Vontier Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended October 1, 2021; comparison periods ended September 25, 2020. Vontier is a global industrial technology company serving mobility infrastructure markets, with mobility technologies and diagnostics and repair technologies reported as one segment. The 2020 comparison includes pre-separation combined results and may not be directly comparable with Vontier’s post-separation consolidated results.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Sales | $768.5 million | $746.7 million | $2,200.5 million | $1,889.6 million |
| Gross profit / margin | $346.4 million / 45.1% | $331.3 million / 44.4% | $976.7 million / 44.4% | $825.4 million / 43.7% |
| Operating profit / margin | $167.4 million / 21.8% | $178.6 million / 23.9% | $421.3 million / 19.1% | $290.4 million / 15.4% |
| Net earnings | $127.3 million | $141.0 million | $300.6 million | $205.2 million |
| Diluted EPS | $0.75 | $0.84 | $1.77 | $1.22 |
Q3 sales increased 2.9%; sales from existing businesses rose 0.8%, with acquisitions contributing 1.4% and currency 0.7%. Year-to-date sales increased 16.5%; existing businesses contributed 14.1%, acquisitions 0.6%, and currency 1.8%. Price increases contributed 3.1% to Q3 and 2.1% to nine-month sales growth.
Q3 gross margin expanded 70 basis points, but operating margin fell 210 basis points. Management attributed the pressure primarily to higher standalone public-company costs and inflation, partly offset by price, volume and mix. Nine-month operating margin improved 370 basis points, also reflecting the absence of the prior-year $85.3 million goodwill impairment. Q3 net earnings declined despite higher sales, with interest expense rising to $12.0 million from $0.2 million.
Cash flow, liquidity and debt
- Nine-month operating cash flow was $341.9 million, down from $480.6 million. The filing cites receivables using $25.0 million of cash versus providing $53.2 million in the prior period, and lower cash provided by other operating assets and liabilities.
- Capital expenditures were $32.9 million; operating cash flow less capital expenditures was approximately $309.0 million. Investing cash outflow was $989.0 million, including $955.5 million paid for DRB Systems.
- Cash was $458.9 million at October 1, 2021, versus $380.5 million at year-end 2020. Current assets were $1,321.1 million and current liabilities $872.3 million.
- Balance-sheet debt was $2,583.1 million long-term and $4.5 million short-term. The company also had an undrawn $750 million revolving credit facility. It reported compliance with debt covenants.
- During the period, Vontier issued $1.6 billion of senior notes, refinanced term loans, and drew a $600 million term loan to help fund DRB. Notes carry fixed rates of 1.8%–2.95%, with maturities from 2026 to 2031; term loans have variable rates.
Material developments, outlook and risks
- Vontier acquired DRB Systems, a car-wash point-of-sale and workflow software provider, on September 13 for $955.5 million cash. DRB contributed $10.9 million of revenue and a $0.5 million pretax loss during the post-acquisition period. Purchase accounting remains preliminary; recorded goodwill was $587.4 million.
- Management expected total sales and sales from existing businesses to grow year over year in 2021, while monitoring COVID-19, geopolitical and regulatory uncertainty. The filing gives no specific numerical growth or earnings guidance.
- Management cited inflationary costs as a headwind. Q3 mobility technologies sales were affected by lower demand tied to EMV outdoor-payment upgrades and the completion of Mexican fiscal-regulation upgrades; diagnostics and repair remained strong.
- Key disclosed risks include COVID-19 effects, regulation and product acceptance, supply availability and commodity costs, acquisition integration and impairment, indebtedness and interest rates, tax and separation-related obligations, and asbestos litigation. Management did not expect ordinary-course legal matters to have a material adverse effect.
- Asbestos-related liabilities were $68.1 million, with projected insurance recoveries of $33.2 million. Purchase obligations increased approximately $95 million due to sourcing timing. The company had $500 million of share-repurchase authorization remaining and paid $8.4 million in dividends during the nine-month period.
Important facts for investors to verify
- DRB’s final purchase-price allocation, integration progress, and contribution to organic growth and profitability.
- Whether pricing continues to offset inflation and whether Q3 operating-margin pressure from standalone costs persists.
- Cash conversion and working-capital trends, especially receivables, following the year-over-year decline in operating cash flow.
- Debt-service capacity, variable-rate exposure, covenant headroom and the transition from LIBOR reference rates.
- Assumptions supporting goodwill and intangible-asset values, asbestos insurance recoveries, and separation- and tax-related exposures.