Industrial analyst. For me, this is the last presentation of the day, and we have Vontier, which is our U.S. 1 name, which means it's on the best ideas list. With us, we have Mark Morelli, President and Chief Executive Officer, and Anshooman Aga, Senior VP and CFO. The format is going to be; we're going to go just to fireside chat format. Thank you very much for being here. Thanks for having us. Welcome to New York. Yeah, of course. No, thank you. So yes, so maybe I'll start out with a question on broad market. So Vontier operates in defensive markets, c-stores, auto repair, fueling, but you are seeing an improving set of improving orders with book-to-bill over one in first quarter versus slightly below one last quarter. So what products or end markets are you seeing improved demand? Yeah. So Andrew, we saw a good auto growth up mid-single digit. And I would say that it's a broad-based inflection that we're seeing across our businesses. But in particular, our Mobility Technologies was above one, and our Repair Solutions segment was above one, probably a little bit earlier than we expected. We'd indicated in Q4 of prior year that, you know, we thought we would see inflection above one, but it's great to see it, you know, happen sort of right out of the chutes in the first quarter. I think what we're seeing is really the play-out of some secular drivers. We've been talking about the strength of the convenience store format. There's continued build-out of that infrastructure, where the large national and regional players are very profitable. They continue to expand through both new site as well as through M&A, and we have leading share in those positions. So we're definitely seeing the uptick for our products along those lines. And so I think we're pretty excited because I think it's the strategy we've been talking about, which is this connected mobility strategy, where we connect smart hardware, application software, and scaling on the cloud. We have a number of offerings around the convenience store space that we're selling into that, and it's more of an integrated solutions play. And I think we're seeing it both on the above ground dispenser side for environmental fueling, below ground with the environmental... Excuse me, above ground dispenser side, as well as the below ground environmental fueling side, as well as in the mobility tech side, where we've got a number of businesses that leverage that. I would say the other area of growth is around fleet operators. Fleet operators are looking for multi-fuel solutions or looking to decarbonize. We have a business in there called ANGI, that is a $100 million business, but is posting, you know, consecutive year-over-year, really strong growth- Yeah, I'm going to ask about it. ... on the back of that build-out. So I think these are the things that we're seeing that encourage us to say our strategy is working, and we're seeing good growth and margin improvement as well. I'll just ask. 2024 core revenue guidance is right in line with your medium-term targets, both at 4%-6%. In first quarter, you did tweak your outlook for the Environmental & Fueling Solutions segment up a bit. That's now mid-single digit or better. So what change in customer tone, auto strength or macro to make you see possible upside there? Andrew, as Mark mentioned, what we're seeing on the convenience store side is continued strength in that business. If you think of convenience retail over the past two decades, it's grown at a 5% CAGR, and that CAGR is actually accelerated post-COVID, where they've grown about 10% a year. They're bringing in fresh food, and the formats are getting more modern, so they're putting in more investment in there. Fuel margins are high, which also supports their investments. Also, this industry is pretty fragmented. When you think about 150-160 thousand convenience stores, about 60% of them are owned by operators of less than 10 sites. So there's continued consolidation happening. And as the large national and regional chains consolidate, that bodes well for us because we have a stronger market share with these players. On top of that, there's continued regulation that drives growth. For example, there's underground environmental regulation. The U.S., we've talked about the tank upgrade cycle, but also vapor recovery around the world. Payment card industry standards keep changing, so PCI payment card industry is sunsetting, and PCI 6 is now the latest standard. So all of these drivers are helping us to see good investment in this business, and that gave us confidence to tweak the guidance up a little bit. Excellent. And then just—this is just a little detour. So you sort of talked c-stores, auto, repair, and fueling, right? So as I think about the ecosystem, and Ryan probably would do a much better job here, but. So the idea is, so you have the c-store, so that's the convenience store at the gas station, right? And there, you offer software and payments that ties the store to the rest of the gas station, and then you have car wash software and payments, and so maybe the guy who owns the gas station, maybe he