Vontier reports solid Q3 results, raising full-year guidance amid strategic advancements in connected mobility and portfolio optimization.

Good morning ladies and gentlemen and welcome to the volunteer third quarter 2025 earnings call. @ this time on listen-only mode following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, October 30, 2025 and a replay will be made available shortly after. I would now like to turn the conference over to your Vice President of Investor Relations. Please go ahead.

Thank you. Good morning everyone and thank you for joining us on the call this morning to discuss our third quarter results. With me today are Mark Morelli, our President and Chief Executive Officer, and Anshuma Naga, our Senior Vice President and Chief Financial Officer. You can find both our press release as well as our slide presentation that we will refer to during today's call on the Investor Relations section of our website at investors.vontier.com Please note that during today's call we will present certain non GAAP financial measures. We will also make forward looking statements within the meanings of the federal securities laws, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward looking statements are subject to risks and uncertainties. Actual results might differ materially from any forward looking statements that we make today and we do not assume any obligation to update them. Information regarding these factors that may cause actual results to differ materially from these forward looking statements is available on our website and in our SEC filings. With that, please turn to slide three and I'll turn the call over to Mark. Thanks Ryan and good morning everyone. Thank you for joining us on the call today. I'm pleased with the traction we are seeing from our connected mobility strategy which we outlined in greater detail at our convenience retail Showcase two weeks ago. We've realigned the organization to better execute our strategic vision. We're reinvigorating new product development and building significant competitive advantages. We're the clear leader in this space with some of the industry's most innovative integrated solutions. I'm encouraged by the progress we are making, which is reinforced in our customer conversations. I'll touch on a few takeaways from our event in a few minutes. Turning to the quarter, we delivered solid Q3 results in a dynamic environment. The quarter played out as expected, consistent with the preliminary numbers we shared at our investor event. Our sales adjusted operating margin and EPS landed at or near the high end of our guidance. Our teams remain disciplined on execution, advancing our 8020 simplification efforts and tariff mitigation actions. While delivering on the critical needs of our customers. Core sales were essentially flat for the quarter. Solid underlying performance at mobility, tech and environmental and fueling was offset by ongoing macro pressure at our repair solutions segment. Importantly, demand within the convenience retail end market remains constructive and contributed to the quarter's momentum and we see the repair segment stabilizing sequentially. Our car wash business returned to growth a quarter ahead of expectations as customers are adopting our cloud based Patheon solution. This solution, which we featured at our investor event, helped us secure some key wins in the quarter and has a growing pipeline of opportunities and in convenience retail, our unified payment and remote asset management solutions are delivering real value for our customers, driving low double digit growth across retail solutions. We have generated more than $275 million of adjusted free cash flow year to date and we've deployed roughly 175 million of that to share buyback so far this year. We also took a few targeted portfolio actions in the quarter, divesting two non core assets and exiting a minority equity stake, concrete examples of our 8020 work in action. Our decision to exit these businesses is a result of regional simplification efforts to sharpen our product and go to market focus, Improving the overall growth and margin profile of ontier Given our solid execution year to date and the traction we're seeing in our end markets, we're raising the midpoint of our full year guidance Anshuman will provide more details in a few minutes. I'm encouraged by the fact that core growth is now tracking above 2% for the year, particularly as we've absorbed the impact from two businesses that have reset over the last 12 to 24 months. We expect mid single digit adjusted operating profit growth and remain on Track for roughly 10% adjusted EPS growth this year. This combination reinforces a solid value creation algorithm. Turning to Slide 4 as many of you are aware, we held a successful investor event at the annual national association of Convenience Stores Trade show two weeks ago and used that forum to highlight the comprehensive platform we've built for convenience retail. We're now a more focused, higher performing business with a more synergistic portfolio and broader, more comprehensive solutions. Our connected mobility strategy differentiates us. We are delivering integrated site wide solutions that combine hardware, software, connectivity and services to help our customers navigate complexity. This lowers their operating costs and unlocks growth through improving consumer engagement. These end to end solutions expand our total addressable market and create recurring revenue opportunities. Our recently announced go to market strategy simplifies the sale and deployment of our differentiated solutions through key account managers while streamlining processes, reducing friction and speeding development with shorter sales cycles. Moving to Slide five Our refreshed value creation framework rests on three pillars. Pillar one supports accelerating organic growth by connected mobility and innovation Pillar two focuses on optimizing our core operations to drive improved and more consistent margin expansion through the volunteer business System and Pillar 3 guides how we deploy capital effectively dynamically prioritizing the highest return options available as we look toward 2026. Each pillar will play a key role in delivering results. Assuming a similar macro backdrop extends through next year, we expect the convenience retail end market to be constructive. As we discussed at our investor event, we target above market growth led by our convenience retail solutions, including accelerating growth in car wash. We have strong multi year secular tailwinds extending into 2026 and beyond repair solutions. Demand is likely to remain soft, though distributor inventories are lean and we are seeing sequential revenue stabilization. We expect better operating margin performance in 2026 driven by underlying productivity improvements, increased R and D efficiency, continued 8020 simplification efforts, and more favorable mix as volumes at car wash and repair solutions normalize. On top of this, we expect modest margin accretion from the portfolio management actions we are taking on capital deployment. Our approach will be consistent with what you've seen from us balancing organic investment with with shareholder returns and balance sheet health. To summarize, our strategy is working. We delivered strong, disciplined execution in Q3, converted that into cash, refined the portfolio, and we're advancing our connected mobility strategy to capture incremental share gains. We will continue to manage near term costs and tariff pressures while investing where we see the best returns and positioning the company for above market growth in key end markets. I want to thank our teams for their focus and agility. Their dedication to continuous improvement through the volunteer business system gives us confidence to raise our outlook and to keep executing with discipline. With that, I'll turn the call over to Ann Schuman to walk through the quarter's financial details.

