Vontier Corp

Previous wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of management and is intended to help the reader understand the results of operations and financial condition of the Company. Our MD&A should be read in conjunction with our MD&A and Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”) and our Consolidated Condensed Financial Statements as of and for the three months ended March 29, 2024 included in this Form 10-Q.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our financial statements with a narrative from the perspective of management and is intended to help the reader understand the results of operations and financial condition of the Company. Our MD&A should be read in conjunction with our MD&A and Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report on Form 10-K”) and our Consolidated Condensed Financial Statements as of and for the three and six months ended June 28, 2024 included in this Form 10-Q.

Previous wording

•As of March 29, 2024, we have outstanding indebtedness of approximately $2.3 billion and the ability to incur an additional $750.0 million of indebtedness under the Revolving Credit Facility and in the future we may incur additional indebtedness. This indebtedness could adversely affect our businesses and our ability to meet our obligations and pay dividends.

Current wording

•As of June 28, 2024, we have outstanding indebtedness of approximately $2.2 billion and the ability to incur an additional $750.0 million of indebtedness under the Revolving Credit Facility and in the future we may incur additional indebtedness. This indebtedness could adversely affect our businesses and our ability to meet our obligations and pay dividends.

Previous wording

•International economic, political, legal, compliance, supply chain, epidemic, pandemic and business factors could negatively affect our financial statements.

Current wording

•Global economic, political, legal, compliance, supply chain, epidemic, pandemic and business factors could negatively affect our financial statements.

Previous wording

We expect core sales to increase on a year-over-year basis in 2024 due to increasing demand for our products. Our outlook is subject to various assumptions and risks, including but not limited to the resilience and durability of the economies of the United States and other critical regions, ongoing challenges with global logistics and supply chain including the availability of electronic components, the impact of international conflicts, including Russia-Ukraine and conflicts in the Middle East, market conditions in key end product segments, and the impact of energy disruption in Europe. Additional uncertainties are identified in “Information Relating to Forward-Looking Statements” above.

Current wording

We expect core sales growth for the year ended December 31, 2024 to be lower than our longer-term growth expectations due to softening in certain of our end markets as further discussed below in “Results of Operations”. Our outlook is subject to various assumptions and risks, including but not limited to the resilience and durability of the economies of the United States and other critical regions, ongoing challenges with global logistics and supply chain including the availability of electronic components, the impact of international conflicts, including Russia-Ukraine and conflicts in the Middle East, market conditions in key end product segments, and the impact of energy disruption in Europe. Additional uncertainties are identified in “Information Relating to Forward-Looking Statements” above.

Previous wording

Total sales within our Mobility Technologies segment decreased 1.3% during the three months ended March 29, 2024, as compared to the comparable period in 2023, driven by a 1.6% decrease due to the impact of currency translation, partially offset by a 0.3% increase in core sales. The increase in core sales was primarily due to solid demand for our convenience store enterprise productivity and alternative energy solutions, partially offset by softer demand for our car wash solutions.

Current wording

Total sales within our Mobility Technologies segment decreased 0.9% during the six months ended June 28, 2024, as compared to the comparable period in 2023, driven by a 1.6% decrease due to the impact of currency translation, partially offset by a 0.7% increase in core sales. The increase in core sales was primarily due to solid demand for our convenience store payment and enterprise productivity and alternative energy solutions, partially offset by lower demand for our car wash solutions.

Previous wording

Total sales and core sales within our Repair Solutions segment increased 0.6% during the three months ended March 29, 2024, as compared to the comparable period in 2023, primarily due to strong demand in the tool storage and diagnostics product categories, partially offset by a decrease in the hardline product category.

Current wording

Total sales and core sales within our Repair Solutions segment decreased 1.9% during the six months ended June 28, 2024, as compared to the comparable period in 2023, primarily due to a decrease in the hardline product category, partially offset by an increase in the diagnostics product category.

