Q4 2021 Fortive Corp Earnings Call
Yes.
Hello, My name is Josh and I will be.
Conference facilitator this afternoon.
At this time I would like to welcome everyone to afford a corporation's fourth quarter 2021, earning results conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
I'd like to turn the call over to Mr. Lane of Rosman, Vice President of Investor Relations. Mr. Rossman, you may begin your conference.
Okay.
Thank you Josh and thank you everyone for joining us on today's call with US today are Jim Lico, our President and Chief Executive Officer, and Chuck Mclaughlin, Our senior Vice President and Chief Financial Officer.
We present certain non-GAAP financial measures on today's call information required by regulation G are available on the investors section of our website, Florida Dot com.
Our statements I'm curious to period increases or decreases refer to year over year comparison on a continuing operations basis during.
During the call we will make forward looking statements, 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 a number of risks and actual results might differ materially from any forward looking statements that we make today.
Information regarding these risk factors is available on our SEC filings, including our annual report on Form 10-K for the year ended December 31st 2020.
These forward looking statements speak only as of the date that they are made and we do not assume any obligation to update any forward looking statements.
With that I would like to turn the call over to Jim.
Alina Hello, everyone and thank you for joining us.
We delivered solid performance in the fourth quarter closing out a very strong year as we focused on delivering for customers and an ongoing challenging environment, while we saw sequential growth and margin expansion across the portfolio revenue in the quarter finished roughly $50 million below expectations as continued supply chain constraints.
And the impact from the omicron, Serge hindered our ability to deliver on our robust orders and backlog our businesses performed well. Despite these challenges generating 190 basis points of core margin expansion and 13% adjusted earnings growth in the quarter, our tax rate was flat on a year on year basis at 90%.
However, lower than our expectations coming into the quarter free cash flow and conversion were lighter than expected as we invested in inventory to support customer demand and saw lower customer receipts at year end.
For the year, we delivered core revenue growth of nine 5% and expanded adjusted operating margins by 210 basis points driving 32% year over year growth in adjusted earnings.
<unk> demand for software enabled workflows yielded double digit software growth in 2021, and the fourth quarter.
These results are a testament to the higher growth more resilient higher margin portfolio that we've constructed through organic innovation and strategic M&A with this portfolio and our teams disciplined and rigorous application of the Florida business system, we are well positioned to deliver long term sustainable value creation for all of our stakeholders.
As you can see on slide four all of our segments contributed to our solid fourth quarter results, including over 100 basis points core operating margin expansion in each supply chain constraints within both our supplier and logistics networks as well as COVID-19 related challenges suppressed core growth across a number of our businesses.
Looking at the segments in more detail intelligent operating solutions posted total revenue growth of six 4% in the fourth quarter with core 0.8%.
This included low single digit growth in North America, and high teens in China, partially offset by high single digit decline in Western Europe .
Starting with Fluke core revenue declined slightly as continued end market demand and order growth across its product portfolio were more than offset by supplier and logistics network challenges constraining revenue in the fourth quarter.
With digital systems performed well with 20% plus growth supported by strong demand for its email SaaS offering and capped the year with greater than 30% growth in air bookings in Q4 look also continue to see momentum within our product innovation pipeline.
Introduced a new market, leading power quality platform. The $17 70 series power quality analyzer, and we're seeing continued strength in their acoustic imaging product line.
Those were up high single digit in the fourth quarter up 20% for the year contributing to significant backlog growth in 2021. The team remains highly focused on improving supply management logistics and factory throughput deliver on the backlog in the year ahead.
And EHS industrial scientific revenue increased mid single digits led by the continued recovery of its rental business and improved net retention fourth net offering <unk>.
<unk> grew by mid teens with the fourth quarter, representing the strongest net dollar retention we've seen in the past two years.
Strong customer service execution reduce churn and the application of funnel management tools helped deliver a record year for customer up selling.
In addition, intellect and ISC continue to see success with their award winning hazard IQ solution connecting real time field data with EHS management software from intellects.
As anticipated core declined mid single digits, although was up sequentially. Despite less billing days in the fourth quarter on a same days basis Theyre SaaS sales would've been up mid single digit current continued to capitalize on strong demand for its EMS product line due to continued momentum and return to workplace solutions.
With bookings up greater than 20% for the quarter and almost 50% for the full year.
<unk> also posted its second highest quarter on record for SaaS bookings and drove another quarter of improvement in net dollar retention as it continues to deploy FBS tool to deliver on our higher on time renewal rates across its growing SaaS customer base. We expect to see this result in higher growth that occurred in 2022.
Gordian increased mid single digits, driven by another strong quarter in procurement Gordian also secured some notable wins in the fourth quarter, including the capture of two new state and local education customers Clark County in Nevada, and the Dallas Independent School District, both are expected to begin generating revenue in the second half of 2012.
Two.
Service channel is off to a good start following its acquisition in August revenue grew substantially in the fourth quarter with SaaS, increasing low double digits and SaaS bookings more than doubling on a year on year basis.