Thanks, Mark and good morning everyone. I'll start off with a summary of our consolidated results for the third quarter. On Slide 6, we delivered results at the higher end of our guidance demonstrating the resilience of our portfolio and the effectiveness of our operational execution. Total sales of 753 million were largely flat with the prior year. Adjusted operating profit margin held steady and adjusted EPS increased high single digits to 78 cents. Adjusted free cash flow of $94 million came in at 82% conversion, including a modest net headwind related to the timing of cash tax payments made in the third quarter On a year to date basis, we have generated over $275 million in adjusted free cash flow. Approximately 12% of sales. Turning to our segment results, Starting on slide 7, environmental and fueling solutions delivered core growth of approximately 2% in line with our guidance for low single digit growth. Our sequential Q3 performance reflects an exceptionally strong Q2 driven by shipment timings tied to appliance maintenance, outage and ERP go live. Despite these timing impacts, North America Dispenser sales increased mid single digits during the quarter. This was offset by softer performance at international markets related to timing of large tenders. These results measured against the prior quarter timing dynamic and a strong prior year comparison of 9% underscores the team's disciplined execution. Solid demand tied to new belt activity from large national and regional players as well as healthy refresh and replacement activity continues to support growth in both above and below ground fueling equipment. Segment operating margin declined approximately 20 basis points ahead of our guidance for a 50 to 75 basis point decline supported by ongoing simplification efforts. On slide 8, mobility technologies core sales grew approximately 5% supported by high single digit bookings growth. Core growth was led by continued strength at Retail Solutions up low double digits in the quarter and Car Wash returning to year over year growth up low single digits. We are seeing strong global adoption of Unified Payment and point of sale technologies which together were up high teens in the quarter. That's especially notable given these products grew nearly 50% in Q3 last year. And as Mark mentioned at the start, we're encouraged by core growth in Car wash inflecting positive 1/4 ahead of schedule. This was mostly the result of strong demand for Pathion software upgrades which experienced mid teens growth in the quarter. Mobility Tech's margins increased over 40 basis points versus the prior year reflecting the benefits of simplification efforts and improved R and D efficiency partially offset by unfavorable mix. And finally on Slide 9, repair solutions sales declined 7% versus the prior year as ongoing macro conditions continue to weigh on service technician spend. This was slightly ahead of performance we saw in the first half and we are starting to see signs of stabilization. Sell through off the truck once again exceeded sell in indicating continued destocking by our distributors. While high ticket product categories including tool, storage and diagnostic remain challenged, we're seeing momentum and lower price point offerings. Segment margin declined approximately 50 basis points primarily related to lower volume, partially offset by stronger contributions from price cost. Turning to the balance sheet and cash flow on Slide 10, we completed another $70 million in share repurchases in the quarter, bringing us to $175 million in buybacks year to date. Net leverage ended the quarter at 2.4 times. We exited a minority equity position and completed divestiture of two small encore businesses, a European service business, a part of EFS and a small point of sale solution to the oil and quick loop end market within Mobility Tech. In total, this netted us $60 million in proceeds on a pro forma annualized basis. These Transactions remove approximately $70 million in sales at approximately 10% adjusted operating margin. Turning to our updated outlook assumptions for Q4 and the full year on slide 11 for the fourth quarter we project revenues in the range of 760 to 770 million with core sales roughly flat at the midpoint. Adjusted EPS is expected in the range of 82 to $0.86 up mid single digits at the midpoint. Our Q4 outlook includes a net headwind of approximately 15 million in sales and around 2 million of adjusted operating profit related to the divestitures I discussed. For the full year, we are raising the midpoint of our guidance range. We now expect sales of just over 3.03 billion at the midpoint with core sales up 2 to 2.5 million percent, reflecting continued strength within our Mobility Tech and EFS segments which have more than offset the weakness seen in repair solutions. This year we're expecting operating margin expansion in the range of 20 to 40 basis points and now guide to adjusted earnings per share of $3.18 at the midpoint. We've updated our other guidance assumptions which can be found on the right hand side of the slide. We entered the third quarter with a clear view of expected timing dynamics and our teams delivered accordingly. Our strategic priorities remain unchanged. We're focused on operational excellence, unlocking self help opportunities and driving innovation across our portfolio. Throughout 2025. Our teams have proactively mitigated the inflationary impacts of tariffs and navigated broader macro uncertainty to support margin expansion and continued growth. At the same time, we're taking meaningful steps to optimize our cost structure and expect solid margin expansion next year. With strong fundamentals and cash generation, I'm confident that we are well positioned to deliver consistent performance and long term value. With that, I'll pass the call back over to Mark for his closing comments.

