Vontier(VNT) - 2021 Q4 - Annual Report

Information Relating to Forward-looking Statements Summary of Risk Factors This section summarizes key investment risks for Vontier, covering business, Fortive separation, common stock, strategy, and growth - Investment in Vontier is subject to risks related to business, separation from Fortive, common stock ownership, strategy implementation, and growth[14] - Key business risks include the ongoing impact of the COVID-19 pandemic, changes in industry standards and governmental regulations, dependence on timely technological innovation, potential liabilities from acquisitions, extensive regulatory compliance, international economic and political factors, goodwill impairment, asbestos-related litigation, and restructuring adverse effects[16][20] - Risks related to the separation from Fortive include outstanding indebtedness of approximately $2.7 billion, potential inability to generate sufficient cash to service debt, challenges in consummating acquisitions, changes in tax rates, adverse changes in distributor relationships, fluctuations in commodity costs, supply chain disruptions, and potential indemnification liabilities to Fortive[20] Part I Item 1. Business Vontier is a global industrial technology company providing critical equipment, software, and services for mobility infrastructure - Vontier Corporation is a global industrial technology company focused on critical technical equipment, components, software, and services for the mobility infrastructure industry worldwide[19] - The company's operations span approximately 30 countries across North America, Asia Pacific, Europe, and Latin America[20] - Vontier is guided by its Vontier Business System (VBS) for continuous improvement in innovation, product development, supply chain, sales, marketing, and leadership development[21] General Business Overview Vontier offers diverse mobility infrastructure solutions, including sensors, fueling equipment, software, and vehicle repair tools - Vontier supplies solutions including advanced environmental sensors, fueling equipment, field payment hardware, point-of-sale, workflow and monitoring software, vehicle tracking and fleet management, traffic light control software, and vehicle mechanics' equipment[19] - The company serves retail and commercial fueling operators, convenience stores, car wash operators, commercial vehicle repair businesses, municipal governments, public safety entities, and fleet owners/operators globally[19] - In 2021, $454.1 million of sales came from high-growth markets, defined as developing markets with accelerated GDP and infrastructure growth[22] Reportable Segment Vontier operates as a single reportable segment, combining mobility technologies and diagnostics & repair due to interrelated products and economics - Vontier operates through one reportable segment, which combines two operating segments: mobility technologies and diagnostics and repair technologies[32] - The aggregation is based on interrelationships of products, technologies, customers, and similar long-term economic characteristics[32] Mobility Technologies Products and Solutions The mobility technologies segment offers solutions for fueling, car wash, telematics, and smart city solutions - Mobility technologies include retail/commercial fueling solutions (environmental monitoring, fuel dispensers, EV chargers, point-of-sale, remote monitoring), car wash solutions (point-of-sale, workflow software), telematics (SaaS for fleet management), and smart city solutions (traffic management for public transit and emergency vehicles)[33] - Key brands in this segment include ANGI, Gilbarco, Orpak, Red Jacket, Veeder-Root, Patheon, SiteWatch, Suds, TunnelWatch, NoPileups, FastPass, Washify, InvoMax, Auto Data, Sage Microsystems, Teletrac Navman, GTT, and Opticom[23][24][25][26][27][33] Diagnostics and Repair Technologies Products and Solutions This segment provides vehicle repair tools, diagnostic equipment, and wheel-service equipment under Matco, Ammco, and Coats brands - The segment manufactures and distributes vehicle repair tools, toolboxes, and automotive diagnostic equipment and software through franchised mobile distributors under the Matco brand[28][39] - It also produces a full line of wheel-service equipment, including brake lathes, tire changers, wheel balancers, and wheel weights, marketed under the Ammco and Coats brands through a distributor network[29][39] Research and Development Vontier conducts R&D to create new products, enhance existing ones, and expand applications, expensing all costs - Research and development activities focus on new product development, enhancing existing product functionality, effectiveness, ease of use, and reliability, and expanding product applications[36] - All research and development costs are expensed as incurred[36] Materials Vontier's manufacturing relies on raw materials, managing supply risks but faced 2021 constraints, particularly for semiconductors - Manufacturing operations use raw materials such as electronic components, steel, plastics, cast iron, aluminum, and copper, sourced globally from numerous independent suppliers[37] - Supply chain risks are addressed using safety stock, alternative materials, and qualifying multiple supply sources[37] - In 2021, the company faced supply chain constraints, especially for semiconductors and electronic components, which led to an increase in backlog[38] Intellectual Property Vontier holds numerous patents, trademarks, copyrights, and trade secrets, with no single asset materially important to the business - The company owns numerous patents, trademarks, copyrights, and trade secrets, and holds licenses to intellectual property owned by others[38] - No single patent, trademark, copyright, trade secret, or license is considered materially important to any operating segment or the business as a whole[38] Competition Vontier operates in highly competitive markets, facing diverse competitors, and believes it holds market leadership - Vontier operates in highly competitive markets, facing regional, specialized, and larger competitors[40] - Key competitive factors include price, quality, performance, delivery speed, applications expertise, distribution channel access, service and support, technology and innovation, breadth of offerings, and brand name recognition[40] - Management believes the company holds a market leadership position in most of its served markets[40] Seasonal Nature of Business While some segments show seasonal trends, Vontier's business as a whole is not subject to material seasonality - Certain businesses experience seasonal trends, such as stronger capital equipment sales in the fourth calendar quarter and OEM sales stronger around new product launches[41] - Overall, Vontier is not subject to material seasonality[41] Working Capital Vontier maintains adequate working capital, with no unusual industry practices or requirements for working capital items - The company maintains an adequate level of working capital to support business needs[42] - There are no unusual industry practices or requirements related to working capital, and sales and payment terms are generally similar to competitors[42] Backlog Vontier's backlog, including unfilled orders and SaaS contract value, increased to $733.9 million in 2021, mostly for H1 2022 Backlog (in millions) | Year | Backlog | | :--- | :--- | | 2021 | $733.9 | | 2020 | $542.5 | - Backlog includes unfilled orders and the annual average contract value of signed contracts for SaaS offerings[43] - The majority of unfilled orders as of December 31, 2021, are expected to be delivered within the first half of 2022, making backlog indicative of short-term sales performance[43] Human Capital Resources Vontier focuses on attracting, motivating, retaining, and developing diverse talent through competitive pay, benefits, and programs - Vontier's human capital objectives are to attract, motivate, retain, and develop high-quality talent, fostering a culture of continuous improvement[44] - As of December 31, 2021, Vontier employed approximately 8,500 persons globally (4,100 in the US, 4,400 outside the US), with about 1,000 US employees being hourly-rated and unionized[45] - Key programs include Inclusion, Diversity & Equity (ID&E) initiatives with eight employee-led Employee Resource Groups (ERGs), health and wellness resources (including mental health support), talent development programs, and community/social impact initiatives like Vontier Cares and Day of Caring[46][51] Government Contracts Government entities represent a minority of Vontier's 2021 revenue, but the company is subject to government contractor regulations - The substantial majority of 2021 revenue was from non-governmental customers[48] - The company is subject to various statutes and regulations applicable to companies doing business with governments and government-owned entities[48](