Service Channel is successfully expanding its new logo pipeline with some notable wins in the fourth quarter, including the leading health and beauty retailer in the UK and is leveraging FBS tools and implementing lean portfolio management to position the company for additional innovation and growth.
Moving to the middle of slide four.
The precision technology segment posted a total revenue increase of two 1% with core growth of two 6%. This included mid teens growth in China, while Western Europe was up slightly partially offset by a low single digit decline in North America.
Tektronix grew low single digits, despite strong customer demand driving double digit order growth across major regions, resulting in a book to bill of one two in the fourth quarter orders for mainstream scopes and momentum in new product introductions are driving backlog levels to all time highs as customers continue to invest in new capabilities.
Across a range of end markets.
<unk> continues to benefit from Fps, which helped to reduce supply chain risk and improved price realization across the business.
Sensing technologies increased high single digit in the fourth quarter with good growth in its industrial semiconductor <unk> and medical end markets by continued supply chain challenges.
Similarly specific scientific EMC Dell further backlog in the quarter as supply chain constraints persisted pack side continue to see strong bookings growth in its core markets, including aircraft and space, while revenues declined mid teens, resulting in a book to bill of 113 for the year.
Moving to advanced health care solutions on the right side of slide four.
Total revenue increased one 5% despite a core revenue decline of <unk>, 8%. This included high single digit growth in China flat performance in North America, and a mid 20% decline in Western Europe .
Starting with ESP revenue declined low single digit in the fourth quarter, while we have grown the installed base consumables continued to be impacted by lower elective procedure rates, especially as the omicron variance surge in the U S. In December adding to existing skilled staffing shortages at hospitals and ambulatory surgical centers. These challenges primarily.
<unk> revenue in the U S. While our high growth regions grew double digits. We are also pleased with the continued evolution of MBS with significant progress in operating margin expansion in the business.
Sensus revenues increased mid single digits highlighted by another quarter of strong growth in its core census tract, SaaS offering which increased in the low 20% range as in prior quarters <unk> continued to see good momentum, adding new customers and saw improved upselling and cross selling to existing customers.
Fluke health solutions increased mid single digits as revenue and margins benefited from growth investments made throughout the year driving strong double digit growth in its biomedical test equipment business and AMETEK declined low single digits as it lapped a tough prior year comparison that included strong COVID-19 related revenues in 2020.
Our strong margin performance in 2021 is just one example of how FBS continues to be an important differentiator for Florida.
On slide five Fps is enabling our businesses to improve operations in our plants tackle mounting supply chain and inflation headwinds drive innovation and profitable growth across the portfolio and build skills and capabilities in our leaders to effectively drive sustainable business.
Examples in the quarter include the reduction in supply chain risk at Fluke, ISC subsea <unk> and tektronix through significant use of <unk> and daily management to manage the complexity and uncertainty associated with part shortages asps.
Asps significantly reduced freight expense by over 100 basis points of revenue contributing to the margin expansion in the quarter.
Through the deployment of lean portfolio management, our newest FBS innovation tool Tektronix over drove revenue achievement on recent new products, including the just launched next generation of its five series NSO offerings.
We are also making meaningful improvements in net dollar retention in our software businesses, allowing us to deliver more profitable and accelerated growth in EMEA, which finished the year at 108% net dollar retention. While the current also increased monthly on time renewal rate over 15 points from the beginning of the year.
Despite COVID-19 , we have continued to support all of our leadership development and kaizen activities as a result of the rigorous application and dedication by our team we're continuing to benefit from our culture of continuous improvement.
Turning to slide six we made significant progress executing our M&A strategy in 2021, as we continue to evolve our portfolio to serve higher growth markets with attractive long term secular drivers.
Both service channel in our IOM segment, and probation in IHS or acquisitions that significantly accelerate our strategy to deliver a broader offering of software enabled solutions to address our customers' critical workflow productivity needs.
These acquisitions build upon established market positions and customer relationships, adding well positioned best of breed SaaS platforms combined greater than $200 million of high growth software revenue with high incremental margins.
The service channels proprietary data assets and networks, we see significant upsell and cross sell opportunities across our facilities and asset lifecycle management businesses and with probation. We are strengthening our presence in hospitals in afcs with expanded software and data opportunities leveraging leading positions in Gi to capture multi specialty expansion.
<unk>.
Together, we expect these businesses to generate more than 12.
Of earnings accretion in 2022, and will enhance our growth and free cash flow profile going forward.
I'm also incredibly proud of the work we've done in 2021 to continue our progress towards building a more sustainable future as you can see on slide seven that starts with our shared purpose and our values, which have been translated into aspirational and actionable targets across each of our sustainability pillars.
Leading Florida today has a diverse board and leadership team with recent hires advancing our commitment to top talent and diversity.
We recently ran our day of caring for the fifth time since the company became public and in that time, our employees have dedicated over 400000 hours of employee volunteer time to help more than 300 communities in 30 countries across the world.
