Vontier Corporation (VNT) Earnings Call Transcript & Summary

Good morning, and welcome to the Vontier Investor Conference. Today's call is being recorded. To kick off this morning's conference, I'm going to turn it over to Lisa Curran, Vice President of Investor Relations at Vontier. Please go ahead.

Thank you, Jen. Good morning, and welcome, everyone. I'm Lisa Curran, Vice President of Investor Relations. Thank you for joining us for Vontier's launch webcast. With me today are Mark Morelli, our President and Chief Executive Officer; David Naemura, our Chief Financial Officer; and Elizabeth Cheever, our Vice President of Corporate Development. Turning to the forward-looking statements on Slide 2. During today's presentation, we may make forward-looking statements. Actual results may differ materially from those statements. We also present [Audio Gap] please refer to Slides 3 through 5 in the presentation for more information, including key facts and dates. You can find more information on the Investors section of our website www.vontier.com under the heading financials, including supplemental normalized financials adjusted for estimated stand-alone public company costs. Looking at today's agenda on Slide 6, in between opening and closing remarks, Mark will provide overviews of our platforms, Elizabeth will present the M&A playbook, and Dave will provide the financial overview and outlook. Please note that we will also have 3 brief operator-moderated Q&A sessions during the webcast. With that, I'd like to turn it over to Mark.

Thank you, Lisa. I have with me today, Elizabeth Cheever, VP of Corporate Development, who has an excellent background in M&A. She recently joined us from leading M&A at Keysight, and prior she was at Danaher as well as Evercore. David Naemura is also here, who has extensive Danaher experience allocating capital and living business system, he was recently the CFO at Gates. If you turn to Slide 7, I'd like to introduce Vontier. We are excited to be here and give you a view of Vontier and why we believe this is a compelling industrial technology opportunity. I was not looking for an opportunity, but this one was too good to pass up. This business has great fundamentals, and there is a compelling opportunity to transform the portfolio and create profitable growth. We're a market leader in the mobility infrastructure and diagnostic and repair space with a leading portfolio of sticking brands with a compelling value proposition, solving customers' high-value problems. We believe that enhanced focus created by the spin will drive better results for Vontier through the deployment of free cash flow into M&A and an excellent runway of business opportunity improvements. Let's turn to Slide 9. We are launching an industrial technology company of scale with a portfolio of market-leading brands and technologies serving attractive mobility and transportation markets. We have a large global installed base with historically low cyclicality and high recurring revenue. We have an outstanding financial profile with strong margins and free cash flow with a penchant for M&A. And the Vontier Business System will be the foundation of organic initiatives to enhance our growth profile and continue to expand already strong margins. And as you'll see, there's a large runway to do exactly that because we have a lot of opportunities ahead. We also have a proven track record of substantial growth and strategic transformation. Let's turn to the next chart. We have taken the opportunity over the past several months to shape our culture with our purpose and core values. Our shared purpose or the reason as to why we exist as a company is to mobilize the future to create a better world. This resonates with our employees and helps us answer why we exist and drives us to a higher calling to make a difference by providing more productive, safe and sustainable solutions. It's also a forward-looking statement indicative of our ability to untap the future of mobility. Let's take a look at our core values on the next chart. We have 5 core values, and we pride ourselves by being a value-driven organization. At the center, our Vontier Business System or VBS is at the core of our shared values. It powers every aspect of our culture and our performance. We are stronger together as we work as one diverse team. Each of us strive to post our personal best as we are driven to win, and we embrace continuous improvement. We're never satisfied with good enough. We continuously strive for better with reimagine better core value. And the last core value, we strive for customer-driven innovation to create what's next. Together, with our purpose, the values serve as our North Star, it orients our employees and provides the foundation of our culture. Let's turn to the next chart. We're on Page 12. Our businesses are well-positioned and strategically focused on the fragmented mobility infrastructure markets. We have 5 operating companies within 2-platform structure, serving a $27 billion market TAM. The first platform is Mobility Technologies, which represents about a $20 billion opportunity, growing at mid-single digits. And we have the Diagnostic and Repair Technologies platform with a $7 billion market TAM, growing at low single digits. In both of these platforms, we have trusted brands and our leading technologies position us well to expand across attractive markets with a long runway of potential. Please turn to the next slide. On this chart, you can see our reach is broad and deep. We have more than 8,000 employees with a significant manufacturing base, serving local markets. We have more than a 0.25 million retail fueling customer sites globally, and we serve more than 600,000 auto technicians every week with our 1,800 Matco franchises. We monitor more than 0.5 million vehicles with Teletrac Navman, and we are penetrated in more than 90,000 intersections with our GTT business. We have a loyal customer base with a long history of serving global markets. As you can see in the chart on the left here, we have decades of experience in high-growth markets. Let's turn to the next chart, page 14. Vontier is uniquely positioned to capitalize on multiple secular drivers. The next 10 years of mobility will bring more change in the way that people and products move than any decade since the invention of the automobile. Let me just highlight a couple of these secular drivers as we're going to spend more time on them throughout the presentation. GVR has a long history of regulatory waves, driving strong growth, particularly when it comes to safety through programs such as vapor recovery and security, which is driving the Eurocard, Mastercard, Visa trend. Increasing complexity of vehicle repair and the aging installed base of the vehicle is providing great tailwinds for our Matco business. And through the rise of e-commerce, more goods are on the road, which has been highlighted actually during COVID, and this increases the complexity of global supply chains, which can benefit from fleet monitoring and management provided by Teletrac Navman. Turn to the next chart and look at our history. You should think of our business as a historical stable revenue grower, also growing margins. As you can see on this chart, this portfolio of businesses has had only 1 year of modest revenue decline in the prior 15 years. This was during the 2008-2009 downturn. Vontier revenue was down only 6%, while the industrial index was down more than 15%. We are enjoying some outsized growth currently on the back of U.S. EMV that started in 2014. I'll come back to that later in the GVR section. And we have sales growth CAGR of over 6% over the last 15 years, with 500 basis points of operating margin expansion. This is an excellent history and good depiction on how we believe the business will perform through normal economic cycles over the long run. Let's take a look at the financial profile on the next page. This shows that we have an excellent financial profile with strong free cash flow. All of Vontier's financial characteristics are top quartile or in line with premium industrial technology peers. We have an investment-grade style balance sheet and strong cash generation to invest in the business and accelerate growth through M&A. Turn to Page 17. We have a unique opportunity to leverage a business system to drive margin improvement. You may be familiar with this depiction as it's the same description for DBS and FBS and appropriate for VBS. VBS is our defining force because we have decades of experience as part of our culture. This rich heritage of success lays the path for an exciting future. In my past several companies, I've enjoyed the challenge of putting in place a business system, but it's no secret that the one to try to copy is DBS and FBS, but it's hard to replicate. We have something unique here because we have more than 8,000 employees steeped in the business system as well as over a 30-year legacy of working on this type culture. Let's turn to the next chart, page 18. Let's take a look at the core value drivers, which may also look familiar to you, as they're similar to that at Fortive. This is the core value driver playbook for continuous improvement and value creation for all stakeholders, employees, customers and shareholders. I've outlined some tools here shown on the right that are also at the heart of VBS. Take a look at an example of VBS on the next chart. This is the history of Vontier's portfolio transformation. We have a great track record of transforming our business and a disciplined approach for strategy and M&A. Look at where the business was 10 years ago. We were primarily a hardware and sensors business evolving into a mobility infrastructure technology company. We did approximately 30 acquisitions with none of them being more than $100 million in revenue, but these acquisitions accelerated growth and expanded our TAM. This is also a reason for separation and is very similar to why Fortive was spun from Danaher. Since Fortive's inception in 2016, less than 5% of Fortive's capital has been deployed for M&A back into the Vontier businesses. Now with our cash flow targeted on our markets of opportunity, we can leverage a proven flywheel model, which demonstrates the power of M&A to also accelerate our growth. This brings us to our next page, Slide 20. This is the portfolio that we have today. We have a large runway for earnings growth. The opportunity in each of these markets is moving up the technology stack. Our installed base positions us well to expand into attractive market adjacencies. And on Page 21. This chart is interesting as it compares Vontier to Fortive at the time that Fortive split from Danaher. We have very similar characteristics, and we will build on our strong heritage that few can claim. We have inherited a proven business system from Danaher, much like Fortive did. We have a strong capital structure. We have robust cash flow, which allows reinvestment, and we have disciplined M&A with a significant pipeline to accelerate growth and evolve the portfolio. We have a track record of portfolio transformation, and we will employ a similar playbook for driving shareholder value. This brings me to talk about our management team on Page 22. I'm very happy to introduce the team. We pulled together a strong, diverse team that has deep experience. Many folks have firsthand experience with DBS and FBS as well as leading strategic and financially compelling portfolio transformations. I'd love to talk about everybody here. However, I only want to highlight a few given the nature of the time. We are fortunate to have Martin Gafinowitz continue on the Board level, given his domain experience of more than 28 years with the Danaher businesses and specifically these businesses. He knows the culture of our business system. And he understands the history of our portfolio transformation. And Karen Francis, our chair, brings a wealth of Silicon Valley technology and growth experience in the auto technology space. Dave, I spoke about earlier, has great extensive experience with Danaher. And Lisa Curran, who you heard from earlier in the call, is the VP of IR. Many of you know Lisa as she led IR at Fortive when they split from Danaher, and she's back again for Version 2.0. Roopa is the newest member of our team, and she is joining us to lead our strategy efforts. She's led strategy initiatives at Harman, Pfizer and BlackRock. Now I'd like to introduce Elizabeth Cheever again. She's our VP of Corporate Development, as I mentioned, and she has firsthand knowledge of Danaher and the M&A playbook, as she was prior Director of Corporate Development for Danaher based in our Washington DC offices. Elizabeth comes most recently from Keysight Technologies, where she led corporate development. With that, I'd like to turn the presentation over to Elizabeth. Elizabeth, take it away.