owns a car wash that's adjacent, right? And then you also provide automotive repair tools at Matco. So maybe, you know, there is, if you think, like, this station, maybe there's a shop on site, right? And then the core business, Environmental & Fueling Solutions, you will also, right, you'll have the fuel dispensing, fuel storage, and then, as I said, you also offer the software that ties it all together, helps you pay for the stuff, helps you order the stuff, and helps the convenience store. So if I go and, you know, have to pay for the gas inside the store, you will manage that, or if there is, like, a screen that tells me to buy a sandwich because I have a loyalty card, right? And you manage that. Is that the right way of describing your ecosystem? It- Did I miss something? It is. And I think, let me just try to also compartmentalize exactly what you're saying. So we see, we see retail solutions around the convenience store, whereas, as a consumer, you might interact with that. And what the folks that own these large, very successful chains are trying to do is they're trying to offer customized consumer preference- Right ... like you when you go in there. They wanna own you with loyalty. They want a seamless transaction. They want to offer you your price at the pump based on your loyalty. They want you to be able to order food and have it delivered curbside. They want the car wash in the same transaction. And the tools and capability to be able to manage this from a consumer preference perspective are not there. The other thing they're trying to do, which you're talking about, is they're trying to manage this infrastructure more productively. Right. As Anshooman said, it grows top line, but it's difficult to manage this. Right. And so by having these integrated solution, you can do an over-the-air update for security, a payment- Right ... instead of rolling a truck to be able to have to, to do a secure payment. So just think of the productivity benefits they get out of a more modern microservices infrastructure, and so that's one segment. The other segment is fleet operators, because fleet operators are also looking to manage their fleets more like Waste Management is a great, or WM, is a great example of that. They're also looking on how to decarbonize and how to be able to manage that. We have products and offerings to be able to do that, that are also market-leading products and offerings. Right. And then the third segment was on the repair technician side- Right ... where they're trying to be more productive- Right ... because of the complexity to repair aged vehicles, that are getting more... You know, people are not buying as many new vehicles today as they are, and they're stretching out, the life of the vehicle. The complexity to repair is going up. So these are the three segments that we think about- Right ... with the drivers behind it. Just to focus, and then I'll go, just to set the stage. You've also noted it seems that being a c-store business selling gas is quite a bit more profitable these days than it was 5-10 years ago. How sticky is, just the whole ecosystem, is more profitable for, for the operator? How... A, is that a correct statement? And B, how sticky is it? So I think it's a great question, and in fact, I've met with some presidents and CEOs of these large convenience store chains recently and asked them exactly that same question, 'cause these are the folks that are dispensing the fuel, and I think they get that question quite frequently. I think what has happened in the industry... So first of all, there has been more consolidation, but I think these successful formats are also building out as destinations where people wanna stop- Yeah ... because of there's a sandwich offering or drink offerings or the format of what they've got with clean restrooms or a place where they might be able to stay and charge their vehicle. It's also they're looking for something else other than just a tank of gas. Right. As that has expanded over the last couple of years, and very successful franchisees, like, like Wawa is a great example, you know, has a following. Right. They wanna enhance that following, and folks are not looking, you know, the entire industry is not looking out on how to discount fuel. Right. No, I was driving through Texas, and, like, my friend just made me stop at Buc-ee's, and, like, and he said, "Look, look how many kinds of beef jerky they had," and literally, that was the destination. Yeah. That's a mandatory stop, by the way- Yeah ... and a great customer of ours. So I think it's, these are the kind of things that the industry is now undergoing and which is why these folks are looking several years out on building their infrastructure out, because they are... Even in downturns, this has done well, and so these folks are, and, and the fact that we have leading share here, we've got more than 60% share of dispensers- Right ... in the United States with the leading players. And so the benefit accrues to us as they build their footprints out, as they consolidate other players, and it gives them confidence. Even in