We are well on our way to achieving our carbon emission reduction targets and recently completed our Tcf D reporting GAAP analysis to strengthen our governance and management of climate change related risks and opportunities.
We are actively engaged in responsible sourcing initiatives and we take seriously the need to understand both the labor and the human rights practices across our supply chain.
In 2021, we became a signatory to the UN global compact further embedding our commitment to a sustainable future and our company's strategy culture and daily operations and we were also named one of America's most responsible companies by Newsweek for the third consecutive year.
It is our shared purpose that also pushes us to create innovative and sustainable products and services for our customers trying to solve some of the world's biggest sustainability challenges. We look forward to continuing to make progress on our sustainability journey in the years to come.
With that I'll pass it over to Chuck who will provide more color on our fourth quarter financials, our free cash flow and our first quarter and full year 2022 guidance.
Thanks, Jim and Hello, everyone I'll begin on slide eight with a quick recap of our fourth quarter performance, we generated year over year total revenue growth of three 8% with core growth of 1% acquisitions contributed over three points of growth in the quarter, primarily from service channel.
While FX was a modest headwind.
Year over year orders and backlog and our hardware businesses grew 14% and 84% respectively.
Adjusted gross margins approached 58% in the quarter and operating margins were 24, 4% near the high end of our guidance. This reflected a 190 basis points of core operating margin expansion with over 200 basis points of price realization.
Turning to the right side of the slide Jim.
Jim covered at the segment highlights earlier and I wanted to provide some further color on the regions.
North America revenues were roughly flat, reflecting strong demand across multiple end markets offset by supply chain constraints impacting tektronix and fluke as well as lower consumable today asps.
Western Europe saw year over year declines across much of the portfolio, including a difficult COVID-19 related compare it in the tech.
That said, we had good growth at Asps were elective procedure rates have held up better and consumables are benefiting from recent growth in our installed base.
Asia as well as our high growth regions grew revenues double digits in the quarter driven by mid teens growth in China with strong performance across the portfolio.
Turning to slide nine we generated $265 million of free cash flow in the fourth quarter, representing 92% conversion of adjusted net income.
Working capital was a use of cash as we've made investments in inventory to support our robust revenue plan for 2022, and we also saw a change in receivables trend with lower customer receipts in the fourth quarter than we had expected.
Staying with cash we deployed $2 $6 billion to M&A in 2021 and ended the year with net leverage of two four times we.
We estimate M&A capacity of approximately $5 billion over the next three years and the funnel remains full across each of our segments with both hardware and software opportunities.
We remained disciplined looking to add assets to our portfolio that significantly enhance the leading positions of our segments and increase our value propositions to our customers.
Turning now to the guide on Slide 10, as we look ahead, we expect that in 2022 will be another year of differentiated growth and margin expansion in each of our strategic segment supported by secular tailwind continued strong demand backdrop, and a robust backlog heading into the year 2020.
<unk> outlook is based on a balanced set of assumptions, including the likelihood that supply chain constraints will persist through much of the year with continued strength in orders at least through the first half.
We expect another year of strong price realization to more than offset continued cost inflation and the benefits of our software strategy to generate double digit software growth in 2022, taking total software revenues to $950 million and lastly in healthcare, we are planning for elective procedures to remain flat to two.
<unk> thousand 21 levels in total starting lower in ramping over the course of the year.
Turning to the next slide we are introducing full year 2022 guidance with revenue in the range of five seven to $5 90 billion, representing five 5% to eight 5% core growth while acquisitions net of unfavorable FX will contribute an additional three five points.
Of growth for the year.
Adjusted operating profit margins in the range of 24 to 24, 5% with margin expansion in each segment adjusted diluted net EPS guidance of $3 to $3 13 up 9% to 14% with an effective tax rate of approximately 16%.
Adjusting EPS growth normalized for tax would be 14% to 19% for the year.
Free cash flow conversion is expected to be approximately 105% of net income, which would yield a 20% free cash flow margin.
In summary, our portfolio continues to show the benefits of the actions we've taken to build more resilient growth company capable of converting more revenue to earnings and more earnings to cash.
Turning to slide 12 in the first quarter guide, we expect a similar external environment as the second half of 2021 with revenue of $1 34 billion at the midpoint with core revenue growth in the range of one 5% to four 5% and approximately 4% revenue growth.
Acquisitions net of unfavorable FX adjust.
Adjusting operating profit margin of 23% at the midpoint up slightly year over year <unk>.
Adjusted diluted net earnings per share of <unk> 65 to 69.
Assuming a 15% to 16% tax rate.
In the quarter and free cash flow conversion of approximately 70% slightly higher than our Q1 seasonal trend, reflecting partial recovery of receipts that slipped out of the fourth quarter with that I'll pass it back to Jim for some closing remarks.
Thanks Chuck.
Maybe no forwarded celebrated its fifth anniversary as a public company in 2021 and as you can see on slide 13, we continue to validate the investment thesis that we have pursued since 2016.