Thanks, Mark. So everyone is oriented to where we are. I'm starting on Slide 24. First, I want to say how pleased I am to have this chance to talk about our M&A opportunity at Vontier. It's a tremendous privilege for me to join this team and to be part of launching Vontier as a new independent company and to have a critical role in executing on our vision for the future. At the corporate level and within the operating companies, we have the benefit of leadership with deep experience with the proven Danaher and Fortive approach to M&A. Some of our operating companies have been with us for decades. And at this point, prioritizing M&A is part of their DNA. As importantly, with Mark and other new members of the Vontier leadership team, bringing with them experience from a wide range of different markets and industries and with different transactions over the course of their careers, we also have the benefit of new insights and perspectives. This mix of established and new, I believe, will enable us to implement a successful M&A strategy out of the gate. The Danaher, Fortive approach to M&A has deep roots of Vontier, as does the drive for continuous improvement. We'll use our collective experience to bring and -- to build and improve on the heritage we've inherited to create a right M&A strategy for Vontier. Our capital deployment priorities will be aligned with our strategic objectives. First and foremost, we're focused on investing in attractive markets in the long secular growth drivers -- long-term secular growth drivers, opportunities for differentiation that support sustained, attractive margins, and where there's a long runway for future investment. As we build and prioritize our funnel, we're fundamentally looking to buy good companies in good markets. We're focused on targets with strong brands and commercial capabilities who are or have the potential to be leaders in their markets. And of course, we'll always look for opportunities to use VBS to create value as part of our M&A strategy. I do want to emphasize that when we think about M&A, we're focused on driving value for shareholders. Our objective is not to do deals, it is to create value. That shareholder-focused mindset underpins our disciplined and patient approach to not only valuation, but to every aspect of our M&A strategy, from target identification to cultivation, which in some cases can be a month or even years' long effort; and finally, to execution and integration. In terms of how we measure success, we'll focus primarily on return on invested capital. We'll take a long-term view of value creation, understanding that it can take a significant amount of time to align and optimize road maps, go-to-market strategies and technologies, particularly in new market opportunities. We're looking for targets that will enable us to generate an ROIC within 3 to 5 years, that's materially above our cost of capital. Now moving to the next slide. We anticipate having in the neighborhood of $1.5 billion available for M&A over the next 2 to 3 years. We have a rich pipeline of opportunities to generate value with acquisitions across a spectrum of transaction types. First, we'll always be looking for opportunities to accelerate strategic objectives and growth at our operating companies with bolt-on transactions. Adding technologies, products, geographic coverage or other commercial capabilities. These types of transactions ultimately may not account for the bulk of our M&A capital deployed over time, but will always be a critical part of our value creation strategy. As these transactions are typically in our core markets and likely relatively smaller in size, we'll pursue these opportunities as they arise in the near, medium and longer term. Similarly, we're seeking to capitalize on our strong customer relationships and market leadership by entering into adjacent markets. These types of transactions enable us to not only expand our addressable market and leverage VBS at the acquired companies, they have the potential to enhance the value of our existing portfolio. We would look for targets and market adjacencies that have both cost and revenue synergy potential. These are the kind of transactions where we would expect to have the most 1 plus 1 is greater than 2 type characteristics. And finally, over time, we'll seek to expand into attractive new markets with scale transactions. New market entry opportunities have longer lead times as we develop conviction and insights in new markets and build and cultivate the funnel of opportunities. We'll always seek to leverage VBS to drive growth in margin, and we expect those opportunities to be there with new platform transactions, but there may be fewer revenue type synergy opportunities, as these targets will be further away from where we're currently playing. Now turning to my final slide. The evolution of Gilbarco Veeder-Root illustrates the simple flywheel concept that drives our capital allocation priorities, as it's been implemented at GVR. Since Danaher bought -- brought Gilbarco and Veeder-Root together in 2001, we've increased revenue from $400 million to nearly $2 billion and improved operating margin from single digits to over 20%. This reflects both the consistent application of VBS over decades as well as the impact of $700 million of capital deployed across 21 transactions. One area of focus for acquisitions in this portfolio has been to improve organic growth by increasing geographic reach. As a result of this effort, approximately 1/4 of GVR's revenue now comes from high-growth markets, a significant contributor to GVR's long track record of consistent growth. As the GVR example shows, over time, with consistent application of VBS, alongside disciplined M&A, we're able to drive sustained improvement to growth in margin, which increases our capital available for M&A as well as further organic investment. With more capital available, we have the ability to use M&A to jump start additional strategic initiatives and invest in companies with attractive organic growth and margin characteristics that further reinforce what we are doing on the organic side. Acquired assets can become part of the organic portfolio and the process continued at greater scale generating more cash for internal and external investment. Over the years, Danaher and Fortive investors have seen the power of disciplined execution of this strategy and market-driven approach to M&A. The Vontier assets were not a focus for M&A investment at Fortive. But now as a stand-alone public company, we have the opportunity to bring the same approach to Vontier to accelerate value creation efforts across our entire portfolio. Now Lisa, I'll hand it back to you for the first Q&A.

Thanks, Elizabeth. Jen, please go ahead and open up the line for questions for any of our speakers; Mark, Dave or Elizabeth.

[Operator Instructions] We will take our first question from Steve Tusa with JPMorgan.

Congrats on moving forward with this. Obviously, a pretty crazy few months since we sat down earlier in the year. The -- obviously, what's striking is the added resources. You're kind of putting your money where your mouth is, as well as, I think, a bit more time talking about M&A and what you're going to do with the portfolio, but you did tweak down. I guess you said you were going to do over $1.5 billion deals, now you're saying about $1.5 billion deals for the next 2 to 3 years. That's probably just maybe a bit more -- or a bit less EBITDA, perhaps to be able to leverage given the economy. But maybe what -- I guess just at higher level, it just seems more of a focus here. Is that a strategic message that perhaps you guys sat down and thought about more in the last several months? Or am I kind of reading too much into that?

Yes. Steve, this is Mark. So certainly, we were ready earlier in the year, but we're even more ready now. We spent a lot of time building the team out. And clearly, managing through the COVID environment has been an excellent opportunity for us to also form the team. And we've learned a lot, too, about the businesses that we have. We think we have an excellent runway of improvement in the existing businesses, but we're still very convicted to the M&A stories which you're getting to. And so we still have a strong balance sheet to leverage from. And a big part of the value proposition here is the compounder of earnings approach. As you can see, we've definitely built out the team also in this capacity.

Okay. And again, was this kind of in line with what you guys were planning on doing? Or was there something that changed in the last, call it, 6 months or so that made you bring more people on and add resources in this area?

No. I mean, keep in mind, earlier in the year, Dave and I just started, and we were just building out our team. So this was exactly what we intended to do. And we filled all the positions that we were intending to fill back in the spring.

And our next question comes from Nigel Coe with Wolfe Research.

Congratulations on getting to the finish line here. Just want to stick with the M&A process here. And maybe just talk about the extent to which you're doing centrally sourced acquisitions and building that pipeline essentially versus other businesses? And then secondly, you talked about ROI in excess of cost of capital. In this sort of funky world, how do you define cost of capital with 0 cost debt, et cetera?

Yes. So I think the playbook is probably something you're pretty familiar with, Nigel, because a lot of the pipeline development cultivation is actually done in the OpCos, and these OpCos know that. It's been part of the drill. They've been working under for many, many years. So that cultivation aspect is a well-disciplined process, and I think a really important aspect of the playbook that we actually run. At the same time, we formed a central team at the center, and there's also a good amount of work that is done there. And of course, Elizabeth, coming from her background, really knows that playbook as well. When we execute a deal, of course, we're going to be doing that at the center of the business, but as you know, we pull up a lot of those, the cultivation and the idea generation, throughout the businesses. In terms of the cost of capital, I'm going to turn it over to Dave.

Nigel, you're right. It's obviously kind of different times here, but we would see kind of on a normalized type basis, cost of capital in kind of that high single-digits range.

And our next question comes from Julian Mitchell with Barclays.

Just a -- first question maybe on the M&A point. You've seen obviously Fortive move in some very different directions strategically on its acquisitions versus what the company's portfolio had looked like at the time of spin, big push into software, for example, business models, also big push into health care as an end market. And so I suppose I was wondering if you could help clarify how far away from the current portfolio, investors should expect this acquisition activity at Vontier to move towards?

Yes. So we talked about a $27 billion market TAM. So the good thing about that is it's a fragmented space. And as we go through the presentation today, we'll kind of illuminate some areas that we're particularly excited about. But I think we're looking at a pretty healthy mix of both bolt-ons, adjacencies, larger acquisitions as well as companies that might be in the hands of private equity today that might be actionable in the near term. I think the issue is compared to when I did a similar kind of exercise as part of Brooks Automation, where we were trying to pivot from semiconductor, robotics and automation into life sciences. And when we described that to folks, it was a pretty long type. And here, I don't see that. I think these are all pretty near-term adjacencies, as you'll see as we go through the presentation.

I see. And maybe just a follow-up around the -- we just heard from Elizabeth around the culture at Vontier and the effort around corporate development. When you look at the employee base, it's -- most of it is pretty similar to how the assets were several years ago because of the lack of M&A that you alluded to in the last few years. Maybe help us understand with that static kind of base or steady heritage, how do you see the Vontier Business System developing with the company as a stand-alone entity? And what tweaks or adjustments do you think will be necessary or desirable as the company develops as a stand-alone business?

Yes. Thanks for the question. It's something we're really excited about because I'm very passionate about leading a company with a very strong culture and set of values. And compared to what I'm used to, this is a lot to start with. In fact, this is really -- when you go think about business cultures and things you need to leverage, this is really the one to look to. And I've been trying hard through decades of applying myself in business systems to kind of glean what I can from what Danaher has done and Fortive. So at the same time, you've seen the business system evolve in terms of the toolkit. Some of the stuff has been on -- about innovation and product development and also about simplicity. The great thing that this split provides is an opportunity to really retrench and dig deeper on these businesses and deploy the business system deeper. So I think we've got a rich heritage to leverage from, but we're very excited because good is not good enough. And that's the application of the business system. So really happy to be working on this.