Previous wording

Total sales within our Environmental & Fueling Solutions segment increased 5.5% during the three months ended March 29, 2024, as compared to the comparable period in 2023, driven primarily by a 9.6% increase in core sales, partially offset by a 3.5% decrease due to the impact of recently exited businesses and product lines and a 0.6% decrease due to the impact of currency translation. The increase in core sales was driven by strong demand for North America fuel dispenser systems, aftermarket products and environmental solutions.

Current wording

Total sales within our Environmental & Fueling Solutions segment decreased 1.7% during the six months ended June 28, 2024, as compared to the comparable period in 2023, driven primarily by a 3.0% decrease due to the impact of recently exited businesses and product lines and a 0.7% decrease due to the impact of currency translation, partially offset by a 2.0% increase in core sales. The increase in core sales was driven by higher demand for aftermarket products and environmental solutions.

Previous wording

Cost of sales, excluding amortization of acquisition-related intangible assets, decreased $39.6 million, or 9.4%, for the three months ended March 29, 2024, as compared to the comparable period in 2023, primarily due to the impact of favorable mix, cost optimization and recently divested and exited businesses and product lines.

Current wording

Cost of sales, excluding amortization of acquisition-related intangible assets, decreased $95.0 million, or 11.3%, for the six months ended June 28, 2024, as compared to the comparable period in 2023, primarily due to the impact of recently divested and exited businesses and product lines and cost optimization.

Previous wording

SG&A expenses increased $7.9 million, or 5.0%, during the three months ended March 29, 2024, as compared to the comparable period in 2023, and as a percentage of sales, increased 160 basis points during the same period, primarily due to an increase in variable and stock-based compensation expense and the impact of reserve-related adjustments to the Repair Solutions receivables portfolio, partially offset by a decrease in transaction and deal-related costs.

Current wording

SG&A expenses decreased $10.6 million, or 6.4%, during the three months ended June 28, 2024, as compared to the comparable period in 2023, and as a percentage of sales, increased 60 basis points during the same period, primarily due to the impact of recently divested and exited businesses and product lines and restructuring savings, partially offset by the impact of reserve-related adjustments to the Repair Solutions receivables portfolio.

Previous wording

R&D expenses increased $3.5 million, or 8.5%, during the three months ended March 29, 2024, as compared to the comparable period in 2023, primarily due to continued growth investments in our Mobility Technologies segment. R&D expenses as a percentage of sales increased 60 basis points during the three months ended March 29, 2024, as compared to the comparable period in 2023.

Current wording

R&D expenses increased $4.8 million, or 11.9%, during the three months ended June 28, 2024, as compared to the comparable period in 2023, primarily due to continued growth investments in our Mobility Technologies segment. R&D expenses as a percentage of sales increased 120 basis points during the three months ended June 28, 2024, as compared to the comparable period in 2023.

Previous wording

Operating profit increased $8.3 million, or 6.2%, during the three months ended March 29, 2024, as compared to the comparable period in 2023, and operating profit margins increased 160 basis points during the same period.

Current wording

Operating profit decreased $6.5 million, or 5.4%, during the three months ended June 28, 2024, as compared to the comparable period in 2023, and operating profit margins increased 60 basis points during the same period.

Previous wording

Segment operating profit for our Mobility Technologies segment decreased $0.3 million, or 0.6%, during the three months ended March 29, 2024, as compared to the comparable period in 2023, and segment operating profit margin increased 10 basis points during the same period, despite an increase in R&D and other continued growth investments in the segment.

Current wording

Segment operating profit for our Mobility Technologies segment decreased $3.8 million, or 4.1%, during the six months ended June 28, 2024, as compared to the comparable period in 2023, and segment operating profit margin decreased 60 basis points during the same period. The decrease in segment operating profit margin was primarily due to an increase in R&D and other continued growth investments in the segment.

Previous wording

Segment operating profit for our Repair Solutions segment decreased $2.6 million, or 5.5%, during the three months ended March 29, 2024, as compared to the comparable period in 2023, and segment operating profit margin decreased 160 basis points during the same period. The decrease in segment operating profit margin was primarily due to the impact of reserve-related adjustments to the receivables portfolio.