downturns, folks might trade down to a convenience store offering, and so that they're still bullish on their build-out plans looking at the future. Okay. Having set the stage, because I think that, you know, it's just, I think the end market's quite interesting. Let's sort of dive into software and payments opportunity, right, which is the fast growth, and clearly, you've outlined in your slide decks. But, you know, I think it's the part that's really underappreciated. So I think Vontier's install base includes, I think we estimated 50% of all U.S. fuel dispensers, but on the payment side, your share is 15%. So could you walk through what has changed in the market and how Vontier is actually winning share in payments? Yes. So, just a little- The 50% number, is it for Buc-ee's? It's 60%. It's 60, so they- It is ... installed is 60%. Right. And the payment number is roughly correct, around 15%. But I think what's happening and what's changing in the industry is folks are looking for new capabilities to be able to manage that infrastructure more productively. And I make it, you know, I make an analogy with Industry 4.0. I think people have recognized that on the factory floor, you can get benefits by connecting your smart hardware, application software and scaling on the cloud, and there's productivity for it. But I think what we're seeing, Andrew, this is mobility ecosystem 4.0, that people can envision, but in today, it only exists as mobility ecosystem 2.0. So they're looking for these solutions, particularly around the payment side. So think about this: there is a regulatory of payment, regulation that's being rolled out, and by the way, they're constantly being rolled out. As it gets rolled out, you have to actually, with the existing infrastructure that's in place, you have to roll a truck- Right ... for an on-prem upgrade to the regulated, the new regulation, and you have to recertify your entire monolithic software that's all stitched together, which includes your car wash, your in-store payment system, your payment regulation at the pump. All of that has to be recertified. So it's very laborsome, and of course, we all know labor costs are going up, and it's very slow to be able to update. It might take 12-18 months to recertify that whole system. With now a new microservices application-based software, you can, you may only have to be able to make that one application updated to comply, and then the whole system is modernized to that, and you can do it over the air. So it's just making it more contemporary. What is changing is the ability to bring this technology to an industry that needs these productivity solutions. On the last call, you said, and I think iNFX is, like, so interesting. You had several iNFX pilots running, both U.S. and internationally. Have you got software versions ready for E.U., Canada, and India? And just to put in perspective, you know, last year you won Shell and Chevron here in the U.S., 21,000 locations, which takes your market share up very, very meaningfully. Are the current pilots as meaningful? We have pilots underway in Canada and European countries. These are progressing well. I think they're off the backs of quite successful rollouts with Shell and Chevron that are ongoing as we speak. And the benefit of writing this in applications is a lot of that is reusable software in the same, but there has to be some customization to specific fiscal issues related to or government regulation issues related to by country. But you have a lot of that already written in microservices in the application itself. So we are making those as we're bidding out, as we're putting in these pilots in different countries. We're currently in the process of doing that. So I think the architecture lends itself for expanding internationally. How long would it take? Just remind us, how long would it take for Shell and Chevron to ramp up, and what share are you gonna have once they're at scale? Yeah, so Shell and Chevron, those are US contracts, and all their sites in the US are going to have our iNFX platform implemented. The rollout's going on as we speak. It's going to ramp through the rest of this year and into next year, but a large part of the 21,000 stores we won will be done by this year, and as the implementation happens at a site, the recurring revenue starts at the same time. What's the revenue recognition method? When you think of these large contracts, these are 4-5-year contracts. About 80% of the revenue is recurring over the 4-5 years of the contract duration, and 20% is the edge device, which is the hardware revenue, which we get upon shipment of that device. But basically, because it's SaaS, there's gonna be... it's gonna roll- It's a monthly recurring revenue for 80%. And you're gonna report it sort of this. There's gonna be a gradual build-up? Yeah. Okay. And then, you know, Vontier is already the number two point-of-sale software provider to convenience stores. This is the software inside the store. Does winning the payments side help you in winning point-of-sale inside the store? It definitely helps us. When you really think