And our next question comes from Andy Kaplowitz with Citigroup.

Mark, obviously, a good track record of relatively noncyclical businesses over the years with mid-single-digit growth over time, as you said. There's obviously -- when you talk to some of the investors concerned about parts of the business going forward, being a little slower-growing, retail fueling comes to mind. So what's your initial impressions? What do you think Vontier can grow at over the long term? Like what's the pitch? Is it a GDP business, GDP-plus, like how do you think about growth rate going forward?

Yes. I think longer term, we're looking at that as a GDP-plus business. You also hear us talk through the Gilbarco Veeder-Root or GVR section about some of the headwinds we face, but also some of the opportunities in front of us. So I think the business itself is not just some of these sort of regulatory headwinds, but I think we've got also a lot of tailwinds for us as well. So I'm really happy to talk about that in the next section. So if you have more questions around that after we go through it, really happy to entertain it.

And then maybe the follow-up I'd ask you is that your initial impressions of the current portfolio in terms of the biggest opportunity. I'm sure you're going to talk about this in the slides ahead, too. But is it on the margin side? Is it on the growth side? I mean, as you know, there have been some businesses like Teletrac Navman that have been slower growing or even decline that you can improve upon. So where is sort of the low-hanging fruit in improving the current portfolio?

Yes. That's a really good question. Look, I think there's a real balance here, and I think the separation provides us an opportunity to really dig deep. And as you'll hear in my remarks to come too, I think there's a long runway of improvement ahead. You talked about Teletrac Navman. I'll talk about that, Hennessy as well. With U.S. EMV rolling off, that provides some opportunities for us to simplify the business and also make the business run more efficiently. It actually excites me because these represent opportunities for us to improve the business and should also drop to the bottom line.

We will take our next question from Deane Dray with RBC Capital Markets.

Mark, you gave in one of your opening slides on Page 9, the free cash flow conversion being better than 100% and a sneak peek well ahead in the deck shows that this year, trailing 12 months, you're at 137% conversion, which would put you among the elite in the multi-industry sector. Just trying to gauge what's normalized? And maybe Dave can give us a sense of working capital sales, the capital intensity of the business, because if you are truly going to be able to self-fund this M&A outlook, it does hinge on free cash flow, which at first pass looks very impressive, but I would appreciate some color here.

Yes. Sure. I mean, first of all, we're really happy with the cash flow we're getting now, but I'll turn it over to Dave. Dave, you can give some more color on it.

Sure. Thanks, Deane. I think the normalized run rates, we've talked about this target of greater than 100%. And I think around 100% is probably a good range for the normalized target. Of course, things will happen to make it higher and lower. To your point, we've had really good performance in 2020. And I think that's in large part due to a lot of the actions that we took very proactively heading into the pandemic, which allowed us to drive pretty significant cash flow in the second quarter in particular. We'll see that normalize over the course of the year. I'll talk a little bit about that when we get to the financials. But overall, we still see that greater than 100% for the year is where we anticipate ending up and kind of longer-term, kind of the right target for us. As far as working capital intensity, we see that kind of low double digits as a percent of sales where we typically run on that 10 -- somewhere between 10.5%, 11.5%, typically. That varies depending on what's going on with the business exactly, but that tends to be where we tend to run. And CapEx tends to be below 2% of sales. So not that capital intensive as we find out.

And that's all the questions we have for now.

