Vontier Corp
NYSE:VNT
Earnings Call Analysis
Q3-2023 Analysis
Vontier Corp
For the third quarter, reported revenue was down about 3% from the previous year, sitting at $765 million; however, baseline core growth, without considering the EMV impact, was approximately 10%. Adjusted operating profit margin outpaced expectations at 22.1%, with profit coming in at $169 million. The decrease in profit year-over-year was due to the anticipated EMV sunset headwind. Adjusted earnings per share surpassed guidance at $0.73, buoyed by heightened revenue and profitability. A striking achievement was the adjusted free cash flow which increased by more than 47% from the previous year, hitting $128 million and representing an impressive conversion rate of 113%. Working capital showed a notable improvement with a $30 million inventory reduction year-to-date.
Mobility Technologies saw an over 8% increase in the top line, with a 4% core growth and an impressive 12% baseline core growth. Of particular note, DRB, the carwash solutions business, recorded low double-digit core sales growth due to rising market share and strong demand for its tunnel carwash solution, boding well for growth expectations going into 2024. The segment introduced Patheon, a cloud-based point-of-sale software platform, which was received positively by customers. Additionally, the alternative energy solutions business experienced robust sales, growing over 20%, underpinned by solid demand for natural gas refueling equipment and initial shipments of hydrogen dispensers. Invenco by GVR also performed well, with deployments of the iNFX platform advancing ahead of schedule. Segment operating profit at $51 million was above anticipations, aided by DRB and Invenco's strong performances and foreign exchange transaction gains.
Matco's revenues saw a 5% upswing, fueled by over 20% growth in tool storage and continued resilience in the power tools lineup. Despite a decrease in operating profit year-over-year, which was expected due to reserve adjustments and tariff settlements from the previous year, Matco is projected to report improved operating profit margins year-over-year in Q4 with an easier comparison period in sight. Meanwhile, the Equipment and Fueling Solutions (EFS) segment reported a 10% decline in revenues due to the EMV sunset impact, but baseline core sales growth remained strong at 13%. Moreover, the operating profit margin for EFS expanded by 60 basis points, suggesting efficiency improvements in the segment.
Looking forward, the company revised its full-year guidance to account for a low single-digit decline in core sales, translating to projected revenues between $3.075 billion and $3.085 billion, including a roughly $10 million foreign exchange headwind. Adjusted earnings per share are now expected to be between $2.83 and $2.87, with Q4 specifically forecasted to have adjusted EPS ranging from $0.75 to $0.79 on revenues of between $770 million to $780 million. These guidance updates are important for investors as they help set expectations for the company's performance in the near term and could impact the stock's price positively or negatively depending on the actual results compared to these projections.
Despite the expected sequential dip in Mobility Technologies' margins by roughly 50 basis points, the company's business model continues to solidify and expand its reach. The customer supply chain constraints began to alleviate, allowing projects to move forward and enabling a demand pull-in from Q4 to Q3. This strategic movement of demand not only demonstrated a strong Q3 outcome but also mitigated risks for Q4 and laid a positive foundation for 2024. The company appears well-prepared for upcoming market dynamics with robust demand, a compelling product portfolio, and a balanced price-cost structure. The inventory levels are also trending favorably, which indicates efficient operations and preparedness for growth opportunities.
There's a growing momentum in the alternative fuels segment, particularly with the emerging hydrogen offerings alongside the existing compressed and renewable natural gas products. This area appears to align directly with the company's competencies in providing high-reliability solutions catering to the safety and regulatory needs of the industry. Overarching trends such as broad government funding with bipartisan support, both domestically and internationally, suggest that there is significant growth potential. The industry's shift towards more sustainable energy sources, including hydrogen, is anticipated to contribute positively to the firm's expansion. These developments are critical for investors who are keen on businesses that are innovating and diversifying within the energy sector.
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Good morning, ladies and gentlemen, and welcome to the Vontier Third Quarter 2023 Earnings Call. [Operator Instructions]. This call is being recorded on Thursday, November 2, 2023. And a replay will be made available shortly after. I would now like to turn the conference over to Ryan Edelman, Vontier's Vice President of Investor Relations. Please go ahead.
Great. Thank you, operator. 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 Anshooman Aga, 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. Please note that during today's call, we will present certain non-GAAP financial measures. We will also make forward-looking statements within the meaning 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, I'd like to turn the call over to Mark.