Through cycle core growth has doubled from low single digit to mid single digit as we have more than doubled our base of recurring revenue and meaningfully added higher growth higher margin software businesses to our portfolio.
Our growth in operating margins have increased as well we've improved gross margins over 800 basis points and back in 2016, we started off talking about 30 basis points to 50 basis points per year operating profit margin expansion now we're talking about 75 basis points on average per year through the cycle as a result <unk>.
<unk> and free cash flow is also up meaningfully over this time, we are on track to a 20% free cash flow margin in 2022 up from approximately 18% in 2021 further differentiating Florida.
Wrapping up on slide 14, and before we move to questions I'd like to thank our team members for their exceptional commitment to our shared purpose and core values, which underpins everything we do and how we do it.
Strawberry teams delivering extraordinary results again in 2021, even in the face of unprecedented supply chain constraints and prolonged COVID-19 headwinds our teams remain focused and committed to delivering for our customers each other and our shareholders delivering financial results well ahead of our initial expectations coming into the year.
While each of our businesses continues to evolve and improve across key metrics. We know there's more to do as such we expect another year of differentiated growth and profitability in 2022, taking us one step closer to delivering on the multiyear targets setback at our May 2021 Investor Conference.
Finally, we know you have a choice and we want you to be with us for the long term. We're confident the work we do to create long term sustainable competitive advantages for our operating companies and our strategic segments yields best in class sustainable returns reported for a long time to come.
With that I'll turn it back to Atlanta, Thanks, Dan that concludes our formal comments, Josh we are now ready to take questions.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
And your first question comes from the line of Julian Mitchell with Barclays. Your line is open.
Hi, good morning.
Maybe it afternoon Julien good afternoon apologies just wanted to.
Follow up on the sort of organic sales guidance for the year, So you're starting out with core growth of low single digit in Q1, that's moving to mid to high <unk> for the year as a whole.
Fluids, particularly in iOS and PT, where there is a lot of kind of short cycle hardware.
What gives you the confidence in that acceleration I understand fully that supply chain conditions make it a little bit easier for you to execute on orders, but Conversely, as you go through the year, we may find the orders slow down.
And so just wondered what gives you that confidence in that sort of second half or back half core acceleration in iOS and PT.
Yes.
Good to hear from you Julien good morning, and afternoon, depending on our time zone here I guess.
First of all I think when we look at the full year as you said.
We see some improvement through the year at Fluke and Tek, we had a very good fourth quarter and sensing. So I think I think the supply chain constraints have been incentive but we have good confidence there I think when you look at the backlog situation at Fluke and Tek as you point out very strong record backlog in both businesses as we start the year.
And quite frankly, we don't anticipate any any any backlog reduction in the first half and really minimal backlog reduction in the full year. So so we see the demand side of this from an order perspective, we talked about that in the prepared remarks, as an example, fluke up 20% and orders for 2021, So I think we definitely.
And we're seeing the drivers that we've talked about some of those secular drivers continuing to play out so whether it's the strength in innovation, whether it's some of the things that we've been doing.
In particular markets to differentiate the business, we see the demand front still very good in the first half so.
Certainly there'll be maybe a.
A little bit of a slower growth rate from 2021 from an orders perspective, we still see the demand environment very good to deliver the year and quite frankly, we think we'll go into 'twenty three very strong as well.
Okay.
Thanks, very much and then just my second quick one on advanced healthcare solutions.
It's been a tough period oversee for two or three years with the TSA and then COVID-19 and the lingering sort of aftermath, just wondered when you're looking at that business.
Would you say that also that sort of tough three year period. The guide is fairly conservative for 2022, now and how do you assess the competitive position of IHS I suppose, particularly in the ISP piece do you think thats been losing share or it's holding its own.
Yes.
First of all I think when we look at the fourth quarter is really indicative of our strategy playing out when you think about one of the things. We said from the onset is that we could take those high growth markets and really reasons around the outside of the United States and as we brought them into a more focused business. We would deliver success and you see that in the double digit growth that we have.
Outside of the United States in the quarter, we saw.
Good mid single digit growth in capital around the world and as we said we've grown the installed base over the last few years. So we feel good about a shared perspective, because we see that on the equipment side as you point out a little bit tougher on the electives than we anticipated that's been a tough thing to predict we feel were going into the year realm.
Maybe not conservative, but appropriate in terms of looking what happened in the fourth quarter not anticipating.
That getting better through the year, even though Q1, maybe a little bit lower on the electives as we as we see <unk>, but I think as we stand today, we had great margin expansion at Asps and in health in the fourth and Youll see that in the first Steven as well and we think the strategy is playing out very much we've done a nice job on the gross margin and operating margin.
<unk> Asps more broadly I think we position the segment. While the addition of probation certainly another another great add to the segments. So so I think I think we've been appropriate relative to predicting asps and I think when you look at the core growth rate for the full year and 'twenty. Two you see our strategy playing out more broadly and you certainly see that as we as.
