Vontier(VNT) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Vontier's unaudited Q2 and H1 2023 financial statements detail balance sheets, income, equity, cash flows, and notes Consolidated Condensed Balance Sheets Total assets decreased to $4.21 billion, liabilities to $3.50 billion, and equity increased to $701.4 million Consolidated Condensed Balance Sheet Highlights (in millions) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,276.2 | $1,385.0 | | Total Assets | $4,205.6 | $4,343.3 | | Total Current Liabilities | $846.2 | $929.9 | | Long-term Debt | $2,422.4 | $2,585.7 | | Total Liabilities | $3,504.2 | $3,763.8 | | Total Equity | $701.4 | $579.5 | Consolidated Condensed Statements of Earnings and Comprehensive Income (Loss) Q2 2023 sales decreased to $764.4 million, but net earnings rose to $97.3 million due to a business sale gain Key Performance Indicators - Q2 2023 vs Q2 2022 (in millions, except per share amounts) | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Sales | $764.4 | $776.4 | | Gross Profit | $348.1 | $348.1 | | Operating Profit | $120.6 | $136.5 | | Net Earnings | $97.3 | $33.3 | | Diluted EPS | $0.62 | $0.21 | Key Performance Indicators - H1 2023 vs H1 2022 (in millions, except per share amounts) | Metric | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Sales | $1,540.8 | $1,524.5 | | Gross Profit | $701.1 | $683.4 | | Operating Profit | $254.4 | $271.3 | | Net Earnings | $180.1 | $283.5 | | Diluted EPS | $1.15 | $1.73 | Consolidated Condensed Statements of Cash Flows H1 2023 operating cash flow improved to $158.5 million, investing activities provided $103.5 million, and cash increased $39.5 million Cash Flow Summary - Six Months Ended (in millions) | Cash Flow Category | June 30, 2023 | July 1, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $158.5 | $48.5 | | Net cash provided by (used in) investing activities | $103.5 | $(220.2) | | Net cash used in financing activities | $(222.6) | $(262.8) | | Net change in cash and cash equivalents | $39.5 | $(445.2) | | Ending balance of cash and cash equivalents | $244.0 | $127.4 | Notes to the Consolidated Condensed Financial Statements Notes explain Q1 2023 segment realignment, a business sale, assets held for sale, and share repurchases - In Q1 2023, the company realigned its internal organization into three new reportable segments: Mobility Technologies, Repair Solutions, and Environmental & Fueling Solutions[21][68] - On April 14, 2023, the company completed the sale of its Global Traffic Technologies business for $108.0 million, resulting in a preliminary gain of $34.1 million[92] - The Coats (Hennessy) business was classified as held for sale, with total assets of $53.5 million and liabilities of $29.0 million as of June 30, 2023[93][94] - During the six months ended June 30, 2023, the company repurchased 2.0 million shares for $50.0 million; as of June 30, 2023, $378.9 million remained authorized for future repurchases[91] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Q2 2023 sales declined 1.5% due to EMV, despite segment growth; gross margin improved, but operating margin decreased Overview and Outlook Vontier realigned into three segments, expecting a 2023 total sales decline due to EMV, but mid-single-digit core sales growth - The company now operates through three reportable segments: Mobility Technologies, Repair Solutions, and Environmental & Fueling Solutions[103] - The 2023 outlook anticipates a year-over-year decline in total sales due to the end of the EMV upgrade cycle, but expects mid-single-digit core sales growth excluding this specific headwind[106] Results of Operations Q2 2023 sales decreased 1.5% to $764.4 million due to EMV, with improved gross margin but declining operating margin Consolidated Sales Growth Components vs. Prior Year | Component | Q2 2023 | H1 2023 | | :--- | :--- | :--- | | Total Sales Growth (GAAP) | (1.5)% | 1.1% | | Core Sales (Non-GAAP) | (1.6)% | 1.1% | | Acquisitions (Non-GAAP) | 0.9% | 1.3% | | Currency Exchange Rates (Non-GAAP) | (0.8)% | (1.3)% | Segment Sales Growth (GAAP) - Q2 2023 vs Q2 2022 | Segment | % Change | | :--- | :--- | | Mobility Technologies | 13.4% | | Repair Solutions | 5.8% | | Environmental & Fueling Solutions | (9.6)% | - Gross profit margin increased by 70 basis points in both Q2 and H1 2023 compared to the prior year, reaching 45.5%[108][119][120] - Operating profit margin decreased by 180 basis points to 15.8% in Q2 2023, primarily due to increased SG&A and R&D expenses[108][125] Liquidity and Capital Resources Vontier maintains strong liquidity with $244.0 million cash and $750.0 million credit, generating $158.5 million from H1 2023 operations - The company's liquidity position as of June 30, 2023, included $244.0 million in cash and $750.0 million of available borrowing capacity[146] - In the first six months of 2023, the company voluntarily repaid $165.0 million of its Three-Year Term Loans Due 2024[148] - The company repurchased 2.0 million shares for $50.0 million in H1 2023[148] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures occurred in H1 2023 compared to the 2022 Annual Report on Form 10-K - There were no material changes to the market risk information previously disclosed in the Company's 2022 Annual Report on Form 10-K[163] Item 4. Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting in Q2 2023 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[164] - No material changes were made to the company's internal control over financial reporting during the second quarter of 2023[165] PART II - OTHER INFORMATION Item 1. Legal Proceedings Management anticipates no material adverse effect on financial condition or operations from current legal proceedings - The company does not expect current legal proceedings to have a material adverse effect on its financial condition or results of operations[167] Item 1A. Risk Factors No material changes to risk factors previously reported in the 2022 Annual Report on Form 10-K occurred in Q2 2023 - No material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K occurred during Q2 2023[169] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2023, Vontier repurchased 1.1 million shares at $28.55, with $378.9 million remaining for future repurchases Share Repurchase Activity - Q2 2023 | Period | Total Shares Purchased (millions) | Average Price Paid per Share | Approximate Dollar Value Remaining for Purchase ($ millions) | | :--- | :--- | :--- | :--- | | April 29 - May 26, 2023 | 1.1 | $28.55 | $378.9 | - The company's Board of Directors approved a replenishment of the share repurchase program in May 2022, bringing the total authorization to $500.0 million[170] Item 5. Other Information No directors or executive officers adopted, modified, or terminated Rule 10b5-1 trading plans during Q2 2023 - No directors or executive officers adopted, modified, or terminated any Rule 10b5-1 trading plans during Q2 2023[174] Item 6. Exhibits Exhibits include CEO and CFO certifications under Sarbanes-Oxley Act of 2002 and Inline XBRL documents - The report includes required certifications from the CEO and CFO under the Sarbanes-Oxley Act of 2002[175]