Thanks Ben Schuman. We are pleased with our results year to date which have exceeded our guidance ranges and enabled us to consistently raise our outlook for the year 2025 has been impacted by headwinds including significant cost inflation and related economic uncertainty caused by tariffs. As Anshuman mentioned, our teams have responded well. I'm proud of the way we have executed against an incredibly complex backdrop. Our connected mobility strategy, deep domain expertise and broad service network provide us with a clear competitive advantage to capitalize on secular tailwinds across our three end markets. I'm also proud of the progress we've made to advance our strategy and align our organization, both of which lead to accelerating top line performance. I want to take the opportunity to thank everyone who was able to make it to our investor showcase in Chicago recently. This was a milestone event for Vontier in terms of demonstrating progress and in illustrating the opportunity in front of us. This sets us up to better deliver long term value creation for our shareholders. With that operator, please open the line for questions.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star followed by the number two. And with that, our first question comes from Jeffrey Sprague with Vertical Research. Please go ahead.

Hey. Thank you. Good morning everyone. Hey. Hey Mark, I was wondering if you.

Could give us a little more color on sort of what you're seeing on the order front and some of the kind of longer cycle aspects of the portfolio. You know, you mentioned some project investment work in drb, you know, these international tenders you mentioned. How far do those reach out? Just trying to get an early sense of maybe the exit rate or the setup into 2026 and some of those more visible parts of the portfolio. Yeah, Jeff, happy to answer that. Look, I think what you've seen is the changes occurring at Vontier have led to some longer cycle type selling of digital solutions for our customers. And, and they tend to be quite significant in size. Their selling cycle is a bit longer than maybe selling dispensers which are more shorter cycle. And you've seen that run through our P and L. And also in our order book, our orders were just under one for the quarter, but if you look at it on a year over year basis and a two year stack, I mean it's a pretty good level that we're running at. We've also made some announcements for some orders that will be landing for next year as well. And I think when you. I'll give you a really good example of this. You know, in our car wash business that turned a quarter ahead of where We've told the street it's really on the backs of bringing this type solution to market. It's an enterprise software solution where the market for car wash is actually flat even down from where we said it was. But we're getting a return of growth in that business because we're selling the solution and we're getting some really good uptake from our customers on that. And by the way, we see a really good pipeline of funnel of opportunities. So we see that business returning to growth in a really good setup. So I like our setup that we have for 2026 and I'm very encouraged. Great. And then just on this, these exits, how much more of this is there to do? Is there? You know, kind of a. I suppose there's always some kind of evaluation of the portfolio going on. But you know, have you stepped up your activity there? Should we view this as one off or maybe more pruning as we look into next year? Well, I think you should view pruning as really part of our playbook. We're constantly, as you indicated there, we're reviewing our portfolio and looking at opportunities. You know, this is also a real outgrowth of an element of VBS where we've incorporated 80:20 where we're evaluating and seeing parts of our portfolio that belong elsewhere. And you know, when those things arise, sometimes it takes a while for those things to work through to find the right solution for them. I think you're seeing the culmination of some work that's been underway for a while and I think you just look at us to constantly use that dimension to be able to enhance our growth profile and margin profile of the business. Understood, thanks a lot.