Well, let me pick it up then with the Mobility Technologies platform. If you turn to slide 29, and as a reminder Mobility Technologies platform consists of Gilbarco Veeder-Root, which we have been calling GVR; Teletrac Navman, which we call TTN; and Global Traffic Technologies or GTT. This is about $2 billion worth of business in a $20 billion market TAM growing at mid-single digits. We are well-positioned with market-leading technologies for powering, monitoring and directing transportation. Let's go to the next chart. GVR, Gilbarco Veeder-Root is our largest business. Let's go to page 31. GVR is the world's #1 provider of technology for fueling infrastructure. We are providing offerings to the leading brands in the C-store and fleet markets. Our offerings span fueling dispensers or gas pumps, point-of-sale systems, underground environmental equipment, after-market services and EV charging. We have over 5,000 employees operating in more than 40 countries. And our market is $10 billion approximately when you include the emerging opportunity for EV technologies. And we expect the market to grow globally at mid-single digits. We focused on 4 areas for driving growth. The first of which is we have a runway in the existing businesses to drive profits with simplification and improve efficiencies. We have also the opportunity to grow our digital solutions through a broad range of software solutions and the ability to drive additional recurring sales. And we are focused, actually over the last several years as you know, to expand the footprint into high-growth markets into multiple geographies as well as growing the portfolio of EV solutions. Turn to page 32. This is a depiction of a convenience store, or C-store that many of us are familiar with. It is a sophisticated operation including fuel retailing, convenience store shopping and more frequently food preparation and retailing. The store format also has to deal with compliance and a variety of regulations on the way to making profits. We have the industry's broadest set of offerings encompassing the technologies that run the C-store. You should not think of us as just helping to pump gas. Let's start with the underground. We have equipment underground, pumps, sensors, that comply with regulation as well as we check tank levels, provide fuel to the pumps as well as we have an ability to recover vapors and detect leaks. This is all part of what we call environmental solutions. As you go above ground, where the fueling occurs, this is called the forecourt and the security of payments is driving technology upgrade and integrated automation to detect fuel tampering and management of the operations including service. Moving inside the C-store, we offer specialized point-of-sale system, head and back office software to manage these specialized operations and provide our customers with the opportunity to better manage the primary money-maker for them, which is food and convenience store merchandising. We also have cloud-based software to manage fuel logistics including fueling operations. And this is a recurrent business for us. It is no wonder in this format that EV chargers are also getting integrated. We are a unique company here as we offer a fully integrated solution for the forecourt and for the C store. Let's take a look in the next chart, page 33, for our growth drivers, and there is 4 important trends to touch on. On the left, underpinning everything is this continued growth in the global car parc. And the internal combustion engine or ICE remains at more than 90% of the car parc by 2030 and a key business driver for many of our existing technologies. The next one, we have a history of benefiting from regulatory cycles in this industry. This includes upgrades driven by payment security systems such EMV, which we spoke about, which is Eurocard, Mastercard and Visa, but also increasingly environmental regulation such as vapor recovery in China and India. We expect these types of regulatory cycles to continue into the future. We are also focused on the infrastructure build-out in high growth markets, where we have expanded through M&A and continue to see growth, particularly in India and China. And finally, our customers are focused on growing their business and increasing their profitability. This has resulted in a major shift over the past several years of diversification of their business. They are moving away from being just a gas station to more of a retailer with offerings including food service. GVR is uniquely positioned to take advantage of all these trends. Let's take a closer look at the regulatory drivers on page 34. As I mentioned, GVR has a long history of benefiting from multiple regulatory ways as shown. The most significant regulatory driver for GVR today is U.S. EMV, which is shown here. And that stands for Eurocard, Mastercard and Visa, as I have been talking about, and it is that secure chip reading technology many of you are familiar with when you use your credit card when you are shopping. Specific to EMV, we started the year about 55% of our installed base being penetrated with EMV, and we expect to end the year with 70% or more penetrated in our installed base. As we look ahead, we see increasing environment regulations, particularly in high growth markets, as they upgrade their facilities to new standards. While we spend a lot of time discussing U.S. EMV, we see these other regulatory drivers on the horizon as well. These waves are inherently lumpy, and timing can be hard to predict, but we do expect that they will continue to provide tailwinds for the business into the future. Albeit, individually much smaller than EMV collectively, these regulatory drivers represent a sizable opportunity. Let's take a look at the next chart and the specific impact of EMV on GVR's revenue. You can see we have shown on this page the revenue for the business over the past several years with EMV cycles shown in the middle of the page in the darker teal color. EMV has provided strong growth in 2020 despite the pandemic and as national retailers have continued to purchase and install technology to meet the deadlines in April of 2021. Beyond 2020, we expect the tailwind to moderate, but the remaining adoption rate will be determined by the smaller customers or retailers called SNRs. This makes it harder to predict the exact peak and slope of the ramp down. We will focus on profitability initiatives to help offset the moderating EMV tailwind. As I mentioned earlier, we have a long history of M&A, and further M&A will help drive growth. The bottom line is while EMV sunsets and it tampers our near term growth, we expect GVR long-term growth to mid-single digits. Let's talk about what are the growth opportunities post EMV on the next chart. These are the key initiatives that we are going to focus on. It includes driving profitable growth, focus on simplifying our products and our operational footprint as well as accelerating productivity. Also we are going to discuss about growing digital solutions and our expansion in high-growth markets as well as increasing the e-mobility solutions that we have to offer. We are going to focus on each of these. So let me step you through them individually. Let's go to the next page, page 37. We believe that we can drive further profitable growth to enhance focus on GVR. We have focused on chasing the strong regulatory drivers such as U.S. EMV, and as a consequence, sometimes we have grown in complexity. By streamlining our organization post EMV and streamlining our product lines, we can operate more efficiently and eliminate bleeder products. With enhanced focus on solving high-value customer problems, we can expand recurring revenue opportunities and enhance the customer experience. And VBS is the foundation of organic initiatives to enhance growth and drive margin expansion. Let's talk about the next chart, which is on growing our digital solutions. This is a key focus area for us as it expands our software offerings in C-stores, particularly with the point-of-sale solution. It is no secret that much of the brick-and-mortar retail is under pressure today around the world. However, one bright spot is the C-store format. As shown on the graph on the left, in-store sales in C-stores have consistently increased for almost 20 years. The CAGR has been about 5%. This is driven by our customer's need to expand revenue and improve profitability. This has required more sophisticated systems to manage the customer's infrastructure. The complexity of integrating the fueling operations with the retail environment requires a knowledge and a know-how of both areas. GVR is uniquely positioned to take advantage of this market dynamic. This opportunity is highly sticky and represents growth of recurring revenue. Once we have a central customer workflow well understood, we have the opportunity to further expand our solutions through offerings of multiple upgrade opportunities. The best way to show this is on the example on the next page. This is page 39. This shows an example of expanding our share of wallet and benefiting from the growing sophistication of our customers. Terrible Herbst is a 120-store C-store chain based in Las Vegas. They were in need of a new point-of-sale software system given they were expanding their offerings, and the current provider could not keep up with the changes of technology and their requirements. Largely based on the technical strength of our Passport POS software, GVR won the business in 2017. Over the next 3 years we have been able to expand our offering to include on-counter couponing called Passport Impulse as well as win the forecourt dispenser business. This year we are expanding our solutions in Terrible Herbst with Passport Express Lane, our self-checkout solution. If we look at this account today, we have grown more than 2x and added increasing recurring revenue products each year. Additionally, we have multiple opportunities for additional add-on software solutions. Now let's talk about expanding high-growth market opportunities. This is page 40. Expansion into high-growth markets has been an area of focus for GVR for many years, as we have discussed. We have had organic expansion, but we also grew by M&A with the acquisitions of Orpak and Midco since FTV spun out from Danaher in 2016. The growth in high-growth markets is driven by 2 synergistic trends. The first is the build-out of the infrastructure to meet growing population demands. And the second is the upgrading of the infrastructure as customers become more sophisticated retailers and need to comply with environmental regulations. This chart shows, here on the left, the opportunity for the build-out of a fueling station infrastructure. When we normalize for Europe, the fueling station's per capita for China, India and Middle East are significantly lower. For example, India has made plans to double their fueling station infrastructure over the next 5 years. Additionally, these stations are becoming more sophisticated as shown in the pictures here, shown on the right. Just from a basic gas station, the format is changing quite a bit. In this specific case in these photographs, you can see in India a basic picture of a kiosk. This is moving to a modern C-store. It is pretty similar to what you find in the United States. This requires investment in technology to improve the site's productivity as well as environmental compliance. And given our broad set of solutions, we are well-positioned to benefit from these trends across high-growth markets. Now let's talk about the internal combustion engine or ICE car parc. This is on page 41. And this shows why we believe this is an important market also for us in the future. First of all, there are approximately 1.2 billion passenger vehicles on the road today. And less than 1% of this car parc are battery electric vehicles. The total car parc for ICE will continue to grow for the next 10 years, and in 2030, we are expected to be more than 90% of the cars on the road will still be ICE. During this period, the average age of the car parc is also increasing, while both these trends are powerful market drivers for many of our existing technology and solutions. Although it's still in the early stages, we think growth in battery electric vehicles and the market and the infrastructure provides additional market opportunity to us. Let's take a look at the next chart. We made our first step into the EV charging space with our partnerships and investments with Tritium in October 2018. Tritium is a technology leader in fast charging with over 2,700 installations worldwide and a strong position in the European market. Driivz is the world's leading provider of EV network management software with about 400,000 drivers using this platform. They've also recently been recognized by Frost & Sullivan as a leader in this area. Both of these companies are leading technology providers in this space and partner with us because of our global footprint and installed base. These investments provide an attractive position in these early stages in the e-mobility markets. Let me summarize the GVR business on Page 33. When you go through these opportunities, you can see that we have a compelling story. We're the #1 global technology provider for the mobility infrastructure serving a diverse set of customers across the globe. We have a long track record of organic growth, disciplined M&A and margin expansion through VBS. And we expect continued tailwinds from a substantial car parc and regulatory drivers. A significant runway of profitable growth opportunities for us exist even though EMV is sunsetting. And we have a unique position to be part of the transformation taking place to build out the electrification infrastructure. So with that, let me transition it over to Teletrac Navman. This is an area of our business that has a very attractive market. And if you look at Page 45, we are a leading global provider of telematics and fleet management solutions. We operate globally with nearly 0.5 million subscribers across more than 40,000 companies. We serve customers in 3 primary segments with diverse revenues and end markets. The biggest of which is 60% of our sales, and this one is for service vehicles. And you can think of these as our local service person like even a pizza delivery person. The next largest segment is about 30%, which is transport. And you might think of this as highway freight. And the smallest, which is about 10% is in construction and mining. And you can think of this as maybe monitoring a cement mixer to make sure that the concrete shows up on time. We like the fact that this is a high-recurring revenue business, almost all of it is SaaS. Unfortunately, we've experienced challenges largely in North America because it had elevated churn, which resulted in net subscriber decline in 2019. I'm going to discuss more about this on the following pages. Despite this, we like the market. It is an attractive and substantial growth opportunity and its AI-based telematics space. Let's go to the next page. As I mentioned earlier, we have recent challenges resulting mostly in North American customer churn. We change management, and I'm encouraged on our path forward. We've had operational issues related to the functionality of our software and our hardware. We fixed our software and hardware problems, we fixed our customer support issues, and we're getting good customer feedback that we have that we have a leading offering for our customer service levels. Most importantly, we launched a new platform with improved features and service. This is called TN360, which I'm going to cover more on this next chart. Turn to Page 47. TN360 leverages a technology we got when we acquired Transtech, which is based in Australia. It's powered by artificial intelligence, and TN360 delivers telematic functionalities in real time, providing businesses with simplified, smart, predictive and actionable insights. TN360 uses a scalable cloud-based architecture that connects third-party applications in real time. This gives businesses the ability to identify and safely manage their information on their fleets. Launched recently, the initial feedback has been overwhelmingly positive, and the KPIs are tracking to deliver substantial growth. So in summary, on the next page, we've done a lot of work here, and I'm encouraged by what we've seen. We've stabilized churn, and we expect the business to recover to growth next year. Let me turn to our last company, or Opco, within the mobility technology space, and this is what we call GTT or Global Traffic Technologies. Go to Page 50. We like this business as it's in a very attractive $8 billion market. While we were a small business, we liked the space a lot. It's a double-digit grower with above fleet margins. Our expertise is well-respected, as we have a strong position within the intersection control. And we have applications expertise in solving traffic problems and emergency responder, and transit authorities turn to us for our expertise. We have an excellent brand with over 80% of the top 50 municipalities in the United States covered. Turn to the next chart. As I said, Smart Cities is a compelling opportunity with about an $8 billion market. GTT gives us a springboard for expansion with a strong brand across municipalities in the U.S. There are 3 primary areas of interest, all of which are high in recurring revenue and strongly influenced by trends in digital transformation. Traffic management is now controlled by sensors and AI at busy intersections to enhance traffic flow. Control of the intersection facilitates public safety, integrating pedestrian and vehicle traffic with an increasing congestion at intersections. Tolling and parking technologies are interesting adjacencies. Tolling is on the rise globally as states and federal governments look to increase revenue sources to pay for infrastructure investments. Mobile payments and direct payment from the vehicle is expected to increase, and technology helps manage the complexity of these various payment modes. So with that, let's open it up to Q&A.

[Operator Instructions] We will take our next question from Richard Eastman with Baird.

Just a couple of things. Just a question, maybe a little bit more color around the launch of TN360. Is most of the new business now at Teletrac Navman migrating towards this 360 product? Is it a subscription-based product only? And can you just kind of confirm that maybe the churn rate peak, if you will? Was it mid-year this year, kind of a second, third quarter this year? So maybe there's 3 questions in there, but I appreciate them, nonetheless.

Yes. Happy to answer it. So we recently launched TN360. So it's a pretty new to the market offering. And -- but we -- as I said in my prepared remarks, we're getting some pretty good uptake from customers on. So it's too early to say that we're only selling TN360 because we also have other technologies like the Director platform as well as some other asset management applications that are also part of the offering. So it's not the only offering that we have right now. But it's quickly gaining a lot of traction. And it is -- the second part of your question is a subscription model. It is only sold as a SaaS business. And then your third question was related to the churn. And I think we've made excellent progress on churn. I think you asked where did it peak, and we can easily tell you that it's peaked earlier this year, and we're seeing that churn moderate. So we're -- while early innings, I think when you add all that up together, we're pretty encouraged on what we see.

And we will take our next question from Jeff Sprague with Vertical Research.

A couple from me. First, just back on EMV. As you noted, it was strong this year. I think we all understand that. Interestingly, though, [indiscernible] 70%-75% compliance. I think the question on everybody's mind, right, is how do we burn off this? Over what time period is that remaining 30% come in compliance? Or do you think there's even a piece that just never gets around to it? It's kind of the first question. The second question, I was wondering if you could actually just size -- and maybe it's kind of on an index basis or relative basis, the in-store opportunity, right? So if we think of kind of legacy GVR underground and kind of pumps on the island, what is the kind of relative size of the installed opportunity as it exists now?

Sure. So as we said, it's a little bit difficult to predict, in terms of the adoption rates. And you're right, we're seeing a 70% plus adoption of our existing base this year occurring. I think it's really difficult for us to kind of predict the total adoption and how it plays out. And the reason being is that a lot of the folks that are adopting right now and have been adopting are more the national, the larger players that have had good profitability, and their path is pretty well determined going into the future. And the reason why it's a little bit harder to predict is you're looking at thousands of smaller network retailers, call them SNRs that their exact adoption rate and timing that they tend to adopt later in the cycle. And so how they adopt and the shape of that curve is going to be a little difficult for us to tell. Dave is going to talk a little bit more in the outlook section on that. In terms of the size of the relative opportunities, when you look at the C-store format, in the United States, it's roughly kind of flattish. It's up or down about 500 C-stores a year. But what's happening is they're growing in complexity. And as they grow in complexity, there's more of a software content. So we could have like $75,000 to $100,000 in content per C-store as it goes in. And when you look at high-growth markets like Middle East and Africa, these areas as well as Latin America even -- can even be $30,000, $40,000 per content per store. And India, typically, it's been -- it certainly has a nice growth rate, but they're growing about $20,000 per store. But the good news is as they get more sophisticated and some of the regulation that's coming down that the content per store is increasing. So I think it's a mix, which is also why we're very interested in our software and connected solutions in the United States, but also pushing into high-growth markets.

