Vontier Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended April 1, 2022; comparisons are with the three months ended April 2, 2021. Vontier is a global industrial technology company serving mobility infrastructure, fueling, automotive repair, software, fleet, and related markets. It reports one segment.
Financial and operating performance
| Metric | Q1 2022 | Prior year |
|---|---|---|
| Sales | $748.1 million | $707.4 million |
| Gross profit / margin | $335.3 million / 44.8% | $311.8 million / 44.1% |
| Operating profit / margin | $134.8 million / 18.0% | $132.9 million / 18.8% |
| Net earnings | $250.2 million | $91.0 million |
| Diluted EPS | $1.50 | $0.54 |
| Operating cash flow | $41.3 million | $163.3 million |
Sales increased 5.7%; sales from existing businesses declined 0.1%, acquisitions contributed 7.2%, and foreign exchange reduced growth by 1.4%. Price increases contributed 4.3% to sales growth. Gross margin improved 70 basis points, while operating margin fell 80 basis points.
Net earnings included a $163.0 million unrealized gain on Vontier’s publicly traded Tritium investment and a $32.7 million noncash gain from remeasuring its previously held Driivz interest. These gains materially boosted reported earnings and are not representative of operating profit. Interest expense was $12.9 million; the effective tax rate was 21.2%, versus 23.6% a year earlier.
Cash, debt, and capital allocation
- Cash and equivalents were $145.1 million at quarter-end, down from $572.6 million at year-end 2021. Operating cash flow was offset by $203.4 million of investing outflows and $263.6 million of financing outflows.
- Long-term debt, net, was $2.585 billion; short-term borrowings were $4.2 million. The $750 million revolving credit facility had no balance outstanding, and the company reported covenant compliance.
- Investing cash use included $184.9 million net cash paid for acquisitions, principally Driivz. The company also paid $257.0 million for treasury stock, including its $250 million accelerated share repurchase (ASR), and paid $4.0 million in dividends.
- Current assets were $1.257 billion and current liabilities were $848.3 million.
Material changes, outlook, and risks
Revenue growth was primarily driven by the DRB Systems acquisition and stronger diagnostics and repair demand, partly offset by weaker mobility technology sales from existing businesses. DRB added retail solutions exposure; in February 2022, Vontier acquired the remaining 81% of Driivz, an electric-vehicle charging software company, for $152.6 million net of cash received. Driivz’s purchase accounting remains preliminary.
Management expected sales and sales from existing businesses to grow year over year in 2022. It anticipated persistent supply-chain and inflation pressures, potentially elevated backlog, and continued use of pricing and operational measures to address cost pressures. Inflation reduced operating margin by 280 basis points year over year, partly offset by pricing, volume, mix, and DRB’s contribution.
Management cited COVID-19 disruptions, including China lockdowns, supply-chain and logistics constraints, inflation, regulatory and technology changes, foreign-exchange movements, and geopolitical risks. Vontier indefinitely ceased sales and shipments in Russia; Russia and Ukraine together represented less than 1% of 2021 revenue, and Russian net assets were under $1 million. The company disclosed $75.5 million of gross asbestos liabilities and $43.3 million of projected insurance recoveries. Management did not expect ordinary-course legal matters to have a material adverse effect, but outcomes and insurance recoveries remain uncertain.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operating performance versus the $195.7 million of investment-related gains.
- Whether operating cash flow recovers after the working-capital and payment timing effects that drove the year-over-year decline.
- Progress on integrating DRB and Driivz, and the eventual purchase accounting and business contribution from Driivz.
- Whether pricing can continue to offset inflation, supply constraints, and margin pressure.
- The final Q2 settlement of the $250 million ASR and its impact on shares outstanding and liquidity.
- Potential changes in asbestos claims, insurance recoveries, and other contingencies.