Thank you. And your next question comes from Julian Mitchell with Barclays. Please go ahead.

Hi, good morning, this is Jimmy Jiang on for Julian Mitchell. So first off, appreciate all the detail you've given on the slides. Maybe just speak to any color on Q4 sales and margins by segment please.

Yeah, it's just from a Q4 perspective as we said at the midpoint, relatively flat year on year. From a mobility technology perspective that business is going to be relatively flat also in Q4 year on year coming off a very hard compare and also some project timing. You know some of these technology projects have upfront hardware component and then you have recurring revenues. So it's the timing of the hardware component out there. Our environmental and fueling business should continue to post growth, low to mid single digit growth. And then for repair solutions we we're starting to see signs of sequential stabilization which would put it down mid to high single digits on a year on year basis. From a margin perspective, mobility technologies in Q4 should have at the midpoint roughly a 50 basis point margin expansion. If you recall last year Mobility technology margins in Q4 were relatively strong at 20.7% which was 170 basis points above their full year average. And despite the harder compare in terms of operating profit margins, we think we'll get another 50 basis points in Q4 this year. EFS had a slightly easier compare from a margin perspective we expect in Q4 we expect they'll be up closer to 100 basis points and then repair solutions on the lower volume which should be down about 50 basis points. Also as a reminder just we have about $17 million of impact in Q4 off the 70 million in terms of divestit at roughly 10% operating profit margin.

Got it. That's helpful. And maybe just switching gears a little bit, could you speak to the general bullishness on retail feeling? One of your peers sounded pretty upbeat on capex in this space, so would appreciate your thoughts here. Yeah, happy to make some comments on that. And also any of you followed our investor teach in that we had on convenience retail here recently. We are very constructive on the end market. If you take a look at volunteer, about two thirds of our business is exposed to convenience retail and we have the leadership position worldwide on retail fueling, which is an important element and part of that. And I think that's where you're going. If you look at the announcements of the major players in this space, they're building out their footprints and there's also consolidation that is occurring given that we've got 2/3 share or more in some of the larger market segments where these larger customers operate, they need the tools and capabilities to be able to operate more effectively, particularly when they're putting more assets in the ground and they're consolidating. And so this is a great backdrop for us. And in particular it's I think a really positive setup for 2026. But also, you know, I think the market is coming more our way with our technology solutions and market share. So I think it's a very constructive element of the secular drivers that are at work that really help out our portfolio. Great, thank you.

Thank you, Andy. Our next question comes from the lineup. Nigel Ko with Wolf Research, please go ahead.