We accelerate growth through the year and quite frankly, you can look continued to deliver strong margin expansion.
Great. Thank you.
Thanks Julien.
Your next question comes from the line of Steve Tusa with Jpmorgan. Your line is open.
Hey, guys.
I don't know if you had good afternoon I guess.
So.
I guess just cutting it a different way.
How do you expect the year to build from a core growth perspective.
Should we expect a nice step up in <unk>.
Is is the third quarter like just maybe a little bit more color on kind of the organic growth trajectory as we kind of move through the year.
Hey, Steve This is Chuck.
What we expected.
Probably not going to be surprised we're constrained right now with supply chain, but as we move through time, we expect that some of that will.
<unk>.
Will gradually accelerate I mean, we're talking about going from 3%.
<unk>.
To high singles.
Up 7% for the year, so I think that it just gradually theres not a step function that happens doesn't happen all at the end of.
Q4 is what's built into this guidance.
Right, but to get to the high I guess to get to the high end I mean, youre talking about something thats.
Beyond that obviously with where youre starting just how the average work. So I mean are you going to be exiting the year at like a.
Double digit rate on organic.
Yes, we would expect Q, we think that we've got when Jim talked about strong.
<unk> order momentum coming into this year, we don't while we expect that supply chain will allow us to increase our shipments were not sure that it.
And we haven't really strong backlog position. So we do expect supply chain as we go through the year to get.
Incrementally better each quarter and would have us exiting the year very strong right.
Alright, because I mean that like 50 million bucks or whatever that you missed out on this quarter and maybe just look at on a quarterly basis Thats, 4%.
Of an impact.
In any given quarter from that is that does that kind of.
Lessons.
Trajectory to an extent there.
Okay, and then just one last one on.
On ASP.
No.
Why are you guys kind of talk.
Forecasting I'm electives to be flat I mean have you really seen a change in trend there that makes you worried us.
That seems to be like.
Really conservative.
So I don't know if there is something youre, saying that others aren't on that front.
No it is.
Really that's what we've realized we haven't been able to predict going forward. So we want to show it.
This is where it is right now you can see the margin expansion has been good all year long and we don't expect us to have growth there and this is what happens if a basic flagships don't get better and maybe if anything it's acknowledging that we can't actually predict that I would we would say is that if <unk> go up.
And we'd have upside here.
Got it thank you guys to add onto that.
Maybe just add on to that real quick is that it.
Typically think of this as the almost the variant and the new variance. It's also of the combination and we said this in the prepared remarks, but there are some specialty staffing challenges in the United States and so we think it takes a little longer for that to bring <unk> to come back, but I think the strength of it of the momentum building on the installed base and as we said the strength of really quite frankly the growth we have.
Outside the United States, those two combinations really showing our strategy play out so I think we've been a little bit more conservative on the elective side.
But I think what we're seeing with the margin expansion in some of the things I just mentioned certainly the strategy playing out and creating momentum for the business through the year.
Got it thank you.
Thank you.
Your next question comes from the line of Andrew <unk> with Bank of America. Your line is open.
Yes.
Andrew Hi, how are you.
Just a question sort of a supply chain question for you.
After the tire affecting you guys made some adjustments to your manufacturing footprint.
As we are sort of experiencing this supply chain constraints, particularly hitting fluke and tek.
What are your thoughts about how to make the supply chain more resilient going forward. Thank you.
Yeah, Andrew I think I think number one as we said supply chain constraints typically I would think about it in two categories. One from a supplier perspective and the other around freight and logistics. So let's take the supplier side Youre certainly right a number of our countermeasures that we had relative to the tariffs put us in.
Some locations around the world in Asia that were hit harder by Covid. That's certainly been part of the challenge. The second part of it is when we think about Microcontrollers. When we think about <unk>. When we think about <unk> those are components, particularly on the apex side, where we've really designed around sole source differentiated technology, which has historically.
Given us better margins and better differentiated technology from a product perspective, we see that mostly in the higher end products at fluke and Tek and Thats why sensing didn't have as big an impact relative to this because they tend to use more commercial off the shelf product. So we're getting those things changed work as you say the question of what we're doing.
We are qualifying new suppliers, we're redesigning some platform architectures around the ability to source and different places we're moving some we're moving supply base out of some maybe higher risk COVID-19 locations in the world and all of those actions played out and will play out in the fourth in the first quarter. That's why you see the core growth.
A little bit better at both look in tech in the first quarter and then it continues to improve through the year. So we're not anticipating necessarily a big shift and change relative to the supply side in.
In the year, what we're really seeing is the benefit of our countermeasures building through the year. So that's how we think about it.
Freight side, it's clearly freight lane challenges from Asia to the U S and you see some of that in the growth rates in Asia between Asia, and the United States. Some of that is impacted by the fact that we have we just don't have the product.
When we're when we're when we're shipping product into Asia than we are under the U S. So that's.
A broad broad swath of the actions that we're taking and.