Maybe this is part of the follow-up later, but the Fortive message on EMV has been kind of roughly $100 million to $200 million headwind as it rolls off, I think, with the -- with a bias towards the top of that range. Is that still your thinking, understanding it's obviously difficult to project?

Yes. Jeff, it's Dave. I think the $100 million to $200 million was also for a finite period of time. And of course, it's been a little while. The adoption that we've seen in 2020 has been pretty significant, as we've said, and it's going to be very interesting to see where we exit the year. Q4 is very significant to this purchasing cycle for retail capital. So as we see that, we're going to have a little better view and hopefully give you guys a better view as we get to our Q4 release and then maybe again as we near the EMV deadline. But I think that, that was not a full peak to trough number, but for a finite period of time. To your earlier point, you had noted that where does final adoption end. And frankly, that's a little bit of the thing that's hard to call. When you get to the smaller folks, there will be some that don't fully adopt. So we've never anticipated 100% adoption, whether that's -- where that percentage is, is actually very difficult to tell, but we're hoping to get more data over the coming months as we see things develop here.

Our next question comes from John Walsh with Crédit Suisse.

A question, I guess, kind of related to EMV here, but when you think about your customers, is there kind of just a general replacement cycle underlying the business? Or do the customers typically wait for some type of regulatory event, where they -- not only are they making the upgrades for that event, but then also doing the natural replacement as the equipment ages in the field?

Yes. There absolutely is a replacement cycle, and it kind of depends on the format of the store. But the growing sophistication of the retailer themselves is also driving them into other income streams and also managing a very complex set of stores. Many times, you can have tens or even hundreds of stores that need to be managed. And as a consequence, some of the drivers that I spoke about on how they manage the forecourt, how they manage refueling operations, how do they manage their point-of-sale system with our very unique capabilities and software there. We're very clearly seeing this as areas that our customers are pulling us into because of our expertise. And when you -- if you ever visit a c-store, it's actually in the back office there is and you view all the electronics and all the capabilities, everything you have to manage from serving drinks, food to retail and operations and refueling, it's a pretty sophisticated operation. So we like that space because of our competencies there and also the relative growth opportunity as well.

Great. And then maybe just as a follow-on, going back to the discussion around EV. Obviously, it's going to be a hybrid transition here. But if you had to think about a retail fueling station today versus 1 in, call it, 2040, 2050, how would that revenue or your opportunity to sell into that retail fueling station be different? Would it be the same amount of opportunity at 100% EV as it is today? Or are there reasons for it to be higher or lower if it was a full EV station?

Yes. I think there -- we're such early inning. That's a very difficult question to answer, but let me tell you how we're thinking about it. So first of all, your convenience store format is it's really part of the local neighborhood and infrastructure. So that will absolutely play a role in terms of EV charging as well as fleet management, and that's going to evolve too because how fleets when you think about the battery electric vehicle and also when you're talking that long out, things are going to also tip more towards autonomous, too. And in that type scenario, the ability to charge quickly and get the fleet back up on the road will also be important. So how we penetrate the fleet infrastructure is also important. And we think there's a lot of things that we can leverage maybe even across OpCos in that regard. So we're pretty excited that our capabilities that we're sort of understanding at Tritium as well as it drives, provide us sort of a front seat row as to how things are evolving because they're well appreciated by our customers because we have leading technologies there. But as it develops, we're really happy to update you on it as well because we've got a lot of work to do here with our team, and we're very excited about it.

And we will take our next question from John Inch with Gordon Haskett.

I just want to ask, as a part of the challenge at Teletrac Navman also been rising competition. You hear a lot of companies talk about this space. And these customers must be churning off going somewhere. Just maybe you could talk a little bit about the competitive dynamic.

Yes, certainly. So a little bit more color on the problems that we had in North America was we were on the director platform. We had some solutions. By the way, the headwind we had predominantly was in North America related to serving ELD at a fairly complicated way of serving our customers. And then that caused a lot of customer support issues that kind of drug the team into that. And we kind of lost our sight on -- since it was taking so much time and attention on kind of the competitive environment that you were talking about and some other folks had some really nice offerings coming to the market space. But I think the real power of what we're kind of talking about here today is that we have a real leg-up opportunity because we had this really outstanding basis of a platform in Teletrac Navman from the Australian market, which, by the way, was doing really well. And this is a basis of TN360 is really important because it was proven technology and capability. Of course, we enhanced it a lot with AI and real-time capability, and we changed the management team. And we have Jens Meggers, who's got a great background in software coming from Cisco. I think the approach we're on not only derisks it because we have a lot to leverage, but with the new team, we're pretty encouraged on our approach.

Yes. No, that makes sense. I also wanted to ask you about GTT. It's got pretty substantial exposure to municipal transit markets, right? Clearly, COVID is driving a lot of folks not to take mass transit. If you look at the data out of China, as COVID progressed people were driving their cars more often. So I'm curious if the big budget pressures that some of these municipalities are under, does that create for some sort of a temporary absence of revenue until things start to normalize and passenger ridership starts to come back. How are you -- how do you dovetail that with kind of your own expectations for that business?

Yes. So first of all, COVID has had significant reduction in ridership. You know what the peak of this reduction up to 70% of the markets were shut down in large municipalities. And of course, that's as you're alluding to, it has resulted in decreased fares on local revenue. But at the same time, we believe that things are going to return and that will return to low single-digit growth as well also in the fairly near term. And the macro trends for urbanization, while it might look a little bit different. New York City may not be as crowded originally as maybe other places. Traffic intersections are busy, and it could be in a more urban environment. And our benefits that apply GTT are also apply there. When it comes to transit ridership, that certainly is down, but there's a decent segment of our population that relies on transit ridership to get around. And so this type of infrastructure is important as congestion will still be an issue for us into the future. And our technology is well appreciated and can be applied kind of across not only crowded cities or crowded urban environments or suburban environments as well. So we're pretty happy with the position we have because we have deep expertise there. And it's leveraged by municipalities across the United States.

And moving on to our next question from Nigel Coe with Wolfe Research.

So going back to Teletrac Navman, COVID has a fair bit of ground here, but when do you expect to be back to growth? Is that happening next year? Or does it push out a little bit further than that? That's my first question. And then just my follow-up is, can you just run through how the economics of your investments in Tritium and I think is called Driivz. Kind of how does the economic of a EV charging station compared to traditional dispensers? And what kind of replacement cycle do you see for that business going forward?

Sure. So on Teletrac Navman, we expect to return to growth next year. The sort of the good and bad thing with the SaaS business is it's harder to change the revenue line because it obviously averages over the life of the contract. But we're getting some good bookings uptake there. And the second part of your question is on sort of Tritium and Driivz investments. And the way to look at it today is that a charger is about 2 or 3x more expensive than a liquid refueling pump. Of course, that's early innings, and the volumes are not necessarily that high. But at the same time, there is maintenance required. There is service required. I think reliability is one of the biggest issues that customers have when they buy an EV charger today or the fast chargers, which is clearly the market that we're aimed after. So as those economics begin to even out, it's obviously something we're interested. We're looking at the specific fundamentals of the Driivz -- excuse me, the Tritium and Driivz businesses for further investment going forward. So we'll update you as we have more to talk about.

And we will take our next question from Julian Mitchell with Barclays.

Maybe, yes, just on Teletrac Navman. Apologies if I missed it, but is the scale still around $200 million in sales. And so has it been sort of flattish the last 4 or 5 years? And maybe any color at all you could provide on profitability in the business? And what sort of reinvestment, selling costs or R&D type pressures we should expect here in pricing that we should expect in the medium term?

Julian, it's Dave. It's a little lower than that, I think, but generally in that range that you noted from a revenue size. And we don't go into profitability by operating company, but it's basically close to a breakeven business right now. So a real opportunity for us as we look going forward because it's a very high gross margin business. So you end up with little higher cost and OpEx, but you've got a much higher gross margin line. So as we can return to growth in that business, we see it as a real opportunity.

And do you still see this as a very attractive market? So the growth is there, but you have a lot of very large competitors who have moved into it in recent years, Verizon, for example? And maybe any color you can give us on pricing and sort of customer terms and how those might have changed?

Yes, sure. We do see this as an attractive market. This is kind of a high single-digit market, and we have a very good position. So yes, there's good competitors as there are in all good markets usually. But we think we have a good opportunity here, particularly leveraging the install base that we have today. From a pricing perspective, I think that's where we'll see some benefits also from TN360. We -- with the quality product, the new offerings, obviously, that can yield a little better average revenue per user, so we would anticipate seeing some pricing opportunity there.

And we will take our next question from Andrew Obin from Bank of America.

Just a question on Orpak. Can you remind us, a, how big is the business roughly, what's your position in India? And it's an odd market with tenders, how disruptive has it been by COVID?

Yes. So Orpak is less than $100 million. And the India question is, it's pretty easy to see what's been going on in India because it's been well reported on. Through April, May, it was kind of a mess. The government shut things down. Obviously, our businesses were impacted. We have like 2,500 service technicians spread out through the country. So very disappointing to see the country kind of struggle through that phase of COVID. The good news is things have stabilized a bit. But the amount of contagion there is kind of what's -- about what's approaching the United States. So it's something that we're watching closely. The market is -- we expect to be kind of lumpy because it's proven itself to be so in the past. And when you throw COVID on that, it's kind of hard to predict. And what's hard to predict about it, too, is kind of the rate of installs and what's going to happen next in COVID. But that being said, we've got excellent service capabilities. We've got great ability with the backlog there as well as the opportunity to serve the market as it grows, and we think it's a great long-term opportunity for us.

And just another question, just a follow-up on Europe. Should we think about Europe as structurally [ clad ] going forward, growing a little bit. What are the big growth drivers in your European exposure?

Yes. So the European market is flat with the existing infrastructure. We are selling EV chargers in that marketplace, and we are seeing some good growth from that. Obviously, with COVID, things dropped off, but it's been coming back pretty significantly.

And we will take your next question from Andy Kaplowitz with Citigroup.