Thanks. Good morning everyone. And Schumann, maybe could you just peel back on the mobility. You obviously called out some of the hardware. You know, if you just go to the segment Level especially you know DRB I think should be accelerating. So I'd be, I'd be curious what's offsetting that. Yeah, Nigel, you were breaking up but I think the question was around a little more color on mobility technologies being flat in Q4. It's really coming off a very hard compare for Nvenco. The business had a very strong Q4 based on the timing of certain projects. You know we've been talking about not only the NFX wins which had hardware up front but also the vehicle identification system order which was really delivery, large Delivery last year, Q4 and also in Q1, Q2 of this year. So it's hard compares for us in Invenco in Q4 again in Q1 Q2. The good news is we do have a couple of large wins in Invenco, another one in the vehicle identification system and one in indoor payments. Now the timing of these, usually after you win it, there's some development work with the customers certification through their networks before the rollout starts. And these projects, the rollouts will start in the back half of next year. So really Q3, Q4. So it's just a timing perspective I think for these kinds of businesses versus looking quarter to quarter. If we look at an annual chunk that's a better way to look at these. This year Invenco will grow well in the double digits and next year we, we feel pretty confident that Invenco should grow mid single digits again on a hard compare. Okay, that's, that's really helpful progress to the line maybe on the environmental, you know as the previous question alluded, sounds like the US is, is sort of in a new capex cycle. Just talk about Internet. I think that a bit more noise. Just curious how you see developing over the next 12 months or so. Yeah, so environmental is a good growth driver for us on an annual basis and I think the growth continues into next year. Us obviously we're supported by the tank replacement cycle that we've talked about. Also international we've been seeing growth now international growth. There's sometimes timing of tenders that cause a little bit up and down in a quarter to quarter. But again from annual basis environmental globally is an area that we feel strong about. There's continuing regulation in the space and there's not a slowdown of regulation. The amount of regulation, the complexity of regulation keeps increasing. Also with our connected offering where instead of having on premises connectivity, our new solutions provide cloud based connectivity where for larger customers being able to monitor the whole fleet centrally is a big advantage. And we're seeing some of that play out. So we feel pretty good about our environmental business.

All right, thank you, Ed. Your next question comes from the line of Katie Fleischer with KeyBanc. Please go ahead.

Hey, good morning, guys. Just to kind of circle back on mobility technologies again, I was wondering if you could give a little more details about the margins. I think earlier this year you had expectations for that segment to grow over 100 basis points year over year with the operating margins. And it sounds like that's coming down a bit. Just wondering what's driving that difference there.

Yeah, Katie, just let's take Q3. You know, we had expected margins in mobility tech to be up 100 basis points, and they were up less than that. But it's also lost small numbers. You know, 40, 50 basis points. You're talking about a million, little over a million. And in our Anji business, we had some higher costs and timing of projects that caused that roughly million million and a half of lower profit versus our expectations. If we hadn't had that, we would have been right around 100 basis points. We were expecting. So a little bit of headwind at our Anji business that we're working on writing and fixing.

Okay, that's helpful. And then I know you're not ready to guide for 2026 yet, but you made some comments about, you know, expectations for operating leverage to improve next year. How should we think about those comments in relation to the long term targets that you guys have out there? Yeah. Katie, this is Mark. Look, I like our setup for 2026. I'm cautiously optimistic. As you said, it's a little bit too early to give guidance as we're heavily into the planning cycle right now. But you know, there is some color we can give. I think we're positioned to accelerate growth. I think our market leadership on convenience retail being two thirds of our exposure there, looks good. And then other elements of our business are stabilizing, like in the repair solution side and importantly, part of convenience retail. You know, the car wash business is inflecting up. And then on the margin side, I think we anticipate better drop through than what we've seen because we're accelerating some of our BBS initiatives, particularly around 80 20. Do you want to add some color, Schuman?

Yeah, just putting some numbers around what Mark referenced. While early to give guidance. If you go back to our convenience retail showcase, 67% of our revenue, the market's growing 3 to 4%. We think we can outgrow that market a little bit. So that would put roughly 4 to 5% maybe growth. For our convenience retail part of our portfolio which is 67% for the remaining, which large part of it is our repair solutions part of the business. We're starting to see signs of sequential stabilization which still puts pressure on a year on year basis, especially in half one for us. You know the US consumer is still stretched, especially at the lower end and our technicians are those consumers. So we still see pressure in that business but stabilizing sequentially. So best case, you know, as of now we aren't giving guidance but flattish on the remaining part of our portfolio. Our normal drop throughs on growth are typically 30 to 35%. You know we feel strongly that we'll outdo those given the fact that we have lot of the 80, 20 simplification all part of our VBS system in terms of continuous improvement. So you know, we could see the drop throughs north of 50 basis 50% next year approaching almost twice of what our typical drop through of 30, 35% would be. So somewhere in that range.

Great, thanks for the caller.