It takes a little while to get some of those things all in place, but we will see that improvement we're seeing that improvement now and we will see it build throughout the year.
Makes a lot of sense. Thank you and I missed the first couple of minutes. So I apologize if you've answered it but I'm looking at slide 13.
And you sort of brought out total software revenue for 'twenty, one 'twenty two.
As I think about the fourth quarter, what was the total software growth and specifically if also you could give us a sense Gerry on SaaS whatever metric you want to highlight a revenue or air or just to see how what's happening there because that's a big part of the growth strategy going forward. Thank you.
Yes, Yes, total software growth was low double digits in Q4 and in the full year. So that certainly has the benefit of service channel I think our core revenue growth was mid single digit.
In the fourth so good and I think really what we saw that was really good was our <unk> growth in the fourth quarter was was high single digits.
I think we saw a good benefit from a number of our strategies playing out both core and certainly with the addition of service channel and probation that gets to the 2022 targets that we highlighted in the slide you're referencing will see that that growth be double digit in Q1. So we're really seeing I think good we saw some good benefits takes a little while in the SaaS.
But for that revenue to impact the full year, but as I said, we will see it in the first quarter feel good about where we're at relative to the core businesses, but also.
Also what we had in <unk>.
In both service channel and certainly what we're seeing early days of probation fantastic. Thank you very much.
Your next question comes from the line of Nigel Coe with Wolfe Research. Your line is open.
Thanks.
Hey, good morning, because if it is one way you are.
Just just wanted to dig into fluke and tektronix.
How did the sell in sell out through the channel play out because I am assuming thats in the.
Channel one more product I'm, just curious if there's a big disconnect between the sell through.
The distribution channels and any any color on where inventories are right now would be helpful.
Yes, and I think I've said this on the third quarter call, but but we think about when we think about inventory now. We also think about given that we've got a substantial backlog. We're also going to look at what distributors have on order. So that we make sure we understand relative to true demand versus maybe inventory building on their side and I think.
And that regard we see good sales out and we don't see big inventory on hand or relative to the inventory build.
So we're seeing a good demand environment.
Relative to both fluke and Tek and I think it is somewhat impacted by the availability. So we would say hey, it's probably even it could be even better if if we were delivering at the on time delivery rates that we typically do which is in the high 90%. So so I think in general.
I've said to Julians question as well, we're seeing good demand on the demand front and I think we're starting to we're seeing that in some of our channel partners external external comments. So we feel good about the demand environment, where we have distribution businesses on a global basis.
Where we're delivering maybe a little bit better in Asia, we saw better better sales out than we saw good sales in so so I think we feel confident about about the level of activity that's going on with customers. We've got a lot of good innovation as we highlighted in the prepared remarks in the quarter and we have really accelerated innovation in 2022 at both fluke and <unk>.
Wood, which we also think we will have nice impact.
Yes.
The question is really more about depletion of inventory buildup.
And if the channel is really light switch I think it probably is yes.
Yes.
Acceleration, which seems to be what <unk>.
Our focus on.
My final question is on accrual.
It was down again in <unk>, well, where are we on this SaaS transition.
And when do you think a crew and we will get back to revenue growth.
Yes, I think I think number one we called it out and I should.
To answer that on the software numbers as well we did have less days in the quarter. So while we are a SaaS, we have a little bit of impact relative to less days.
We we think as we said in the.
And some of the guide some of the guys. We think the combination of our current Gordian, we sort of think about that we moved some businesses between the two on a full year basis at low double digit thats, probably a little higher gordian, but we would see right now wed see a current in the mid to high single digits.
For 2022, so we had good <unk> growth.
In the fourth quarter. So the combination of the work we're doing will still have some SaaS transition because in many cases, we're relying on new logos and that new logo growth can be a little bit more of a headwind than if we were converting a very large maintenance install base to SaaS like we arent probation. So it's a combination of things that we're doing.
New logo growth, but at a current and also just continuing to invest in in those high growth opportunities. We've talked about it in the prepared remarks workspace planning as an example, our EMS product line, which grew 50% in the year. So so it's a combination.
Our biggest product line, but over time at that growth rate it inevitably takes over.
Being a bigger part of the growth story, and we will see that starting to play out in 'twenty two 'twenty three to current.
Alright, Thanks, Tim.
Thank you.
Your next question comes from the line of Deane Dray with RBC capital markets. Your line is open.
Thank you good day, everyone afternoon, Jim Hey, welcome to Atlanta, and thank you all for reverting to the morning call slot much appreciated although always concerned it might throw jim's bio rhythms off but.
Welcome to city.
Yeah.
Alright, I appreciate it right upfront you size, the $50 million and revenue.
Yes.
Related to supply chain, but that's really become sort of a catch all for everyone.
Can you give any more specifics either by product line.
Is it semiconductor related resins customer readiness, just maybe take us through what the actual.
Blockages Ware.
Yes, so I would say <unk> and <unk>.
<unk> given the fact that I've kind of been on East coast time for the better part of 20 years. This is that this is the sign change, but we do listen.