Thanks, Ryan, and good morning, everyone. Thank you for joining us to discuss our Third Quarter results. I'll start with some of the highlights of the quarter, beginning on Slide 5. We're incredibly pleased with our performance in Q3, which reflects progress on our connected mobility strategy year-to-date and the strength of our differentiated portfolio. I want to take a second to recognize our employees around the world for their continued dedication to driving operational execution, delivering for our customers, accelerating growth and demonstrating the power of the Vontier business system. We delivered strong top line performance again this quarter ahead of expectations with baseline core revenue growth of 10%. As a reminder, baseline core growth excludes the year-over-year impact of the EMV comparison. The fourth quarter marks the end and also the peak of the EMV headwind and we look forward to finally removing this comparison from our Lexicon beginning next year. Both Mobility Technologies and Environmental & Fueling reported low double-digit baseline growth in the quarter. Within Mobility Tech, sales in our alternative energy solutions business grew over 20%, with DRB up low double digits and Invenco by GVR also up low double-digit baseline. Environmental & Fueling continues to benefit from the robust demand in our U.S. dispenser business, which has been consistent all year. Our leading share with large national and regional C-store and fueling operators puts us in a position of strength to capitalize on their strong reinvestment in expanding or modernizing their store footprint. Our customers are enjoying strong fuel margins, in-store sales growth and healthy balance sheets. Year-to-date, retail fueling site refresh and rebuild activity has exceeded our expectations coupled with continued strength in new build activity driving higher equipment demand. The benefits of this broader reinvestment trend cut across many parts of our portfolio, including c-store, forecourt, and underground equipment as well as car wash. Looking ahead, we are confident this will continue given our strong visibility into customer project pipelines. Repair Solutions delivered 5% growth this quarter, supported by strong end market dynamics, including healthy technician employment and wage growth. We're also benefiting from a strong product lineup, and this is a result of our industry-leading product vitality. Our book-to-bill ratio was stable in Q3 at $0.97 relatively consistent with the trends we've seen year-to-date and in line with what we are anticipating. Demand across the mobility ecosystem remains constructive supported by continued investment in connected solutions that deliver enhanced productivity and automation. Leading indicators across the majority of our businesses remain healthy, and our backlogs remain elevated versus historical levels. Additionally, our customer channel checks have been encouraging. Recently, we conducted a survey in conjunction with NACS, the National Association for Convenience Stores. which show that 85% of retailers are projecting flat to higher CapEx spend as a percentage of their net profits in 2024. This reflects the underlying resiliency we would expect of these end markets and gives us more confidence in our outlook.
Excluding the year-over-year EMV compare baseline operating margin expanded 40 basis points, demonstrating the power of VBS to deliver operational excellence through rigorous execution. Additionally, we generated incremental savings from the restructuring actions taken earlier in the year, and we're now tracking above the high end of our $45 million target for savings in the full year. We're still in the early innings of our self-help optimization initiatives as part of pillar one of our strategy, optimize the core, which, over the next several years, provides ample opportunity to expand margins in line with achieving our target of 150-plus basis points by 2026. Based on the strong results in Q3, we are updating our full year adjusted EPS guide, moving towards the top half of our previous range, which Anshooman will explain in more detail in a few minutes. Let's turn to Slide 6 for a couple of examples of how we're executing our connected mobility strategy. Demonstrating our continued commitments to decarbonizing fleets and mobility in general, we continue to accelerate the rollout of our hydrogen technology offerings. Last month, we unveiled the next evolution in our product road map with the first orders for our state-of-the-art turnkey hydrogen refueling station. This station is the first of its kind, a modular solution that enables fleet operators to scale their stations as they grow and transition to zero-emission vehicles. We are leveraging our long-standing partnership with the Trillium Love's company, having provided them more than 40 compressed natural gas stations for fleet refueling.
With them, we announced the first order to deliver our hydrogen fueling station. This includes a uniquely configurable solution of hydrogen dispensing and compression technology as well as integrated cloud-based software. This system is going to Santa Clarita Transit in California to support the transition of their bus fleet to zero-emission hydrogen fuel cell buses. Cloud connectivity ensures best-in-class performance and uptime through remote monitoring and preventative maintenance further back by our extensive network of service technicians. Santa Clarita Transit transition plan is further supported by the U.S. Department of Energy's commitment of $1.2 billion in Federal funding to the State of California as 1 of 7 regional hydrogen hubs under the $7 billion bipartisan infrastructure law.