of system architectures, having one seamless system architecture helps. So as we go and share with iNFX, our customers, over time, as they think about replacing the point-of-sale system, will be talking to us because of the seamless adoption and capabilities of having an integrated system that we would be able to provide. Excellent. So maybe, so this is... we started with the really exciting stuff, but, so maybe we talk about DRB, which is car wash, software, and payments. Just put in perspective, what, 8% of revenues? Sure. So, yeah, so this is software and payment solution for car wash operators. What's changed in the market backdrop here, and what's your outlook for 2024? Yeah, it's still exciting stuff, Andrew, DRB. DRB has, since we acquired the company about 2.5 years ago, experienced exceptional growth. It's grown over 50% in the 2.5 years that we've owned it. What we've seen after this period of exceptional growth is some normalization of the growth, and especially around our large enterprise customers, where they, over the last 2 years, built out rapidly, and they're taking a pause to digest and really focus on operational improvement. At the same time, when you think of the regional and township customers of ours, think of these people as operating 2- to 40-site tunnel systems. These people are continuing to expand. They're continuing to grow. They funded most of the growth through operational cash flow, so we're seeing good growth in this business. Also, about 40% of the DRB revenue is recurring in nature, and we're continuing to see growth in this recurring revenue. And then we've also recently, a few months ago, launched our Patheon solution, which is our latest, cloud-connected, software platform for tunnel car wash operators. All right, so just to reaffirm, so 40% of DRB's revenue are recurring software and payment fees, and you said that part continues to grow, right? Right. And then shifting to, as I said, to the SaaS version of DRB, so there is an upgrade cycle happening in the install base, right? And so what kind of revenue lift do you get on an upgrade? So it really depends on the site, and how much of the hardware do we have to upgrade. An upgrade could be as low as $20,000-$30,000 per site to bigger, based on the amount of hardware that needs to be updated. But based on the enhanced capabilities, that, and value that our Patheon software brings to our customers, the recurring revenue is also higher on an ongoing basis than our current site wash solution. What inning would you say we're in of this upgrade cycle? We've just started. We're in inning one. Okay. Okay. So now, Matco, that's automotive repair tools. You guys compete with Snap-on. They have seen year-over-year revenue declines the past two quarters, and you guys have seen low- to mid-single-digit growth. What's the trend in the market? So first of all, I think we love the backdrop with what we see with auto repair. There's no question that folks are seeing the fact that they are hanging on to their vehicle longer. The average age of a vehicle now has risen to 12.5 years, and the sweet spot of repair for a vehicle is after it's owned from five years to that 12.5 years. So that sweet spot of repair is actually growing in terms of the segment of vehicles, and that car parc is, as you know, in most countries, in the United States, vastly dominated by ICE vehicles. The complexity to repair is higher on an ICE vehicle. And when you look at an electric vehicle, and I think this is more understandable today than it ever has been before, while the maintenance costs might be low, the repair costs are actually high, and it's fairly complicated to repair them, and there's new tools that are needed. So the size of the toolbox for the repair technician actually gets bigger. All of this is great for our Matco business because we focus on the productivity of the technician. So if we can provide more tools and capability to make that technician more productive, then they're gonna buy more from us. So what... We have tremendous respect for Snap-on. They're a great competitor. They're the market leader in the space. We're number two. But the area that we excel at is that we're very good at having what we call product vitality. We lead the industry with bringing new products to market, and we're very nimble in doing that. About 25%-30% of what we bring every year to market is new, and we focus on how to make the repair technician more productive. I think there's no secret that our repair technicians in the U.S. are also under pressure from having to pay higher food prices, higher costs of living, if they're gonna take the family to Orlando for a vacation, that there's, there's more competition for what they spend their money on. Right. And so we're obviously, you know, not immune to that aspect, but what we are showing is that they are willing to pay. We are seeing some difference from other folks in the field in terms of our growth rates, because if you have something compelling to them... We've got, we launched our MAXIMUS 5.0 diagnostics platform in December. That's selling very well. We