And Elena has been a great add for sure and we're really excited to talk about the frame that we've got it at a time zone its easier for all of you I think number one we would think about that $50 million is about 70% supply chain. So think of the remaining piece of that is probably COVID-19 related.
A chunk of that being the electives being lower than we anticipated and some of that is just kind of some of our service businesses and things like that that had a little bit of challenge in December of getting on site. So the 70% of supply chain, let's break that down a little bit. The majority of that is at fluke and tektronix and a little bit at EMC and I would say at fluke and <unk>.
<unk>, it's really about.
It really is about electronic components and some of the things I described on Andrew's question very much around.
A big portion of that is application specific Ics those are technologies that are pretty much dedicated to what we do in our product lines and the work we do as I described before is really the countermeasure to doing that so I will go into more detail on that since we already did but another part of that is what we saw at AMC and the AMC.
Thing is pretty specific to some specific supplier shortfalls as well as some customer challenges that I would also say that has a little bit you might you might have seen this in other other government pay.
People people have government contracts on the on the commercial side and on the military side, where customers have to come in and to validate products before they get shipped and we saw less activity at the end of the year just given COVID-19 . So that's that's a swath of it but the biggest bucket the highest cradle bar is really the supply chain issues. We described at fluke intact.
That's really helpful.
Then just a follow up question on Tektronix record backlog can you parse out how much of that is yes.
Supply chain related but also with all of the semiconductor capacity coming on you would think that there be some demand there that might have also translated into the higher backlog, but are you able to differentiate between the two yes, I would say Deane I would say almost no no amount of that back.
<unk> is customer driven from an inventory or buy ahead kind of standpoint, maybe a little bit because we have been raising prices. So I'd say theres, a little bit of backlog Inc.
I'd call price increase, but we limit the ability for customers to be able to do that in terms of weeks of supply. So so there is some of it but not a lot. It really is on the demand side. It's certainly on the semiconductor side, we're seeing great growth a key fleet, but we're also seeing it more broadly and some of the products that we that we designate for maybe industrial market some of them.
Power power strategy as we've talked about we're seeing we're seeing.
Some of the new innovation on the two series some different probe categories and we mentioned in the prepared remarks, the new five series, we're seeing really good customer interest.
And those products has our book to Bill was was so strong. So we really think the demand cycle for Tac is certainly going to be strong into 'twenty, two and quite frankly as much as you can get early signs on this we think strong in 'twenty three as well given those dynamics some of which you described and also with the color I just provided.
It's all good to hear thank you.
Thanks, Steve.
Your next question comes from the line of Scott Davis with Melius Research. Your line is open.
Hey, guys.
Elena welcome that's got to have you back.
I've got a couple.
I've got a couple of things here, but one kind of.
Just.
Bigger picture I suppose but.
Bigger picture is not asps.
Consumables are down.
As your total installed base of Fox is higher today than yes.
The base units higher today than when you bought it is that has that grown at all Tim.
Yes, we said I think we said we've had low single digit compounded growth in installed base over the last several years I think TFS cap terminal sterilization capital was actually up mid single digit near so we've seen growth in installed base since we bought asps.
With which is additional boxes in your terminology.
Okay. And then also clarification did you say when that backlog in pack size going to clear out is that something thats first half of the year.
We don't anticipate the backlog ex Tac side quite.
Quite frankly, dean or sorry, Scott, we don't see it we don't see a depleting at all this year.
We haven't really really strong backlog a specific scientific right now.
Okay, and then last just quickly what is lean portfolio management I don't recall hearing that term before yes, our new innovation tool it's really.
And historically, it's really from it really applies to both software and hardware.
It's a new tool that we're deploying in every one of the businesses and it really sort of an accelerated product development. It's a set of tools that accelerate product development manages the portfolio better in terms of how to look at early stage innovation as opposed to maybe being maybe slightly over the years, we've been maybe a little bit more.
Focused on on the next generation of things, we do I think it brings a new some new concepts around managing not only the things we've got to do in the next generation of things, but also bringing on some new things that really drive full incremental growth based focused on new new secular drivers. So.
Over time, we should see better returns on our R&D investments, we should see accelerated core growth from those investments as well.
Okay. Good luck. Thank you.
Thanks Scott.
Your next question comes from the line of Jeff Sprague with vertical research partners. Your line is open.
Hey, Thanks, Good day everybody.
Hey.
Just a few loose ends here a lot of ground covered already just on price. The 2% number was that Q4 or the year and can you tell us how much prices and guided is embedded in your 2022 guide.
Yes.
It was in Q4, the 2% overall in Q4, 'twenty, one and for what we're thinking whats embedded in our guidance.
About 2%.
For 2022.
Twice, what we would normally get.
Yes.
In a normal year.
And on tax.
Are we in the process of normalizing to some higher level the tax rate's been.
Certainly on the low side here in the recent past.
Actually driving the increase in should we expect it to move higher in future years.
Well I think.