California is targeting 200 hydrogen stations across the state by 2025. Our alternative energy solutions business leverages our leadership in compressed natural gas substation design and production, which positions us well to benefit from the build-out of clean hydrogen infrastructure. This is not only in the state of California, but elsewhere in the U.S. and all parts of the world. This build-out is still in the early stages, and we see a multiyear opportunity for growth. On the right-hand side of the chart, we are excited to show you that we have announced the commercial launch of our first dispenser unit to integrate the Invenco payment terminal at the NACS trade show in early October. As you may recall, part of the synergy opportunity with the Invenco acquisition last year related to vertically integrating our own payment technology into our dispensers. Now the Flex Pay 6 lineup expands upon the industry's leading connected cloud managed payment systems capable of over-the-air updates to meet ongoing regulatory changes enhanced cyber protection and maximizing asset uptime. It is also compliant with the latest payment card industry transaction security standard or PCI 6 and offers a flexible solution for maximizing consumer engagement at the pump, customizable user experiences and tackles payment. The integration of the Flex Pay 6 into our energy delivery system is core to the Invenco-deal thesis. It is a significant milestone on our product road map as we deliver end-to-end cloud-enabled payment and workflow solution to convenience retail for energy delivery and in-store management. We've already seen significant orders in just our first month. The rollout of our iNFX platform with both Shell and Chevron is going extremely well. Through the end of October, we deployed over 15% of Shell's 13,000 plant sites and are on pace to reach 20% of their sites by the year-end. As a reminder, these first 2 wins cover over 20,000 sites combined, which equates to about 15% of all C-stores in the U.S. illustrating the differentiation of this offering. Additionally, the commercial pipeline for iNFX continues to build with high levels of interest from our major customers across the mobility ecosystem globally.
We continue to capitalize on the secular trends across the mobility ecosystem. The most important themes underpinning all of these is the need for greater productivity and automation and the need for multi-energy technologies to address the energy trilemma. We see an unparalleled opportunity for us to not only meet the demands of today but lead and shape the future of mobility. Vontier is enabling the way the world moves, and that couldn't be more evident in our continued strong financial performance and key customer wins year-to-date. Now I'd like to turn the call over to Anshooman to take you through the details of our financial performance and provide an update on our outlook for the remainder of the year.
Thanks, Mark, and good morning, everyone. I'll start with a summary of our third quarter performance. Please turn to Slide 7. Reported revenue for the third quarter was $765 million, down approximately 3% from the prior year on both a reported and core basis. Excluding the impact of EMV, baseline core growth was approximately 10%. Total adjusted operating profit was $169 million, down versus the prior year due to the expected headwind from the EMV sunset.
Adjusted operating profit margin was 22.1% ahead of our Q3 guidance range. Baseline margin expanded 40 basis points, led by higher productivity and restructuring savings as well as continued price cost performance. Adjusted earnings per share of $0.73 was above the high end of our guidance range, supported by higher revenue and improved profitability. Adjusted free cash flow for the third quarter was $128 million, up over 47% from the prior year and representing conversion of 113% supported by continued improvements in working capital, including a $30 million reduction in inventory year-to-date. Given the strong ramp between the third and fourth quarter and the guidance we provided on our last call, our teams worked diligently through the third quarter to proactively rebalance the second half financial profile and derisk the fourth quarter. Our results in Q3 and updated outlook for Q4 and are a reflection of this operational success as we were able to capitalize on strong demand for our industry-leading solutions and deliver solid execution on restructuring savings and price costs. This was further supported by the continuation of normalizing supply chain conditions. Turning to our segment performance, starting on Slide 8. Mobility Technologies top line increased over 8% with solid performance across the board. Core growth of the segment was 4% and baseline core growth was 12%. DRB, our carwash solutions business posted low double-digit core sales growth for the quarter as this business continues to gain share and demand for our tunnel carwash solution remains healthy.
DRB has had an impressive track record of growth since joining the one-tier portfolio, and we believe this business is well positioned for above-market growth into 2024. This growth will be fueled by demand for its core control software, point-of-sale systems and data analytic applications as well as the recent launch of Patheon. Patheon is a transformational cloud-based point-of-sale software platform for the tunnel carwash market designed to maximize our customers' operational efficiency and revenue growth through data-driven insights. Customer adoption and feedback has been very positive, directly benefiting operators who are focused on building a loyal customer and membership base and want a strong return on their investment. Our alternative energy solutions business continues to outperform with sales up over 20%, driven by strong demand for compressed natural gas refueling equipment and systems as well as the initial shipments of hydrogen dispensers. Invenco by GVR also had a solid third quarter. In addition to the ongoing deployment of our iNFX platform, which is running ahead of schedule, we also announced an agreement with Portugal-based Galp Energia to deploy our Passport X point-of-sale system across its network of over 1,300 service stations in Iberia.