I just want to follow-up on the EV opportunity in one sense. And then if you were to exercise the buyouts of Tritium and Driivz in '21 and '22, and those companies do grow their sales significantly over the next couple of years. Can you give us any color on how big those businesses would be as a percentage of GVR in Vontier? Would they be significant? Or are they still too small to matter even as you get out into '21 or '22?

Andy, it's Dave. We don't give out the size of those businesses as they're privately traded companies now. We only have a minority interest. So I think it's a little premature to characterize what those businesses would look like inside our businesses. And also, they're obviously high-growth rate businesses. So that might be a little bit difficult to predict as well. So I'd say probably more to come on those as we get into 2021.

Got it. And then Dave, this might be for you, too, but it could be for the rest of the team. You mentioned the margin opportunity at GVR, it did 20% plus in '19. But obviously, you will have more focus on the business, including the streamlining and simplifying the product line, as you said. Do you see the business having a typical 50 basis points of margin improvement that Fortive, Danaher have talked about? Or is this a bigger opportunity than that?

Yes. I think through the cycle, we see that opportunity there for sure. The challenge is there's a lot going on with the business right now. Obviously, with COVID recovery, there's an EMV dynamic. So through the cycle, I come back to the normal value creation flywheel that we talk about and growing higher than the markets that we operate in and trying to deliver that 25 to 50 basis points annually kind of across the portfolio. So we're still firmly focused kind of through the cycle, if you will, Andy, on that value creation that we've talked about in the past. But that's on a core basis also, right? I mean we're going to be impacted by acquisitions and other things. So when we think about that operating margin expansion, it tends to be kind of core in nature.

And our last question comes from Cliff Ransom with Ransom Research.

Guys, you are making me very nervous. I was afraid that you ever get around to me. Lisa, welcome back, missed you. I have...

Thanks, Cliff. Cliff, can you speak up a little bit? You're kind of hard to hear.

I have 3 questions, 2 are very short and one's a little bit more substantive. If I've learned anything from Mitch and Steve over the last 35 years, it's the board is terribly important. Am I missing something? Are there only 4 members to the Board?

Yes. So let me answer that question. So we have 5 board members, and we're continuing to recruit the directors on the Board. And I think the directors we have right now are really outstanding in terms of what they bring to the table. I'm happy to chat about that. But at the same time, we see the Board growing in its size, certainly over time, and we're currently recruiting for directors.

Okay. That answers that question. And then the other thing is with 130% conversion of cash flow, you've also taught me that sometimes that happens because you're liquidating your business. And in the first half of 2020, can you tell me if there's a -- if you can calculate it, what's the difference between free cash flow and kind of what I would call mandated free cash flow, meaning as you reduce your business?

Yes. Cliff, it's Dave. I don't know that I could give you the exact number, but clearly, we ran it better than normal rates. So probably a point or so or maybe 1.5 points or so of sales better than we would have typically seen. But we were very focused on it. We took action early, and that allowed us to kind of get ahead of the curve. And as you'll hear me talk in a few minutes, we'll see that normalize over the course of the year. I mean clearly, working capital was a tailwind for us in the second quarter. We'll see that normalize, but we still anticipate, from what we see today being ahead of our 100% conversion target for the year.

And certainly, your working capital at 10% or 11%11.5% is world-class. But the last question is as DBS and as Fortive business system, and you all have morphed over the last couple of years, there have been very large new areas of emphasis. When Tom came in at Danaher, he had a mandate from the Board to think about innovation. You've gone through product development at various times, you've pushed simplicity several times. Are you going to reinforce those, pivot to other big themes? Where do you stand on that in terms of what you expect your Board direction to be?

Yes. So first of all, it's -- as you talked about, the business system does take on different tenants at different times and different emphasis. And if you think about what we're doing today is it's kind of a copy exact from the Fortive business system. But there are areas that is really important for us to continue to think about, and they really kind of go at the runway of improvement that we see here. And I think innovation, product development, I think we can get better drop through. We've got a good healthy spend of 5%, but we could get better drop-through there. And I think we're going to look to leverage that. And then I think you heard us talking about how we can leverage better some of the simplicity post EMV roll off, we're going to emphasize that as well. So I think it's just a living breathing thing with the business system, but it's very steep in our businesses with decades of experience here, I think you're very familiar with, and it's really central and core to our values. Having Martin and our Board with nearly 30 years' experience with this is also part of the cultural norm that will also be reinforced. So we're excited with what we've got, and we're excited with where we can take it.

That was the last question until the next section. So back to you, Mark?

Yes. I'm happy to talk about our diagnostic and repair technology platform. Let's go to Slide 54. On Slide 54, you'll see that our Diagnostic and Repair Solutions platform is about a $600 million business with a market opportunity of roughly $7 billion. And as you can see, we have some very well-established brands there that focus on the service for the automotive aftermarket with very sticky brand loyalty. My main focus today is going to be talking about Matco Tools, and I'm also briefly going to talk about Hennessy. Let's turn to Page 55. Matco Tools is a premier franchise. Recently, it finished in Entrepreneur's top 500 franchises, moving up to number 32 from number 37 in 2019. We have over 1,800 franchisees located throughout the U.S. and Canada, and our franchises sell professional tools and equipment to the automotive aftermarket. These products drive productivity in the repair shop, and it helps address the increasing complexity of vehicle repair through user-friendly diagnostic tools, which I'm going to talk about. In addition, Matco Tools finances both our franchisees as well as customers when buying big-ticket items such as toolboxes and diagnostics. Let's take a look on the next chart. This picture shows the inside of 1 of our stores. Now this store is not your typical store because it's a mobile truck. It's owned and it's operated by a franchisee that shows up at the repair shop weekly. Out of this truck, we sell premium tools at a premium price, and we provide premium service. Our customers, which are service technicians, buy their own tools. We provide a high touch, sticky service to repair shops weekly with our mobile service store visits. And as you can see, these stores carry a wide selection of products. You can't even really see it that well, but there's even products up on the ceiling. Our customers value the ability to jump on to the store, see the product they like and get advice from our professionals on how to use a tool. We also offer flexible payment terms and a lifetime warranty, and these are things they can't find through other channels that compete with us in the market. Except toolboxes, Matco sources, all of our products, which we do through a great network of suppliers. Let's turn to the next chart. Let's talk about how Matco is positioned to generate steady growth going into the future. There's really 4 areas that I'd like to highlight. The first of which is on new innovation for products that drive productivity and repair shops. And this is important to help offset the technician shortage that many shops are facing. Second is we'll continue to drive digital solutions with both our franchisees as well as their customers, the service technician. And an important core growth driver is adding to our franchisee base, something that our competition finds hard to do. And the next and the last 1 to talk about is how we continue to drive on margin improvement through VBS. So on the following charts, I'm going to walk through each 1 of these independently. So let's talk about the first one, which is new product innovation on Page 58. So I'm going to focus on a recent launch of a new product in the area of what's called the ball joint press, just to give you an example of what we do. Now ball joint tools have been available for many years in the market, and vehicles typically need to start replacing their ball joints after about 80,000 miles, and it's a popular repair, particularly on a vehicle like the Ford F-150 pickup truck, which is a top-selling vehicle. One of our franchisees approach the key supplier with an idea on how to improve this tool. And working with the supplier, we completed the design of the tool, which cuts the repair time in half for the technician, and it dramatically improves the productivity in the shop. So in support of this launch, 1 of our franchisees posted a demo of the video of the tool on Facebook and technicians could easily see how the tool improved the overall ease and speed of the job. And through this video, it had generated close to 5 million views, and it helped drive over $4 million in sales in 16 months. I think this is really a great example of how we're leveraging not only innovation at Matco, but also how we leverage the digital world and social media. So as you can see, I won't give you more examples on this page, but innovation has been a steady driver for increasing the vitality of our business, that's an important part of the macro business model. Let's talk about enhancing digital workflow solutions on the next page. We're also innovating with online tools. In our model, our franchisee calls on the customer on a weekly basis. We talked about that. Our Matco Tools app, which is the first to the market, is expanding the convenience of online commerce to our customers. The Matco app provides them with the ability to transact with the franchisees as they do today, from purchasing parts to managing weekly payments to providing warranty support without the franchisee being physically present, which is also important in today's environment. The Matco Tools app provides greater interactions, not only between our franchisees, but also with our customers. We launched this app earlier this year, and we're making very good progress with more than 400 -- excuse me, with more than 4,500 users. Now let's take a look further at enhancing our digital workflows on the next page. We expect vehicle diagnostic tools to grow double digits. In Digital Solutions, we continue to enhance our overall diagnostic offering and cars today feature about 100 million lines of code, and we expect that to grow to 200 million to 300 million lines of code in the near future. Most repairs today require the use of a scan tool to interface with the vehicle's electronic control module. Our scan tool provides access to all makes, unlike the OEM scan tools that provide only access to their own brands. The diagnostic sales has been a solid driver of our growth as we've been able to provide automotive technicians with the ability to purchase these scan tools at an affordable price. In addition, we see the rapid expansion of things like ADAS as the complexity of repair for new sensor-based vehicles is more challenging and costly than ever. Just as a reminder, this is a good growth opportunity for us, but off a small base, roughly $30 million. Let's further talk about enhanced digital solutions via key partnerships. Today, we provide cloud-based tools to support the digital workflows in the shop, and we see opportunities as we move forward by having key partnerships to expand our opportunities. Given our unique reach into the market and as the space evolves, we believe this is a good source of steady growth. The estimate of the market size for shop management software is about $700 million. Let's talk about the steady organic growth driver of our franchisee base, which is on the next chart. This chart shows the number of franchisees that have grown over time. Our franchisee head count has been and will continue to be a key driver to our overall business growth. We currently have 800 open territories in the U.S. and roughly 100 in Canada, which gives us a long runway of growth into the future and differentiates us from the competition. A great thing is how our business works because through word of mouth, we're predominantly able to grow our franchisee base, which is the best source of leads. Franchisee-based growth has been an important driver for our business and contributed to about half of Matco's organic growth historically. And this provides a long runway of franchisee growth into the future with more than 30% open territories. Let's go to the last driver here and talk about our margin improvement. Danaher acquired Matco in 1986, and they've been leveraging DBS, FBS and now VBS. As the business has faced some headwinds from tariffs in 2019, this created some cost pressure and slower growth due to the technician shortage, while we deployed VBS to continue to drive revenue and margin expansion. VBS was deployed across all the functions from supply chain management to logistics to sales and even to help us manage our financial portfolio, and we drove significant margin improvement. We're never satisfied with good enough, and this team has continued to leverage VBS and has improved OMX by 100 basis points. I think this is important to highlight because this is an important cultural norm that is a hallmark of this business and our company. Let me talk to Hennessy in this one chart. It's on Page 64. Hennessy provides wheel service equipment and consumables under 4 key brand names. This business is driven by tire replacements, whose growth has been low single digits. A key initiative for Hennessey has been the launch of its service business to support the repair of its equipment. While we've only had the service business for a few years, it's very profitable, and it has grown nearly 20% of the sales today or the service sales. Hennessy enjoys strong brands and good cash flow. This is a case where the separation from Fortive provides greater focus for us on this business, as there's also an excellent runway to improve profits. Let me go to the last chart, and I'll summarize Matco and Hennessey. These businesses have leading brands, and they have opportunities for profitable growth. As I mentioned, we have a premium customer service which is critical for us to be able to provide our customers, who have a growing complexity of vehicle repairs, and they continue to look at opportunities to work with us to grow their businesses in the future. With both businesses leveraging VBS, that is key because it's part of their culture, and it's been part of their culture for 30-plus years. They are well positioned to continue to drive both revenue and margin expansion. Now let me turn the conversation over to Dave, and he's going to talk about financials. Take it away, Dave.

