Vontier(US:VNT)2022-11-04 21:27Part I - Financial Information Item 1. Financial Statements (Unaudited) Vontier's unaudited consolidated financial statements for Q3 2022 detail balance sheets, earnings, cash flows, and notes on acquisitions, financing, and share repurchases Consolidated Condensed Balance Sheets Total assets decreased to $4.26 billion from $4.35 billion, driven by a significant reduction in cash, while total stockholders' equity declined due to treasury stock purchases Consolidated Condensed Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $121.7 | $572.6 | | Total current assets | $1,340.0 | $1,478.2 | | Goodwill | $1,712.4 | $1,667.2 | | Total assets | $4,263.7 | $4,349.8 | | Liabilities & Equity | | | | Total current liabilities | $875.3 | $933.4 | | Long-term debt | $2,635.9 | $2,583.8 | | Total liabilities | $3,763.7 | $3,776.1 | | Total stockholders' equity | $500.0 | $573.7 | - Cash and cash equivalents decreased significantly by $450.9 million from December 31, 2021, to September 30, 202212 - The company recorded $288.0 million in treasury stock as of September 30, 2022, reflecting share repurchase activities12 Consolidated Condensed Statements of Earnings and Comprehensive Income Q3 2022 sales increased to $788.0 million, but net earnings sharply declined to $50.1 million due to an unrealized loss on equity securities, while year-to-date net earnings increased Statements of Earnings Highlights (in millions, except per share data) | Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Total sales | $788.0 | $768.5 | $2,312.5 | $2,200.5 | | Gross profit | $359.9 | $346.4 | $1,043.3 | $976.7 | | Operating profit | $150.2 | $167.4 | $421.5 | $421.3 | | Net earnings | $50.1 | $127.3 | $333.6 | $300.6 | | Diluted EPS | $0.32 | $0.75 | $2.06 | $1.77 | - A significant unrealized loss of $65.8 million on equity securities negatively impacted Q3 2022 earnings13 - Comprehensive income for Q3 2022 was only $5.4 million, a steep decline from $120.5 million in Q3 2021, primarily due to lower net earnings and foreign currency translation loss13 Consolidated Condensed Statements of Cash Flows Net cash from operating activities decreased to $139.8 million, while investing and financing activities used $326.1 million and $248.9 million respectively, resulting in a $450.9 million net cash decrease Cash Flow Summary (in millions) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Oct 1, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $139.8 | $341.9 | | Net cash used in investing activities | $(326.1) | $(989.0) | | Net cash (used in) provided by financing activities | $(248.9) | $731.3 | | Net change in cash and cash equivalents | $(450.9) | $78.4 | - Cash paid for acquisitions was $277.1 million in the first nine months of 2022, a significant decrease from $955.5 million in the prior-year period20 - The company spent $288.0 million on purchasing treasury stock in the first nine months of 2022, compared to none in the prior-year period20 Notes to Consolidated Condensed Financial Statements Detailed notes explain financial statements, covering 2022 acquisitions (Driivz, Invenco), the $2.65 billion debt structure, share repurchases, and the classification of Hennessy and Global Traffic Technologies as held for sale - In 2022, the company acquired the remaining 81% of Driivz for $152.6 million, Invenco for $85.7 million, and two other businesses for $45.5 million354247 - The acquisition of the remaining interest in Driivz resulted in a noncash gain of $32.7 million from remeasuring the previously held equity interest to fair value38 - As of September 30, 2022, the company had total long-term debt of $2.65 billion, including term loans and senior unsecured notes66 - The company repurchased 11.6 million shares for $288.0 million in the first nine months of 2022 through an accelerated share repurchase (ASR) agreement and open market transactions130131 - The company decided to exit its Hennessy and Global Traffic Technologies businesses, classifying $138.7 million in assets and $39.4 million in liabilities as held for sale132133135 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, noting a 5.1% sales increase driven by acquisitions, flat existing business sales, decreased operating profit margin due to inflation, and reduced operating cash flow from acquisitions and share repurchases Business Performance and Outlook Total sales grew 5.1% year-over-year, driven by acquisitions, while existing businesses saw a 0.2% decline, with the company expecting overall sales growth despite supply chain and inflationary pressures - Aggregate year-over-year total sales increased 5.1% for the nine months ended September 30, 2022, while sales from existing businesses decreased 0.2%145 - The increase in sales was primarily driven by the acquisition of DRB Systems, LLC147 - The company expects overall sales and sales from existing businesses to grow in 2022, but acknowledges risks from supply chain challenges, inflation, the COVID-19 pandemic, and the Russia-Ukraine conflict150 - A key electronic supplier suffered a cyberattack in August, impacting dispenser production for approximately three weeks152 Results of Operations Q3 2022 total sales grew 2.5%, driven by acquisitions, while gross profit margin improved to 45.7%, but operating profit margin declined to 19.1% due to higher SG&A and inflationary costs Components of Sales Growth vs. Prior Year | Component | Q3 2022 | YTD 2022 | | :--- | :--- | :--- | | Total revenue growth (GAAP) | 2.5% | 5.1% | | Existing businesses (Non-GAAP) | (1.9)% | (0.2)% | | Acquisitions (Non-GAAP) | 7.7% | 7.8% | | Currency exchange rates (Non-GAAP) | (3.3)% | (2.5)% | - Year-over-year price increases contributed 5.9% and 5.3% to sales growth during the three and nine months ended September 30, 2022, respectively161 - Q3 2022 operating profit margin decreased by 270 basis points compared to Q3 2021, with increased costs from inflation having an unfavorable impact of 340 basis points170171 Liquidity and Capital Resources Liquidity weakened as operating cash flow decreased to $139.8 million, with significant outflows for $277.1 million in acquisitions and $288.0 million in share repurchases, though the company deems current liquidity sufficient - Net cash provided by operating activities decreased by $202.1 million to $139.8 million for the nine months ended September 30, 2022, compared to the same period in 2021189 - During the first nine months of 2022, the company entered into and settled a $250.0 million accelerated share repurchase program, receiving 10.0 million shares186 - Net cash used in financing activities was $248.9 million in the first nine months of 2022, a significant shift from $731.3 million of cash provided in the prior-year period, driven by share repurchases and lower debt issuance190 Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in quantitative and qualitative disclosures about market risk during Q3 2022, as previously reported in the 2021 Annual Report on Form 10-K - There were no material changes to the company's market risk information during the quarter ended September 30, 2022198 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report199 - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls200 Part II - Other Information Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, but does not anticipate a material adverse effect on its financial condition or results - The company does not believe that the final outcome of its ordinary course legal proceedings will have a material adverse effect on its business, financial condition, or operating results201 Item 1A. Risk Factors No material changes occurred to the risk factors disclosed in the 2021 Annual Report on Form 10-K during the three months ended September 30, 2022 - There were no material changes during the third quarter of 2022 to the risk factors previously reported in the 2021 Annual Report on Form 10-K203 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 0.8 million shares at an average price of $22.33 per share during Q3 2022, as part of its $500 million share repurchase program Share Repurchase Activity (Q3 2022) | Period | Total Shares Purchased (millions) | Average Price Paid per Share | | :--- | :--- | :--- | | July 2 - July 29, 2022 | 0.8 | $22.33 | | July 30 - Aug 26, 2022 | — | — | | Aug 27 - Sep 30, 2022 | — | — | | Total | 0.8 | N/A | - As of July 29, 2022, approximately $469 million remained available for future repurchases under the company's authorized program208 Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including employment agreements and CEO/CFO certifications required by the Sarbanes-Oxley Act