Passport X represents a modern cloud-based software platform, purpose built for fuel and convenience retailers. In addition to an advanced point of sale, it also incorporates integrated back office and head office workflow automation solutions to help retailers reduce site management complexity and address ongoing labor constraints. It also offers increased cybersecurity protection and improved customer experiences, supported by omnichannel and contactless purchase options as well as personalized loyalty programs. We're proud to partner with Galp as we continue to ramp this offering. Segment operating profit at $51 million was ahead of our expectations, given the strong performance from DRB and Invenco and contributions from FX transaction gain. Invenco profitability accelerated further as anticipated, with margins on the base business now tracking in the mid-teens in Q3 and over 20%, including synergies across the portfolio. Turning to Repair Solutions on Slide 9. Matco revenues increased 5%, led by over 20% growth in tool storage as well as continued strength in our power tools lineup. Matco continues to benefit from a strong demand environment as technician employment, wage growth and auto repair demand remains at high levels. As lead times in several key product categories have improved year-to-date, we have capitalized on this environment with a steady cadence of new product launches. Operating profit, while up sequentially, was down versus the prior year as anticipated. Due to year-over-year reserve adjustments related to the receivables portfolio and a favorable tariff settlement recorded in the third quarter of 2022, as we previously communicated. As we close out the year, we still expect Matco's operating profit margin to improve year-over-year in Q4 as comparisons ease. And finally, on Slide 10, Environmental & Fueling Solutions. Reported revenues at EFS declined 10% due to the impact of the EMV sunset. Excluding this impact, baseline core sales growth was 13% led by continued strength in our U.S. dispenser business as well as strong demand for environmental equipment. As Mark referenced, EFS has benefited from strong industry CapEx trends year-to-date which has led to healthy demand tied to tight expansion and refresh activity, especially in our U.S. dispenser business. EFS segment operating profit margin expanded 60 basis points primarily driven by the successful execution of the restructuring actions and continued performance on price cost. Turning to Slide 11. I'll cover our balance sheet and free cash flow details for the quarter. We had strong cash performance in the third quarter with 113% conversion on adjusted net income and 17% of sales. Year-to-date, we generated just over $280 million with conversion at 87%, putting us well within reach of our full year target as we enter a seasonally strong cash generation quarter in Q4, which typically delivers over 100% conversion. We repaid another $75 million of debt in the third quarter, further reducing our 2024 maturity to $160 million. We also completed $12 million in share repurchases bringing our total year-to-date repurchase to $62 million. We are maintaining our full year outlook for adjusted free cash flow conversion of 90% to 100%, which equates to over $400 million. Turning to the outlook assumptions on Slide 12, starting with our updated guidance for the full year. Given our progress on the top line year-to-date, we now anticipate a low single-digit decline in core sales which implies total revenues in the range of $3.075 billion to $3.085 billion. This includes an approximate $10 million headwind from FX versus our previous guidance. As Mark noted earlier, there is no change to our assumptions for the headwind related to the EMV sunset. As a reminder, this headwind ramped sequentially and peaks in the fourth quarter, and then we will finally move on from this comparison issue beginning in Q1 of next year. We are narrowing our adjusted EPS range to the top end of our prior range to $2.83 to $2.87. The implied fourth quarter guidance for adjusted EPS is $0.75 a to $0.79 with revenues in the range of $770 million to $780 million. We will have a tougher top line comparison in Q4, which was up 10% on a core basis last year and includes the peak in EMV shipments, the initial benefits from normalizing supply chain and revenue recovery following a supplier shutdown late in Q3 of the prior year. No material changes to our other planning assumptions for the full year, which are included as a slide in the appendix. The one call-out, as I mentioned, is that FX is approximately a $10 million top line headwind relative to our prior guidance and is embedded into the outlook I just provided. With that, I will turn the call back over to Mark.