Yes. Thanks, Mark. So I'll begin with the financial highlights on Page 67. As you saw in Mark's presentation, Vontier has a long history of sustained growth at a GDP-plus rate, consistently supported by regulatory drivers and also accelerated by acquisition. We're also pleased with volunteer's return to growth of mid-single digits in Q3 following the virus impacted first half of 2020. With almost $2.8 billion of revenue in 2019, gross margins above 40% and operating margins above 20%, Vontier has scale and a financial profile consistent with top-tier industrials. Our balance sheet at separation will be consistent with our investment-grade objectives, and when combined with our strong free cash flow generation, we are well positioned with $1.5 billion of acquisition capacity over the next 2 to 3 years to accelerate our strategy through disciplined M&A in the large attractive markets that we operate in. Turning to the next page, talk about our execution during the pandemic. We'll provide some color here by operating company. And at GVR, we saw a sharp decline in miles driven during Q2, which recovered steadily through Q3 and the impacts we saw varied by region, with EMV regulatory cycle continuing to drive demand in North America. At Matco, we saw dramatic impacts as virus restriction measures were implemented around the U.S., but as these restriction measures eased, we experienced a rather V-shape recovery. April was a low point for demand, but we saw sequential monthly improvement through the second quarter and have returned to growth in Q3. And at Teletrac Navman, we saw less impact in the SaaS-based recurring revenue business. Across all of our operations, we took a number of actions to rapidly respond to the pandemic impacts beginning back in early March, as we saw headwinds develop from our monitoring of daily activities. Our actions were rapidly focused on safety protocols, immediate business continuity issues and rapidly adjusting working capital, supply chain and operating levels to what was obviously an unprecedented environment. Page 69 is some additional commentary specific to our Q3 performance by some of our businesses and major operating regions. At GVR, we are expecting mid-single-digit growth for Q3, driven by the continued strong demand from EMV adoption as well as other regulatory drivers. I noted the steady sequential improvement we have seen at Matco, illustrated by a very strong virtual sales event in August and underpinned by a healthy technician employment environment. And at Teletrac Navman, we launched the new TN360 platform in August and are seeing continued moderation in churn. Looking at the businesses from a regional perspective, North America has performed well, driven by continued strong EMV adoption and the sharp recovery that we noted at Matco. High-growth markets were more dramatically impacted by COVID, particularly in India and China. We have seen sequential improvements, but anticipate a continued lumpy environment, particularly where we have tender driven activity. We continue to see high-growth markets as having good, long-term growth trends resulting from security and regulatory drivers, among others. And in Europe, we have seen miles driven recover steadily, and demand has continued to improve sequentially. Overall for Vontier, we expect Q3 sales growth of around 4.5%, a significant sequential improvement from the COVID impact to decline that we experienced in Q2. Now turning to our historical financial performance. We have presented our summary P&L for 2017 through 2019 and our results for the first half of 2020. Heading into 2020, we had continued to drive steady revenue growth with mobility technologies growing in the high single-digit range, and Diagnostics and Repair Technologies growing low single digits. Obviously, with the impact of COVID in Q2, our first half growth rate was negative. But as I noted on the previous slide, we anticipate returning to mid-single-digit growth in Q3. We'll talk a little more about the full year outlook in a few slides. Our gross margin has been consistent with expansion above 43% on an LTM basis, even on the lower revenue levels. This was driven by constant improvements of procurement savings, the rapid actions that we took in Q2 and also strong product mix as North America performed well relative to the rest of the world. We have presented an adjusted normalized operating profit measure, which is generally our adjusted operating profit normalized for the corporate-related costs of operating post separation. These costs will continue to ramp in the coming quarters, but we have normalized to what we believe the run rate will be, helping make the compare between periods easier as we move forward. Adjusted normalized operating profit margins have been lower in the first half of 2020, which is volume-driven, given the top line dynamic for the period. We have further normalized net earnings for the anticipated debt structure to again drive comparability between periods, and we have done the same to normalized free cash flow so that the conversion ratio is meaningful. We had a lower free cash flow conversion rate in 2017 and 2018, and this was driven by some growth capital investments and above normal -- at above normal rates and was also impacted by high-growth market acquisition activities. We are tracking well above our greater than 100% conversion rate target through the first half of 2020, driven by the actions that we took in Q2. We will see this conversion rate moderate through the second half of 2020, but anticipate that we will remain greater than 100% conversion. As a reminder, and as Lisa noted in the opening, a reconciliation of these adjusted and normalized results is included in the supplemental financial statements that have been posted to our Investor Relations website. Turning to Slide 71. Our initial debt structure will be $1.8 billion of term loans and an undrawn $750 million revolver. With an initial cash balance of $200 million our net debt will be $1.6 billion, which is about 2.7x on an LTM basis and is consistent with our commitment to an investment-grade style balance sheet. The solid initial balance sheet at separation and the free cash flow generation capability of the businesses support the substantial acquisition capacity that we anticipate having over the coming 2 to 3 years that I referred to earlier. Now turning to Slide 72 to talk briefly about our outlook. As we said previously, we anticipate revenue growth of about 4.5% in Q3. We anticipate growth in Q4 as well, resulting in a full year 2020 core revenue decline of low single digits. Of course, that is based on the COVID environment that we currently see now, and if that were to change, it could, of course, impact this outlook. Despite our revenue outlook of being down low single digits for the full year 2020, we anticipate having year-over-year dollar growth in adjusted normalized operating profit, which would result in margin expansion as well. And as I mentioned earlier, we anticipate an adjusted normalized free cash flow conversion of greater than 100%. Second half recovery and growth outlook is aided in part by the continued strong adoption of EMV and the V-shape recovery of Matco. The timing and shape of how EMV adoption will peak and ultimately subside is very difficult to predict as larger, more predictable customers adopt earlier and a higher volume of smaller customers follow that, either closer to or after the April 2021 deadline. As the coming months progress, we anticipate getting better insights, and we'll provide updates as we know more at our Q4 earnings release and/or as we near the EMV adoption deadline. However, as we note here in the presentation, the continued strong demand that we are seeing could result in 2020 being the peak year for EMV adoption revenues. Now turning to my final slide, which is our value creation flywheel. You've probably seen this model before, is a model that has been proven out by our predecessors and part of the heritage that we carry forward at Vontier. We will continually look to grow our businesses at a rate higher than the growth rates in the markets that they operate in and translate that growth to operating margin expansion. We'll strive to maintain a high free cash flow conversion ratio, consistent with our commitment to an investment-grade style balance sheet, allowing us to further fund M&A to accelerate our strategy. Commitment to this model with VBS at the center of everything we do to drive our execution is a proven way to drive value creation. So with that, I will now turn it back over to Mark.

Great. Thanks, Dave. Turning to Slide 75. Before I close, I'd like to highlight that our business has significant runway for profitable organic growth shown on the left-hand side of this page. And on the right hand, accelerating with the opportunity with M&A to help offset some of the headwinds that we've been discussing. We have an excellent runway to improve our existing business through VBS and the separation provides us this opportunity. VBS is the focal point and a core driver for simplification and also improving our cost structure. In retail fueling, we expect to get better traction and also capitalize on growth opportunities like high-growth markets as they will be driven by regulatory drivers. While we spend a decent amount on R&D, we can also improve our drop-through on this spend as we focus on creating what's next through our new products and next-generation solutions. And we continue to build out the commercial side of our Diagnostic and Repair Technology business, and we're encouraged by the progress we're making at businesses like Teletrac Navman. On the right-hand side of the page, you can also think of an accelerant for growth because we have $1.5 billion of balance sheet flexibility over the next 2 to 3 years for M&A. And we have a process, which is market led and a strong strategy function with a disciplined approach for M&A. We have a history of company-led cultivation of attractive targets, and we have an active pipeline. So if you go to last chart. In closing, Vontier will be a high-quality industrial technology company serving an attractive $27 billion market. VBS is our foundation to enhance our organic growth profile and to further expand our industry-leading margins. Capital deployment will be focused on strategic and financially disciplined M&A, and we have an excellent runway of improvement opportunities ahead. We have an experienced leadership team to execute transformational compounding strategy to unlock shareholder value. Well, thank you for your interest today. We're excited to mobilize the future and create a better world. With that, Lisa, let's turn it over to some Q&A.

