Business context and reporting period
Vontier Corporation’s Form 10-K covers the fiscal year ended December 31, 2022; it does not provide a standalone Q4 income statement. Vontier is a global industrial technology company serving mobility markets, including fueling, environmental monitoring, car wash software, fleet telematics, EV charging, and vehicle repair. It reports one aggregated segment across mobility technologies and diagnostics and repair technologies.
Financial performance and condition
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Sales | $3,184.4 million | $2,990.7 million |
| Gross profit / margin | $1,428.3 million / 44.9% | $1,333.1 million / 44.6% |
| Operating profit / margin | $577.9 million / 18.1% | $582.2 million / 19.5% |
| Net earnings | $401.3 million | $413.0 million |
| Diluted EPS | $2.49 | $2.43 |
| Operating cash flow | $321.2 million | $481.1 million |
Sales rose 6.5%: acquisitions contributed 6.5%, existing businesses 2.6%, and currency translation reduced growth by 2.6%. Gross margin improved 0.3 percentage points, but operating margin declined 1.4 points as SG&A and R&D grew faster than sales. Net earnings fell 2.8%; diluted EPS increased partly as average diluted shares declined to 161.0 million from 170.1 million.
Interest expense increased to $69.6 million from $47.8 million, mainly due to higher average debt and rates on variable-rate borrowings. FY 2022 results included a $32.7 million noncash gain on remeasurement of Vontier’s prior Driivz investment and an $8.7 million unrealized loss on equity securities. Effective tax rate was 23.9%, versus 22.7%.
Operating cash flow decreased $159.9 million, with management citing working-capital movements and timing of accruals, payments, and taxes. Capital expenditures were $60.0 million. Cash and cash equivalents were $204.5 million at year-end, compared with $572.6 million. Long-term debt was $2.586 billion net of issuance costs; aggregate principal debt was $2.6 billion, including $1.0 billion of variable-rate term loans. The company had $750 million available under its revolving facility and reported compliance with debt covenants. A 100-basis-point increase in rates on year-end variable-rate debt would add approximately $10 million in annual interest expense.
Material changes versus the prior year
- Revenue growth reflected acquisitions and price increases, partially offset by currency headwinds and lower demand following the end of certain EMV outdoor-payment and Mexico fiscal-regulation upgrade cycles.
- SG&A rose 13.5%, including higher acquisition-related amortization and transaction costs; operating profit declined despite higher gross profit.
- Cash paid for acquisitions fell to $277.5 million from $955.8 million in 2021. 2022 acquisitions included Driivz, Invenco, and two other businesses.
- Vontier repurchased $328.0 million of shares and paid $15.9 million in dividends. It refinanced a $600 million term loan due in 2023 with a new three-year loan due in 2025.
- Backlog fell to $677.3 million from $733.9 million. Management said most unfilled orders at year-end were expected to ship in the first half of 2023.
Outlook, risks, and unusual items
Management expected 2023 total sales and sales from existing businesses to decline year over year, primarily because of reduced demand after the EMV upgrade cycle. Excluding that effect, it expected existing-business sales to increase mid-single digits. The outlook was subject to macroeconomic, supply-chain, electronic-component availability, pandemic, geopolitical, and European energy risks.
During 2022, Vontier decided to exit Hennessy and Global Traffic Technologies (GTT); both were classified as held for sale, not discontinued operations. The company recorded $3.6 million of impairment charges related to the disposal groups and $11.5 million of restructuring and related charges. Management stated that Russia and Ukraine together accounted for less than 10 basis points of 2022 revenue and were not believed material as of the filing date.
Other notable exposures include asbestos-related claims, with $105.2 million of gross recorded liabilities and $68.6 million of projected insurance recoveries at year-end; management said litigation and claims were not expected to have a material adverse effect. The company also cited supply-chain constraints, inflation, foreign-exchange movements, competition, cybersecurity, regulatory and privacy compliance, and the long-term risk that alternative-fuel vehicles could reduce demand for petroleum-related products. Management and the auditor concluded internal control over financial reporting was effective; controls at acquired Driivz and Invenco, representing 2% of assets and 2% of revenue, were excluded from the assessment.
Important facts for investors to verify
- Track whether 2023 sales performance matches management’s outlook, particularly the timing and magnitude of the post-EMV demand decline and underlying mid-single-digit growth expectation.
- Assess whether working-capital use reverses and operating cash flow recovers, while monitoring cash, debt maturities, variable-rate exposure, and covenant headroom.
- Review acquisition integration, contingent consideration, and the final purchase-price allocations for 2022 acquisitions; Driivz and Invenco controls had not yet been fully incorporated into the company-wide assessment.
- Monitor progress and proceeds from the Hennessy and GTT exits, and any further impairment or restructuring costs.
- Evaluate the adequacy of asbestos insurance recoveries and reserves, alongside other litigation and contingent liabilities.