Thanks, Anshooman. Vontier is transforming and aligning our portfolio to deliver sustainable top line growth, industry-leading profitability double-digit earnings growth and significant free cash flow. Our connected mobility strategy and differentiated technologies continue to deliver wins propelled by leading market positions in productivity and automation, and with robust secular tailwinds sweeping the mobility ecosystem. We're ideally positioned with our broad multi-energy portfolio to address the energy trilemma facing the world. The need for a sustainable, secure and affordable energy. Our differentiated software platforms for c-stores, car washes, fleets and EV networks are solving high-value customer problems including increasing regulatory requirements, labor challenges, evolving consumer preferences and network interoperability and uptime. Across all of our segments, we are positioned for future growth with a robust and growing pipeline of opportunities. Through our clear vision, leading-edge technological capabilities and unmatched touch points across the mobility ecosystem, we're enabling the way the world moves, driving smart, safe, sustainable solutions for our customers, employees, shareholders and the world. With that, operator, we're ready to open the line for questions.
[Operator Instructions]. Your first question comes from Julian Mitchell from Barclays.
This is Matthew [ Pan ] on for Julie Mitchell. Just one question. You mentioned that you're tracking above the $45 million of savings target. Is there any spillover of incremental savings you could size for 2024?
Yes. So we're tracking slightly above the $45 million, closer to $47 million to $48 million. And then the full year synergies is going to be about $56 million to $58 million, so the incremental piece goes into next year.
Perfect. And just a follow-up. The mobility segment saw some pretty good margins in Q3. Is that just typical seasonality? And then is there any color you could give for Q4 for the segments or for total Vontier?
Yes. So Q3 was a strong quarter for Mobility Technologies. They were helped a little bit by mix, but also the Invenco profitability had been ramping up sequentially. If you remember, when we acquired Invenco, they were breakeven and their profitability increased to low single digits then high single digits in this quarter. They were in the mid-teens on a stand-alone basis and including all-in synergies they were actually over 20%. So some of that benefit obviously continues. We also had a onetime transaction FX transaction gain in the third quarter, which obviously doesn't repeat itself in the fourth quarter. So expect Q4 margins for Mobility Technologies to be down about 50 basis points sequentially but up materially from last fiscal year.
Your next question comes from Andrew Obin from Bank of America.
This is David Ridley-Lane on for Andrew Obin. For your more CapEx-related sales, have you seen any impact on customers' willingness to fund projects given the higher interest rates?
Yes, David, this is Mark. We see a pretty healthy backdrop One of the areas that we're obviously quite diligent on is watching the increase in interest rates and trying to have a good sense on how that might play out, particularly as we get into next year. And I can tell you that our leading indicators all look good so far. One of the biggest areas for us is that folks get a lot of benefit from fuel margins as well as in-sourced sales within convenience stores. We also see continued good ROIs on car wash, even though the M&A activity certainly has slowed with higher interest rates. And so I think our setup for 2024 is a good setup. One of the other areas that's been pretty interesting is our environmental business, as you may have recognized saw high single-digit growth in the quarter. There's been some destocking talked about in the industry. We certainly see that destocking, but we've been able to offset that with strength internationally based on our product lineup and also our distribution strength. So I think the fact that we've got really outstanding returns for folks that have money to spend. It is pretty outstanding. And we've -- we also have a great lineup of products. If you sort of look at our history here, we're offering a lot more new products to market than we ever have. In fact, we've quadrupled our new product introductions. And I think we've got a really great lineup going into 2024.
And then as kind of a quick follow-up. I mean how much of the growth in DRB are you getting from the natural upgrade cycle to Patheon and the revenue lift that you get there? I guess said another way, how sustainable do you think these growth rates -- double-digit growth rates that you're getting in DRB are?
So we've recognized some line in the industry. As you know, we grew more than 30%. It's now in double digits. We see that coming down a bit as well. What's essentially happened in the industry is that there's been a tremendous build-out. We had a recent conversation with a customer that had more than 100 car washes. And they're -- the interesting thing about that dialogue is that they spend through 2022 really building out their infrastructure, building out the car washes.
And 2023 has been a year where they've really been focused on building up, meaning making more operational efficiencies, sweating their assets more and answer really specifically about it. Patheon is a new offering to the market. It really is targeted and enabling carwash operators to be more effective with operational excellence, getting more throughput through which drops through to the bottom line, which is a good return on investment for them. And so I think that, that positions us well for the market dynamics heading into 2024, and we anticipate further growth as a market leader here.
Got it. And then just one quick numbers kind of question. In the repair solutions, when do you lap the year-over-year reserve related adjustments and did you quantify the impact in the quarter? I may have missed it.
Taking the first part of your question, the reserve-related adjustments the headwind ended in Q3. Q4 is actually an easier compare in Matco's margins are going to be up materially in the fourth quarter or actually closer to 400 basis points up year-on-year for Q4. The whole decline in Q3 year-on-year was really between the reserve adjustments and about a $2.5 million tariff settlement. That -- those were the 2 drivers for the year-on-year decline in Q3.