have a lineup on power tools with Milwaukee brand and our Infinium brand, which is also selling very well. These are two notable areas. I would also bring up a third, which is on toolboxes. We continue to sell toolboxes, and these tend to be higher priced items. Right. The reality is, you don't need a new toolbox to be more productive. I think what it also shows is that there are service technicians that are supporting the brand and that we are, you know, getting some growth from that. Not sure how sustainable that is. Right ... in the economy, but we are- we're definitely, I think, advantaged by having a very good lineup this year. Right. We intend to press our opportunities that we have in the market. Is it fair to say that you're taking share? Well, I think so. I think you can look yourselves- Yeah ... you know, back on the last, you know, year in terms of, you could do your own comparisons there. Can we just also talk about, you know, where you are in terms of write-offs and just how do you see credit quality? Because I think it's also a great read on the economy. We always ask you this question as sort of the read on, you know, they are sort of canary in the mine, canary in the coal mine. Yeah, we're very comfortable with where we are from our loan portfolio from Matco perspective. When you look at the leading indicators of the health of the technician, record employment, record wages, but also when we look at the delinquency rates, the delinquency rates have traded within a 50 basis points, pretty tight band over the last many years. And what we're seeing is we're just under the midpoint of that band, so delinquency rates are healthy. They're still below, you mean below average still? Slightly below average. Okay. You know, on our earnings, we've talked a little bit of a hit on margins based on bad debt reserves. Let me explain that a little bit better. When you think of Matco for the first quarter, we grew 1%. Our high-ticket items, which is the toolbox diagnostic that Mark talked about, grew double digit. So our new loan originations, which we call Purchase Security Agreements, PSAs, they grew 6%. So when the PSAs grow faster than the overall portfolio, on day one, you take a reserve on the portfolio, and then over the next five years, you earn three and a half times roughly the reserve amount in interest income. So day one, you take a hit. Over the next five years, you have a good margin that you're generating on that portfolio from interest income. As long as the high-ticket items and the Purchase Security Agreements grow faster than the overall portfolio, it's dilutive to margin in the short run, but when that flips, it's accretive to margin at that stage. Over the five years, it's a very profitable customer contract that we have. Gotcha. So, but they could take what should be the credit quality is average to above average right now? It is, and we've done a lot of things over the last few years to continue to be more stringent in our underwriting standards, improve our credit quality, and we continue to manage it professionally. Sure. So, now I'll go to Environmental & Fueling Solutions, which is where the revenue is, where a lot of headlines are, but actually, which I think you guys have described very profitable businesses that are experiencing okay growth, but big cash flow generators and very profitable. That's the right way of looking at that part of the portfolio, right? Yes, uh- Yeah, I'll go cyclical recovery. Yeah, so our environmental and fueling business, you know, we said this year is going to be a mid-single digit plus kind of growth, which, in the current economic backdrop is a very attractive growth number. Right. I think it prints up there with the multi-industrials from any market perspective. And the margins in that business are attractive. You know, we have a culture built around the Vontier Business System of continuous improvement, and we've installed our focus and prioritization process, which is similar to the 80/20 process, which is also in the early stages of payback. You know, we've talked publicly about reducing the number of global dispenser platforms from 32 down to eight. Right. We're in the mid-teens right now, and we still are going. You know, one of the benefit of that we talked about is once we're done, we'll have taken out 1 million sq ft of manufacturing, but we'd have also simplified our product portfolio, which reduces the amount we spend in sustaining, which allows us to reinvest in innovation and continue to fuel the growth. Over the years, we've spent an inordinate amount of time talking about above ground fuel dispensers in the U.S. Can you remind us what% of revenue it represents today? Yeah, it's about 5%. Okay. Above ground U.S. dispensers. Okay. So, so to put things in perspective, there was a U.S. fuel dispenser upgrade cycle that peaked in 2020 and bottomed last year. And Mark, you made the point that we are at the bottom of the replacement demand. So a couple of questions. So, A, how far below normalized replacement levels was the market in 2023? 