[Operator Instructions] We'll take our next question from Andrew Buscaglia with Berenberg.

So you're talking about this M&A pipeline of $1.5 billion or potential spend of $1.5 billion, and you talked about a pipeline. Where should we expect -- I guess, more near term, what areas specifically within your segments and subsegments you think our most need of some acquisitions to help bolster the growth there? And can you talk a little bit about more about what's in that pipeline?

Yes. So let me just kind of speak in generalities on the pipeline because it's pretty significant and deep. But the way we think about it is, first of all, it's a $27 billion market TAM. So I think 1 of the challenges we have is that we spoke about sort of the target-rich fragmented markets, whether that be around smart cities, around tolling, parking, around how traffic management flow goes through urban environments, a suburban environment. All that we think is attractive. We think in the fleet monitoring management space because the logistics and supply chain complexity, even in the age of COVID now is even more important than ever, we think that's also fairly target rich as well as bolt-ons that could help us internationally within the GVR business. So I would not rule out diagnostic and repair. So I think the issue is we're a little bit like kids in a candy store. It's a tremendous market opportunity. And I think part of our work here is how we skinny that down for accretive bolt-ons would be a nice thing in the near term.

And just as a follow-up, what is your -- is your philosophy for M&A different at all from Fortive post spin? You talked a lot about similar themes, safety and regulation. Is there anything new M&A-wise, you guys are kind of targeting that now that you're free from Fortive that you can go after, that maybe we haven't heard about Fortive talk about much?

Yes. So well, as we spoke a little bit earlier, Fortive hasn't, at least in the recent couple of years, done as much work in this space. But that doesn't mean the OpCos haven't been sort of cultivating their pipelines here. The thing that might be a little bit different is that we're looking at a variety of different capabilities that we would build-out, not just software. I think you might hear a little bit more of the software theme from Fortive. Certainly, we're interested in software, but we're also -- we're looking at a variety of other things as well in our pipeline. I'll turn it over to Dave, if you want to add any color here?

Yes. Mark, I would only add that I think when we think of process in both return metrics and valuation hurdles and the process of how we source and execute, prosecute M&A, we think we have kind of a best-in-class process there in our heritage, and we're looking to carry that for pretty much as it exists today. I'm sure there'll be adaptation to what we do here at [ Vontier ], but for the most part, we're looking to run that same process.

And moving on to our next question from Julian Mitchell with Barclays.

I think, Mark, you had underscored at the beginning of the material, the lack of inorganic investment in the Vontier assets by Fortive. When you think about the organic level of investments, how would you characterize that today and in recent years? Do you see much of a need for step-up in selling costs or R&D or capital spending in general? And then also perhaps shorter term, Dave, you had talked about some of the cost mitigation actions this year. Should we expect a big bounce in some of those temporary costs next year that might weigh on operating leverage in the recovery?

Yes. Julian, let me jump in first here on your specific question and then turn it over to Mark. Look, we took some temporary actions for sure in Q2, and those will come back to us next year. At the same time, Q2 is going to be the easiest compare we have from a revenue standpoint. So too early to start giving exactly the shape of what next year looks like until we're able to better map out kind of our trajectory exiting the year. But you're right, some of that will come back to us, and we hopefully will have some offsetting growth as well, all other things being equal. As to the other part of your questions, I'll turn it over to Mark.

Yes. So we have a pretty decent spend at R&D being about 5% of sales. And as you know, typical industrials might spend 2%. So it's a pretty healthy level. We just see opportunities to improve the fall-through on that. So I wouldn't take into that we'd be improving our spend there. And also the CapEx remains at a relatively low 1.5%, 2%. So I think from a spend perspective, you shouldn't read into any change in the spend profile.

We'll take our next question from John Inch with Gordon Haskett.

So I want to go back to Matco and I understand that ICE vehicles are going to be a big slug, right of the vehicle park for a very long time. But can you talk about the economics with respect to EVs? I think some of us are under the impression that diagnostic repair and so forth and tools that Matco and Snap-on provide don't have much of a penetration opportunity with respect to EVs just based on the architecture. I don't know if that's true or not, but maybe you could talk about the economics and how you see that playing out. Again, not with the fact that the car park is going to still be heavily ICE or just how does this play out with the fact that it's growing so rapidly in EVs because that's really what's important in the EV growth trajectory for the next 10, 20 years.

Yes. I think the thing that we're looking at here with EV, and as I said in our prepared remarks, so let me just kind of remind everybody on the car park that the size of the electric car park today is less than 1% today, and the penetration rate is only going to be 7% by 2030. But at the same time, to get to kind of the heart of your question, complexity of repair is going up too. While you might have less moving parts per se, the value that our channel provides is the deep expertise that is provided at the repair shop and the use of new and innovative tools. And as the complexity of repair and think about this, with ADAS, you've got a vehicle with a lot of sensors on it, with a lot of computation that occurs both at the vehicle and it also may be connected. So the complexity of that repair is also going to go up. So we think that serving the last mile to the service technician is really important. You may be familiar with ADAS, which is exactly speaking to this. So the cost of the repair, the complexity of the repair goes up. Not only that, the entire nation of service technicians have got to understand how to do these repairs and how to bring that forward into this new world. So our channel can be very helpful in the edification of that and also selling them the capabilities and their tools.

So Mark, does Matco provide today diagnostic tools and scanning things and other things for repair shops for EVs? Or is that something that's going to happen in the future?

Yes. So today, we do provide diagnostic repair solutions that are used more broadly. I think the size of the car park right now is so small that we don't really have much penetration into the EV space. But it's -- we're kind of excited about it because there will be more EVs on the road going forward, and it's clearly an area that we can develop further as we talked about. So these type of dislocations, we think, represent net opportunities for us. It's not or, it's and for us.

And then just shifting to the financials. So you've called out sort of 20 to 50 basis points of core growth in margin expansion or OMX kind of per year on average. How much of that would you say is kind of working your business processes or whatever internally to drive productivity improvement versus just volumetric? And the nature of my question is that I think you've mentioned Matco, right, dates back to 1986. And certainly, Gilbarco Veeder-Root, I think in the early 2000s. I mean the perception I have would be both of those companies must have had multiple, multiple Kaizen events to drive pretty fine-tune operations over the last several decades is how are you going to -- like it doesn't become harder and harder to drive that core stuff because [ why wouldn't ] VBS and then FBS have taken care of most of the low-hanging fruit over the past several years.

Yes. So I think that's really the benefit of our culture. It's good is not good enough, and it's about continuous improvement, and these businesses have been changing a fair amount. We just finished the conversation about EV. There's lots of things that change in terms of the business environment and things like those kind of dislocations as well as supply chain changes as well as innovation. And product development as well as simplification. The basic fact that we have been so focused on chasing U.S. EMV because it's a tremendous secular driver, and I couldn't be more proud of the team because we've really hung in there with really high share. And in fact, maybe likely gaining share at a very profitable business and growing those profits. Focusing on that, we've -- it has been a lot of hard work. But at the same time, now as that rolls off, we've got a lot more complexity than we need. And so the business system goes after that. So it's not like these businesses are stable. There's a lot of different things that happen in our business system and the culture really enables us to go after what's appropriate at this time. We're just articulating what's in front of us and what we have to go after now.

We'll take our next question from Cliff Ransom with Ransom Research.

I was struck when you all went off into Fortive when Jim Lico said, we started the DBS transition at a lot of these companies, and they're now going into Vontier. You said at that time, there is 200 to 250 basis points in every one of those, and he was speaking to that low-hanging fruit argument. Is there any reason for me to doubt the power of continuous improvement and elimination of Muda to think that your abilities to continue to enhance margins at the same time that you're growing geographies and product introduction and innovation and simplification that's built into the system. Is it -- isn't that an essential part of your culture?

100%, you're right on there. It is -- Muda is about waste elimination. And we're absolutely on it. The teams are on it. And it's interesting because very early in the year, when we could actually get to gather as a management team, we had to kick off with the Vontier management. And I asked folks to raise their hand how many folks were part of Danaher actually at the time that Fortive split and that were sort of prior experienced and about 2/3 of the room raised their hand. So we've got a deep, rich cultural heritage in deploying the operating system and -- or the business system, I should say, not operating system. And we couldn't be more happy to get after these new opportunities in front of us. And I think the separation absolutely highlights that we can go deeper. And as the Matco example showed that this is still getting margin up 1 of our business -- our oldest businesses that have deployed the operating system.

And moving on to our next and last question comes from Richard Eastman with Baird.

Great. Just 2 things. Mark, I think when you talk to Matco, 1 of the differentiators that you spoke to was an industry-leading payment terms. Could you maybe define that? And then just as a second or follow-up, could you speak to the size of Matco's financing portfolio, either as a percentage of their own revenue or a number would be great, but yes.

Yes. Happy to speak with both. I'm going to turn it over to Dave. Go ahead, Dave.

Look, I think industry-leading payment terms, I'm not sure remembering the exact reference off the top of my head, but we have a financing program, you're referring to the -- on the balance sheet that runs about $400 million, $400-plus million all up, including kind of short term and long term. And it's a very strategic part of the system, if you will, in helping our technicians and is part of the stickiness -- significant part of the stickiness of the business model. One of the things as we came into the pandemic, of course, we had a close eye on is how does that portfolio perform? And it's continued to perform very well because we have a very strong employment market in the end user technician, and we've really seen any delinquency levels stay at about what we've seen in a pre-pandemic level is probably what I'd add there.

Okay. Okay. That's great. And just pre-pandemic or delinquency level, does it run at just roughly a percentage? Is it a low single digit or mid-single digit?

It's kind of more of a high single digit, historically.

And it's about the same as it is now as it was then.

All right. Well, thank you, everyone, for joining us today. Jeff and I are around for any follow-up questions. And Mark, Dave and I will see the rest of you on the road. Thanks, and have a great rest of your day. Bye.

This concludes today's call. Thank you for your participation. You may now disconnect.