Katie. I'll just also add as you guys start modeling, just a simple reminder, we do have a $500 million bond that comes up next year in April and that is at a 1.8%. So I don't think we'll be getting another 1.8% coupon. So it's probably some headwind in interest expense next year too.

Okay, gotcha.

Thank you. And your next question comes from Andrew Obin with Bank of America. Please go ahead.

Hi, this is David Rithelane on for. Andrew the one Repair Solutions. Look, you know you have a publicly traded competitor out there. Snap-on Tools, not going to make too much of 90 day performance. But year to date their segment, tool.

Segment is down 1% and MATCO is down 8%. So what explains kind of the gap that you're seeing versus your peers? Yeah, David, this is Mark. Look, I think on a quarter to quarter basis you're going to see some ebb and flow. First of all we have a lot of respect for our competitors. Those were year to date.

Those were year to date numbers.

Yeah, you know I think if you go back to last year you'll see we also gained share as well. So I think there is some ebb and flow and they're, they're on the backs of their expo that they just had this quarter. But we do you know, think that the overall market for repair and if you look at the comments that are out there, it is a good backdrop, but the consumer is under a bit of pressure, which I don't think is any news. And I think the real efforts that we have there is getting better vitality for some of the lower price point items. We started the year raising price and we've hung on to some of that price that we've raised and now we're pivoting back to some of the lower price items. So I think, you know, the good news is we're seeing sequential stabilization in the business and I think we're really focused to get an uplift on this business for next year.

Got it. And just for clarification, I think you said were your comments on orders, was that a book to bill being around.

1, or were you saying orders were up 1% year over year, organic? No, that was a book to Bill.

Yeah, book to Bill. Book to Bill is just under one for the quarter. Hovering around that, around one for the year. And we expect to end the year roughly at one. Okay, thank you very much.

And your next question comes from the line of Rob Mason with Baird, please go ahead.

Hi. Good morning, guys. It's good to see the recovery there in drb. You know, Mark, there's in the past, ma activity in that space seemingly has had a positive dynamic on the business. I've seen industry sources suggest, you know, more of that activity could start, more consolidation activity actually could start to happen. I know there's maybe one hot higher profile thing out there, but the just in general, I'm just curious if you're picking that up and it's, does that inform your pipeline is maybe those larger customers where you're strong, you start planning that out? Yeah, absolutely. I think our strategy in the car wash base is to win with the winners. So some of the bigger players out there, some of the more savvy operators in the space are actually making moves to further consolidate. These folks need the tools to be able to operate their footprint. The complexity they're dealing with not only on the cost management side, but also how they can more effectively attract consumers to their car wash. We have great tool with that. With Patheon, customers see excellent returns. And if you have more than 100 car washes, it's even better. So as you scale, these are the tools you need to scale. And that's why we're getting traction in the space ahead of the overall market turn. And I think we feel really good about the pipeline and what we've got in the pipeline and the engagements we have with customers. So it's, I think it's A real example of our connected mobility strategy, you know, beginning to pay off for us and real proof points around it. So we're really excited about what we're seeing there. Good, good.

Going back to the event a few weeks ago in EFNs, new products around the tank gauge and capitalize on that replacement cycle. But you know, one of the things that, you know, kind of came out of the conversations was, you know, your installed base, those products are just, you know, very durable. I'm just curious if there's any other incentives that you can point to that you know, can help customers accelerate the replacement cycle around that product, new product that you introduce. Yeah, we absolutely do. I mean, this is a piece of business here that we really derive a tremendous amount of leverage off the massive installed base. This is pretty much the brand of record if you look at underground equipment, how it's being done on a worldwide basis and so particularly on the upgrade cycle in the United States. A couple things we do, we package solutions so it's easier for folks when they're looking at a complete underground retrofit. You know, we don't make or sell the tanks, but you can package up the tanks with the piping and the sensors and make it a lot easier for them to be able to do that. We also help them on interest rate issues that might come up when they're making a total retrofit solution there. And so we're very engaged with our customers on how they move that forward. I think the really good news about this secular driver for us is that it's a pretty steady driver that's in its early innings. It's not this massive driver that's going to drive a whole bunch of revenue in a couple quarters. I think it's going to be a pretty steady replacement cycle over the next five plus years, which I think is great. That's the kind of driver that regulatory drivers that we like and I think we're just well positioned there to win.