Current wording

Segment operating profit for our Repair Solutions segment decreased $9.5 million, or 22.8%, during the three months ended June 28, 2024, as compared to the comparable period in 2023, and segment operating profit margin decreased 500 basis points during the same period. The decrease in segment operating profit margin was primarily due to the impact of a decrease in volume and reserve-related adjustments to the receivables portfolio.

Previous wording

Segment operating profit for our Environmental & Fueling Solutions segment increased $16.6 million, or 20.6%, during the three months ended March 29, 2024, as compared to the comparable period in 2023, and segment operating profit margin increased 370 basis points during the same period. The increase in segment operating profit margin was primarily due to product and geographic mix and cost optimization.

Current wording

Segment operating profit for our Environmental & Fueling Solutions segment decreased $5.9 million, or 6.2%, during the three months ended June 28, 2024, as compared to the comparable period in 2023, and segment operating profit margin increased 60 basis points during the same period. The increase in segment operating profit margin was primarily due to price-cost benefits and cost optimization.

Previous wording

Corporate & other unallocated costs increased $1.2 million, or 2.6%, during the three months ended March 29, 2024, as compared to the comparable period in 2023, primarily due to an increase in variable and stock-based compensation expense, partially offset by a decrease in transaction and deal-related costs. Corporate & other unallocated costs as a percentage of total sales increased 30 basis points during the three months ended March 29, 2024, as compared to the comparable period in 2023.

Current wording

Corporate & other unallocated costs decreased $14.6 million, or 23.1%, during the three months ended June 28, 2024, as compared to the comparable period in 2023, primarily due to a decrease in costs associated with restructuring activities and transaction and deal-related costs. Corporate & other unallocated costs as a percentage of total sales decreased 130 basis points during the three months ended June 28, 2024, as compared to the comparable period in 2023.

Previous wording

Interest expense, net was $18.9 million during the three months ended March 29, 2024, as compared to $24.0 million for the comparable period in 2023, a decrease of $5.1 million, driven primarily by a decrease in our outstanding debt obligations and an increase in interest income between periods.

Current wording

Interest expense, net was $18.4 million during the three months ended June 28, 2024, as compared to $23.9 million for the comparable period in 2023, a decrease of $5.5 million, driven primarily by a decrease in our outstanding debt obligations and an increase in interest income between periods.

Previous wording

Our effective tax rate for the three months ended March 29, 2024 was 16.0%, as compared to 24.0% for the three months ended March 31, 2023. The decrease in the effective tax rate for the three months ended March 29, 2024 as compared to the comparable period in the prior year was primarily due to the non-taxable gain on the divestiture of the Coats business during the three months ended March 29, 2024.

Current wording

Our effective tax rate for the three and six months ended June 28, 2024 was 23.8% and 18.8%, respectively, as compared to 25.3% and 24.7% for the three and six months ended June 30, 2023, respectively. The decrease in the effective tax rate for the three months ended June 28, 2024 as compared to the comparable period in the prior year was primarily due to the unfavorable tax impacts of the divestiture of the Global Traffic Technologies business during the three months ended June 30, 2023. The decrease in the effective tax rate for the six months ended June 28, 2024 as compared to the comparable period in the prior year was primarily due to the favorable tax impacts of the divestiture of the Coats business during the six months ended June 28, 2024 and the unfavorable tax impacts of the divestiture of the Global Traffic Technologies business during the six months ended June 30, 2023.

Previous wording

Comprehensive income increased by $35.5 million during the three months ended March 29, 2024, as compared to the comparable period in 2023. Comprehensive income for the three months ended March 29, 2024 includes a gain on the sale of the Company’s Coats business of $39.8 million.

Current wording

Comprehensive income decreased by $23.6 million during the three months ended June 28, 2024, as compared to the comparable period in 2023. Comprehensive income for the three months ended June 30, 2023 includes a gain on the sale of the Company’s Global Traffic Technologies business of $34.1 million.

