Vontier Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended April 2, 2021. Unless otherwise noted, amounts are in millions of dollars. The comparison is with the three months ended March 27, 2020. Vontier separated from Fortive in October 2020, so the prior-year figures are combined carve-out results and may not be fully comparable with the post-separation consolidated results.
Business context and performance
Vontier is an industrial technology company serving mobility infrastructure markets, including fueling, environmental and retail solutions, telematics, smart cities, and vehicle diagnostics and repair. It reports one aggregated segment. Management said demand increased broadly, with strength in retail and environmental solutions, North American fuel-management systems, India, Mexico, and diagnostics and repair products.
Key financial metrics
| Metric | Q1 2021 | Prior-year period |
|---|---|---|
| Total sales | $707.4 | $609.2 |
| Gross profit / margin | $311.8 / 44.1% | $263.1 / 43.2% |
| Operating profit / margin | $132.9 / 18.8% | $21.8 / 3.6% |
| Net earnings (loss) | $91.0 | $(4.2) |
| Diluted EPS | $0.54 | $(0.02) |
| Cash from operating activities | $163.3 | $55.6 |
| Capital expenditures | $11.0 | $7.5 |
Sales rose 16.1%; sales from existing businesses, a non-GAAP measure, rose 14.3%, with currency contributing 1.8 percentage points and price increases contributing 1.0%. Operating cash flow less capital expenditures was $152.3 million, calculated from the reported figures.
At April 2, 2021, cash and cash equivalents were $670.3 million; long-term debt, net, was $1,981.8 million and short-term borrowings were $6.9 million. The $750 million revolving credit facility was undrawn. Total current assets were $1,411.2 million and current liabilities were $798.2 million. Gross debt less cash was approximately $1.32 billion, calculated from reported balances.
Changes versus the prior period
- Sales increased $98.2 million; gross margin improved 0.9 percentage points. Management attributed operating improvement to higher volume, price and favorable mix, partly offset by material-cost inflation and higher standalone public-company costs.
- Operating profit increased substantially, but comparison benefited from an $85.3 million goodwill impairment recorded in the prior-year quarter. No goodwill impairment was recorded in Q1 2021.
- Net earnings improved from a loss to profit. The effective tax rate was 23.6%, compared with 119.7%, primarily because the prior period included the non-deductible goodwill impairment.
- Operating cash flow increased $107.7 million. Management cited higher earnings, a $61.5 million cash contribution from accounts and financing receivables, and lower cash use by other operating assets and liabilities.
Outlook, financing, risks and contingencies
- Management expected overall sales and sales from existing businesses to grow year over year in 2021. It gave no specific quantified growth or earnings guidance and noted continued monitoring of COVID-19, geopolitical and regulatory uncertainties.
- On March 10, 2021, Vontier issued $1.6 billion of senior unsecured notes due 2026, 2028 and 2031, bearing interest at 1.800%, 2.400% and 2.950%, respectively. Proceeds repaid $1.4 billion of term loans; remaining proceeds were for working capital and general corporate purposes. Vontier reported compliance with debt covenants.
- After quarter-end, on April 28, Vontier extended the $400 million term loan maturity to October 2024 and the undrawn $750 million revolver maturity to April 2026, and reduced their stated LIBOR-based margins.
- Principal disclosed risks include ongoing COVID-19 effects, inflation and supply constraints, regulatory and technology changes, indebtedness, goodwill or intangible impairment, and asbestos litigation. Asbestos liabilities were $67.4 million with projected insurance recoveries of $35.9 million. Guarantees, primarily letters of credit, bank guarantees and bonds, totaled approximately $102.5 million.
- Management said it believed operating cash flow and other liquidity sources would support operations, investment, acquisitions and debt service. Forward-looking statements remain subject to the risks described in the filing.
Most important facts for investors to verify
- Whether reported sales growth and margin improvement persist, particularly given favorable prior-year comparison effects and the difference between pre- and post-separation reporting.
- How material-cost inflation, supply availability, COVID-19, and customer demand affect subsequent results and the 2021 growth outlook.
- Debt service capacity, future interest expense and compliance with covenants, including the effects of the post-quarter credit agreement amendment.
- Cash-flow sustainability: Q1 operating cash flow benefited from receivable movements and working-capital timing.
- Potential asbestos, tax, separation-related and other contingent liabilities, and the collectability of financing receivables.