25%, 50%? Maybe I'll help, but just also the 5% was just new dispensers- Right, right, right. New to industry. Right. There's also about 5% in replacement- Yeah. It's about 10% total. From the peak of the EMV, if you think of it, to the trough, it was about a $500 million decline. Right. What had really happened was we had basically consolidated an upgrade cycle into a shorter timeframe, where a lot of people had upgraded their dispensers because of that. So it, it wasn't anything other than consolidating an upgrade cycle because of the change in from swipe payment to EMV payment. Gotcha. And what's... Okay, so you gave us the revenue mix right now. So new build sites and replacement roughly 50/50. On average, about 50/50. And then, you know, just sort of you see U.S. replacement demand growing at 5% CAGR growth through 2030. So we had a three-year downturn, but then, you know, does this make sense? You see at least a seven-year upcycle ahead? Yeah, I think over the next decade, we're going to see... If you think of the average replacement cycle of a dispenser being 10-12 years, what you're going to see is all these dispensers that were put into the ground during the EMV cycle are going to get replaced. So I think over the next decade, we're going to see good growth from a replacement, and at the same time, as we put in new to industry sites being built, we'll continue to put in new dispensers, so installed base is going to continue to grow because of that. Is it fair, just as I think back when we started talking about EMV, which stands for Eurocard, Mastercard, Visa, actually, people—it's just credit card acronym. But, you know, we started, you know, as you said, these things lasted 12 years, so we're actually at a point we're gonna start actually replacing this massive upgrade cycle. Yeah. That- We're lapping the beginning of that upgrade cycle. And payment security, essentially, it's a payment security, and payment security never stops. I mean, criminals never stop hacking the system, and payment security will constantly evolve to be able to prevent that. So I think you're seeing this in different markets around the world at different rates and paces.... And I think now that that sort of mega cycle is behind us, we don't foresee anything on the horizon that is as big as that or never has been in the history of this company, have never had that big of an upgrade cycle all at once. And so we see this sort of normal regulatory drivers on payment security, on more sustainability, like vapor recovery. So we are in regulated markets, which are very good for business. We work to advance the regulation for societal benefits, for sustainability benefits, and that's also really good business for us. And you mentioned at the beginning, you mentioned upgrade for the underground market in the U.S. Can you talk about that? What happened, what's driving it, and how much visibility do we have there? Absolutely. So if you think about the number of installed tanks under the ground for gas station or dispensing fuel, about 30 years ago, what happened in the United States was the EPA regulated that all of the steel-based tanks, because they used to be steel, and they were rusting out, and they were leaching fuel into the groundwater. And if you wanna read some horrendous articles of that time in newspapers about what was happening. And so the EPA regulated that those would all be switched out with resin-based tanks. But that was now 30 years ago. And now, what's happens after 30 years is that while the tank might still be sound, it's difficult to get insurance on leakage for those tanks. So the operators of those tanks now start carrying a risk of not having insurance or paying exorbitant fees to cover that with insurance. And so we're very early innings of that upgrade cycle. We obviously don't sell tanks, but we sell all the smarts, the submersible transfer pump, the automatic tank gauges, vapor recovery technology, all the stuff that goes on the tanks. It's above fleet margins for us. It's a great business. It's a market-leading portfolio and brand. And so looking at a nice, good upgrade cycle in the U.S. on that, in the coming years is also a good backdrop. Maybe, the last question from me. You are a global company, we focused a lot on the U.S. market, but what's medium-term outlook for international, fueling markets? Europe, India, is it about the overall 4%-6% medium-term outlook? Yeah, when you think of some of the higher growth markets, India, but also Middle East and LATAM, that would be a little bit higher than the mid-single digits. Now, that business is lumpy. It can go up and down, year to year, but over the long term, CAGR, these are very attractive markets as they continue to build out their infrastructure and they continue to modernize regulation to the latest standards. Europe is a little bit of a slower growth market for us, obviously, but overall, these are attractive markets for us, and we'll continue to see growth. I think we're almost out of time. We're gonna end it here. Gentlemen, thanks so much. This was great. Thank you, Andrew. Pleasure to be here. Thank you, Andrew. Yeah, thanks.