Previous wording

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. As of March 29, 2024, we held $406.0 million of cash and cash equivalents and had $750.0 million of borrowing capacity under our revolving credit facility. We generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity will be sufficient to allow us to continue to support working capital needs, capital expenditures, pay interest and service debt, pay taxes and any related interest or penalties, fund our restructuring activities and pension plans as required, invest in existing businesses, consummate strategic acquisitions, manage our capital structure on a short and long-term basis and support other business needs or objectives. We also have purchase obligations which consist of agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. As of March 29, 2024, we believe that we have sufficient liquidity to satisfy our cash needs.

Current wording

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. As of June 28, 2024, we held $331.3 million of cash and cash equivalents and had $750.0 million of borrowing capacity under our revolving credit facility. We generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity will be sufficient to allow us to continue to support working capital needs, capital expenditures, pay interest and service debt, pay taxes and any related interest or penalties, fund our restructuring activities and pension plans as required, invest in existing businesses, consummate strategic acquisitions, manage our capital structure on a short and long-term basis and support other business needs or objectives. We also have purchase obligations which consist of agreements to purchase goods or services that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the transaction. As of June 28, 2024, we believe that we have sufficient liquidity to satisfy our cash needs.

Previous wording

During the three months ended March 29, 2024, we completed the following financing and capital transactions:

Current wording

During the six months ended June 28, 2024, we completed the following financing and capital transactions:

Previous wording

•Voluntarily repaid $50.0 million of the Three-Year Term Loans Due 2024;

Current wording

•Voluntarily repaid $100.0 million of the Three-Year Term Loans Due 2024;

Previous wording

•Repurchased 0.6 million shares for $21.6 million in the open market.

Current wording

•Repurchased 1.5 million shares for $59.7 million in the open market.

Previous wording

Cash flows from operating activities were $91.5 million during the three months ended March 29, 2024, an increase of $10.5 million, as compared to the comparable period in 2023. The year-over-year change in operating cash flows was primarily attributable to the following factors:

Current wording

Cash flows from operating activities were $137.6 million during the six months ended June 28, 2024, a decrease of $20.9 million, as compared to the comparable period in 2023. The year-over-year change in operating cash flows was primarily attributable to the following factors:

Previous wording

•The aggregate of accounts receivable and long-term financing receivables used $28.2 million of operating cash flows during the three months ended March 29, 2024 compared to generating $42.1 million in the comparable period of 2023. The amount of cash flow generated from or used by accounts receivable depends upon how effectively we manage the cash conversion cycle and can be significantly impacted by the timing of collections in a period. Additionally, when we originate certain financing receivables, we assume the financing receivable by decreasing the franchisee’s trade accounts receivable. As a result, originations of certain financing receivables are non-cash transactions.

Current wording

•The aggregate of accounts receivable and long-term financing receivables used $15.5 million of operating cash flows during the six months ended June 28, 2024 compared to generating $11.5 million in the comparable period of 2023. The amount of cash flow generated from or used by accounts receivable depends upon how effectively we manage the cash conversion cycle and can be significantly impacted by the timing of collections in a period. Additionally, when we originate certain financing receivables, we assume the financing receivable by decreasing the franchisee’s trade accounts receivable. As a result, originations of certain financing receivables are non-cash transactions.

Previous wording

•The aggregate of other operating assets and liabilities used $11.8 million during the three months ended March 29, 2024 compared to using $75.8 million in the comparable period of 2023. This change is due primarily to working capital needs and the timing of accruals and payments and tax-related amounts.

Current wording

•The aggregate of other operating assets and liabilities used $91.4 million during the six months ended June 28, 2024 compared to using $69.0 million in the comparable period of 2023. This change is due primarily to working capital needs and the timing of accruals and payments and tax-related amounts.

