businesses in 2022. It highlighted ongoing uncertainty from COVID-19, inflation and supply-chain constraints. During 2021, shortages of semiconductors and electronic components contributed to higher backlog; backlog was $733.9 million at year-end versus $542.5 million a year earlier, with most unfilled orders expected to ship in the first half of 2022. Management cautioned that backlog is not necessarily a reliable medium- or long-term sales indicator.
Key risks include pandemic-related disruption; component availability and cost inflation; regulatory and industry-standard changes; technology shifts, including electric vehicles; international and currency exposure; cybersecurity and data privacy; acquisition integration and goodwill impairment; and substantial indebtedness. A 100-basis-point increase in rates on year-end variable-rate debt would have increased 2021 interest expense by approximately $8 million. Vontier also disclosed asbestos-related liabilities of $79.0 million and projected insurance recoveries of $45.0 million at year-end. Management stated that litigation and claims were not expected to have a material adverse effect, based on available information.
Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Management and the auditor excluded DRB from the year-end internal-control assessment because integration was not complete; DRB represented less than 2% of 2021 revenue.
Subsequent events included the February 2022 acquisitions of Driivz and Sparkion for approximately $190 million combined, and a $250 million accelerated share repurchase announced February 22, 2022. Final settlement of the repurchase was expected in the second quarter of 2022. The company also paid a $0.025-per-share dividend in 2021.
Important facts for investors to verify
- How much of 2021 growth and margin improvement is sustainable after separating acquisition contributions, price increases, prior-year impairment effects, inflation and standalone costs.
- DRB’s final purchase-price allocation, integration performance and expected returns; also assess the results and accounting for the 2022 Driivz and Sparkion acquisitions.
- Debt repayment capacity, maturities, variable-rate exposure, available revolver capacity and compliance with leverage and interest-coverage covenants.
- Whether working-capital needs and component shortages constrain cash generation, deliveries or the 2022 growth outlook.
- Developments in asbestos claims and insurance recoveries, and the company’s progress incorporating DRB into internal controls.