[Operator Instructions]. Your next question comes from Rob Mason from Baird.
I joined a little late, so I may not have caught this entirely, but I thought -- you talked about derisking the second half or actually the fourth quarter a little bit. I inferred that some of the third quarter upside that we saw was related to that. Any particular areas that you would call out saw added strength due to that in the third quarter?
So let me start this off and I'll let Anshooman jump in as well. Yes, I think what we -- you may have seen our setup in the second half for Q3 had a really strong ramp also in Q4. And so what we are essentially able to do with some of our supply chain and customers that freed up some labor, product availability both for convenience store build out from not only the build-out of the convenience store and dispensers, but also a bit on the car wash side, too. So that gave us an ability to pull, if you will, Q3 -- the Q4 demand into Q3, which we're still raising full year, but it really enabled us to de-risk Q4.
We saw that both in fueling and Mobility Technologies as our customer supply chains have eased with their project construction schedules, we were able to pull in some demand both on the fueling side above and below ground and then on the Mobilities Technology side. Also on the car wash side, as projects have continued to move, there's still a lot of demand for greenfields and as their construction schedules of these some -- we saw some upside out there. So overall, we're very pleased with derisking the second half of the year and with the strong results for the quarter.
I might add, it gives us a really good setup for 2024. I think we feel like there's some healthy demand here. We've got a great product lineup. I think our price cost is not too out of balance here. So I think we feel like we're in a good position, bringing inventory down as well. So we feel optimistic entering the new year.
Understood. Mark, just around that, the commentary kind of referenced previously just around how you're monitoring the impact of higher rates and thinking about the dispenser business, in particular, just given all the refreshes, the rebrands and new site builds, et cetera. I would think all the permitting involved, there's probably good lead time on that as well. How far out I guess, how much visibility forward visibility do you have into some of that activity? And yes, that's the question.
Yes. Well, first of all, this is where we're positioned really strong. We're -- we lead with the leading players in the market, the large regional national players are really in our sweet spot. And so we have very regular conversations with them. As you can imagine, they have a lot of cash to put to work from their balance sheet. They have been making outstanding margins on fuel as well as in-store sales are going up. And so they're a very successful business models and they continue to build out their footprints. And so the visibility is well into next year, as you can imagine, you don't do a site approval, you don't arrange these things they look out.
In many cases, even more than a year they're working on building out and buying. The location is very important to them, too, and making sure they're buying the right locations. And supply chains have certainly eased, but their activity continues to go forward. And this is where we base some of our visibility on where we feel really good about our position and our setup. Now it's hard to say what's going to happen in the macroeconomic environment. But also this -- the footprint that we have has been pretty resilient in prior downturns.
Just last question around the alternative fueling area, CNG was noted as a strength perhaps this quarter, but just how should we think about the timing and the influence of the hydrogen aspect of that business in terms of a ramp? And I'm curious as well how you think that mix would look over time from just the dispenser side versus maybe more of a total turnkey solution that you also highlighted.
So it's mostly, as you can imagine, compressed natural gas, renewable natural gas today. We're just launching hydrogen offerings. I think it's early to market with we view as a leading offering that focuses on high reliability on the dispenser side, but also the turnkey solution is also pretty innovative. And folks need this. They've been asking us for this solution for a while, pull this into this space based on our high reliability and based on our ability to provide products that address safety and regulatory challenges that are very similar to compressed natural gas. So it's really in our sweet spot. So we feel pretty good about that going into next year, a lot of government funding behind this bipartisan support. It's also internationally. It's not just in the U.S. So there seems to be quite some legs. It's interesting, when folks look at our business, they should really think about this energy trilemma we talk about. And the sustainability theme means not just electrification, but certainly, we think there's a lot of legs to renewable natural gas also to the hydrogen, and we're very well positioned here to lead. So we're optimistic that you're going to see more of a growth on the hydrogen as we get into next year. It's been more than 20% growth in the quarter, and it's been doing pretty outstanding over the last year as well.
Mr. Edelman, there are no further questions at this time. You may proceed.
Well, thanks, everybody, for joining us on today's call. I'm super excited that we're having ongoing operational execution and performance. And I'm excited about our outlook, our setup for 2024. And we've made significant progress on our portfolio transformation. I think that's reading through as well. So we look forward to meeting and seeing many of you on the road. Have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.