Previous wording

Net cash provided by investing activities was $51.0 million during the three months ended March 29, 2024, driven primarily by proceeds from the sale of our Coats business, partially offset by payments for additions to property, plant and equipment. Net cash provided by investing activities was $9.0 million during the three months ended March 31, 2023, driven primarily by the proceeds from the sale of equity securities and property, partially offset by payments for additions to property, plant and equipment.

Current wording

Net cash provided by investing activities was $23.9 million during the six months ended June 28, 2024, driven primarily by proceeds from the sale of our Coats business, partially offset by payments for additions to property, plant and equipment. Net cash provided by investing activities was $103.5 million during the six months ended June 30, 2023, driven primarily by proceeds from the sale of our Global Traffic Technologies business, equity securities and property, partially offset by payments for additions to property, plant and equipment.

Previous wording

We made capital expenditures of $20.2 million and $13.7 million during the three months ended March 29, 2024 and March 31, 2023, respectively.

Current wording

We made capital expenditures of $44.0 million and $26.1 million during the six months ended June 28, 2024 and June 30, 2023, respectively.

Previous wording

Net cash used in financing activities was $74.4 million during the three months ended March 29, 2024, driven primarily by the voluntary repayment of $50.0 million of the Three-Year Term Loans due 2024 and repurchases of the Company’s common stock of $21.6 million. Net cash used in financing activities was $87.2 million during the three months ended March 31, 2023, driven primarily by the voluntary repayment of $65.0 million of the Three-Year Term Loans due 2024 and repurchases of the Company’s common stock of $18.1 million.

Current wording

Net cash used in financing activities was $167.5 million during the six months ended June 28, 2024, driven primarily by the voluntary repayment of $100.0 million of the Three-Year Term Loans due 2024 and repurchases of the Company’s common stock of $59.7 million. Net cash used in financing activities was $222.6 million during the six months ended June 30, 2023, driven primarily by the voluntary repayment of $165.0 million of the Three-Year Term Loans due 2024 and repurchases of the Company’s common stock of $50.0 million.

Previous wording

We paid regular quarterly cash dividends of $0.025 per share during the three months ended March 29, 2024. The declaration of future cash dividends is at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, cash flows, capital requirements, financial condition and general business conditions.

Current wording

We paid regular quarterly cash dividends of $0.025 per share during the six months ended June 28, 2024. The declaration of future cash dividends is at the discretion of our Board of Directors and will depend upon, among other things, our future earnings, cash flows, capital requirements, financial condition and general business conditions.

Previous wording

As of March 29, 2024, we had $1.6 billion in aggregate principal amount of the Registered Notes and $650.0 million in aggregate principal amount outstanding of the Term Loans. Our obligations to pay principal and interest on the Registered Notes and Term Loans are fully and unconditionally guaranteed on a joint and several basis on an unsecured, unsubordinated basis by Gilbarco Inc. and Matco Tools Corporation, two of Vontier’s wholly-owned subsidiaries (the “Guarantor Subsidiaries”). Our other subsidiaries do not guarantee any such indebtedness (collectively, the “Non-Guarantor Subsidiaries”). Refer to Note 4. Financing to the Consolidated Condensed Financial Statements for additional information regarding the terms of our Registered Notes and the Term Loans.

Current wording

As of June 28, 2024, we had $1.6 billion in aggregate principal amount of the Registered Notes and $600.0 million in aggregate principal amount outstanding of the Term Loans. Our obligations to pay principal and interest on the Registered Notes and Term Loans are fully and unconditionally guaranteed on a joint and several basis on an unsecured, unsubordinated basis by Gilbarco Inc. and Matco Tools Corporation, two of Vontier’s wholly-owned subsidiaries (the “Guarantor Subsidiaries”). Our other subsidiaries do not guarantee any such indebtedness (collectively, the “Non-Guarantor Subsidiaries”). Refer to Note 4. Financing to the Consolidated Condensed Financial Statements for additional information regarding the terms of our Registered Notes and the Term Loans.