I'll also add, you know, while Mark covered directly the question in terms of the incentives and how we help drive that, there's a significant value proposition of having connectivity and asset management, asset monitoring, which our solution provides, which the old solutions did not provide. So when we talked about last quarter, one of our large customers doing a phase fleet wide upgrade, it's because of the value proposition that our connectivity, our new product offering provides. And it's also the latest CARB certification that we provide. So a lot of benefits. But also to the Mark's point, we also are stimulating Demand with a lot of these actions.

Very good, thank you.

Thank you. And your next question comes from Andy Kaplowitz with Citi. Please go ahead.

Hey, good morning guys. It's actually Jose on Brandy, maybe going back to repair solutions. The margins there seem to be stabilizing and you pointed to strong price cost contribution in the slide and I think Matco was the business that was the most exposed to tariffs for you. So maybe talk through how the customer reception has been on those price increases and what you're expecting kind of moving forward. Yeah, I'll jump in. I'll let Inchuman also talk about repair as well. Look, there's no question that the tariffs have sort of been more significant for repair solutions. But if you look back over a couple year basis, even from like Trump 1.0 to Trump 2.0, we have really worked very hard to to source in region for region. And I think, you know, when our setup when we approach this year is we we source and manufacture 75% in region for region, which is a pretty significant change over the last couple years. So we've made a lot of progress. I think we're going to be on our target of getting less than 10% product sourced from China by the end of this year. And so I think that I guess long body of work has really been paying off for us. But no question there's been headwinds there on cost and some of the supply chain related issues. I think as we get into next year and hopefully we see the tariffs stabilizing, I think I'm really proud of the management teams for their ability to manage that and offset that. I think the pricing that we went out with earlier in the year, we've seen some drop through on that price increase that we've made. We're not making any further price increases at the moment, but we did pick up some on the price and I think as we get into next year as we continue to work through the tariffs adequately, well and then we'll have better year over year compares on the tariff issue as well. Do you want to add some color there, Shuman?

Yeah, we've been, our gross margins have been pretty flat at repair year on year which basically we've passed on the cost of the tariffs. Generally we've been okay passing through that some places it's a little more targeted where we have to make decisions around portfolio, etc. But large part of it, as Mark talked, has been moving supply chain and trying to optimize our cost position also because of Leveraging a more not only a US Supply chain but also other countries outside of China. We will be under $50 million of procurement from China by the end of this year on a run rate basis. So our teams have done a really good job mitigating some of the higher tariff exposures.

Got it. Helpful. And then maybe kind of turning over towards cash. And I did see that you slightly lowered the conversion to 95% for the full year from your 100%. And at the event a couple weeks ago, you talked about targeting over 90% conversion through 28, which is a little bit lower than the hundred percent you guys talked about at your previous investor day. So I was wondering if you could touch on what's contributing to that and maybe elaborate on any working capital opportunities that you're working on. Yeah.

If you also noticed, our tax rate is creeping up a little bit from 21% to 21 to 21 and a half percent for this year. Part of it is to do with the R and D law change. We probably will take a lot of the cash benefit over two years because it does impact the tax rate when you take that. So that's part of the 100% going to 95% just managing our overall tax rate. So we're splitting some of the tax benefit over the two years versus taking it all in one year. You know, in terms of greater than 90%, I think that's a pretty good cash conversion. You know, as you're going to have growth in the business, working capital kind of grows with your growth rate. So, you know, one way to think about it is cash conversion of 100 minus your growth rate is a pretty good target to go for. You know, greater than 90% gives us some buffer, I would say. But we feel very strongly that we have a really good cash conversion profile in our business.

Very helpful. Thanks for the time.

Thank you. And I'm showing no further questions at this time. I would like to turn it back to Mark Morelli for closing remarks.

Yeah. Thank you. Thanks again for joining us on today's call. We're exiting 2025 with fundamentally stronger operations, improving trends across our core businesses and clear momentum on our connected mobility strategy. We're delivering differentiated solutions in attractive end markets and we're committed to creating long term value for our customers and returns for our shareholders. Importantly, our shares remain meaningfully discounted to peers, underscoring the upside as we continue to execute. We appreciate your continued interest in volunteer and look forward to engaging with many of you over the next several weeks. Have a great day.

Thank you, presenters and ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.