We came into the year thinking 14% is the right baseline for US I think is pretty good but what drives it down in 2021, and some discrete items that came through usually around some of the bigger transactions, even with the split from Danaher that are really hard to predict.
Don't see any of those going forward. So we are normal we revert back to that 14%. When we don't have in here is anything about U S tax reform or changes, but what we do have is the international tax rate.
<unk> are going up in some countries and Theres, a global minimum tax rates thats going up.
So in 2022, we actually ended up with.
Probably a 12% headwind.
And that's embedded in our guidance.
So if there arent the.
The rate at 16%, yes, so if the R&D tax credit gets renewed extended or whatever.
Likely coming down a couple of hundred basis points on the tax rate is that right.
I think we anticipate that to get renewed so.
That's not changing and it's really about.
What's going on internationally and tax rates.
I'm sorry, just one other quick one Jim just back to accrual is there any.
I don't know disruption or dis synergy going on as as service channel comes in.
Maybe mutual customers, where one plus one is an equaling two.
So any color there is that any part of the revenue pressure, we're seeing it across.
A lot of the quarter.
I think as we as I think what's embedded in that.
There could be some moving back and forth at this point right. Now there is nothing dramatic that is anticipated Jeff I would say what we're seeing though is we are seeing those value I mean, we're getting great visibility into the value propositions of each of those businesses and I think we have a better sense of selling strategy.
And I think I think we're in a very good place we may see some challenge between situations over time with customers, but nothing as anticipated from the from a size and a portfolio some of the growth drivers, particularly like about things like workspace management no conflict whatsoever, that's really an independent.
Strategy and product line that really resides at a current so so I think we've got some good levers to pull on the current business and obviously the broader the broader opportunity that we have with service channel around the things. They do is really great and I think with the combination of what we do at Gordian and a current and some of those overlap is only going to.
Continue to help us build a.
Better positioned for and value proposition for customers.
Great. Thank you.
Thanks.
Your next question comes from the line of Andy Kaplowitz with Citigroup. Your line is open.
Good morning, everyone.
Andi Andi Chuck you gave some color on the regions, but can you elaborate as to why Europe was significantly worse than your other two geographies in terms of sales trends in Q4, and it seems like supply chain headwinds have been worse for some of your peers.
Yeah.
So just curious as to what's going on for you in Europe , and then China seems to be holding up well for you can you talk a little bit more about your outlook for the key regions in 2002.
Yes, I think I'll take it number one on the Europe side, we really do have a comp issue in <unk> last year AMETEK had really dramatic growth in the fourth quarter and that was really a customer in Europe . So look a little bit a little bit of a comp situation in Europe as it relates to what we typically see Andy.
When we think about the globe and just kind of going around the world. We had as you said very good high growth market growth in the quarter, we had very strong China growth as we've had very strong China growth around the world all year, and we're really talking I did a review with all of our high growth markets. The other day and quite frankly, we are hitting us we're really firing on all.
Cylinders relative to the work that the businesses are doing in China. So we would anticipate continued good growth in China for the year, we think that high growth markets continue to be good.
So I would say that plays out we are a little bit of supply chain headwind outside of Asia simply because most of our supply base is in Asia for the businesses that have electronics hardware comment more than a software comment obviously, but we do see we do see some impact both in western Europe and in the U S.
Because the logistics of getting components out of Asia into the U S and into Europe to our fact in many cases, our factories was a little slowed in the fourth quarter that improves I think over time as some of these freight lanes get a little bit on congested over time. So that gives you a broad swap I would also say, we'll see North America also improve.
A little bit of that elective impact and in North America, obviously has to do with the fact that asps with strong outside of the United States and really had that elective impact mostly in asps, so, bringing all of that back supply chain improvements really help us globally, particularly in the U S and Europe as we go forward here and as I mentioned in relative to those some of the active.
The activities that we're engaged in relative to improving our supply chain that will obviously impact.
What I would call our developed markets in the U S and Europe .
Probably more predominantly than anywhere else.
Thanks for that Jim and Chuck you're guiding to relatively normal conversion for Florida of I think <unk>, 5% for 'twenty, two and I think you mentioned a little bit of counter seasonal improvement in working capital in Q1. So maybe you could talk about your confidence that excess inventory is basically, peaking now and will start to normalize as you go through the year and then maybe you could give.
The impact of on cash generation SD R&D tax credit is not extended.
I probably have to come back to you on the R&D tax credit is not extended that'd be surprising but potentially.
I guess everytime it until it is renewed.
We put that on there so let me come in and our follow up calls we'll have that number for you.
From working capital I think that what will happen here is that supply chain.
Rolls out we will get more sales out and our inventory turns will improve.
And as we talked about also things related to Covid, we expected receivables come down that will primarily start seeing that improvement in the first and the first half there is always puts and takes and our conversion ratio about what can go on there. There is some things going on with the timing of tax payments there.
Okay.
We're talking 1% and 2% here that can go either way, but we would expect normally we start off in Q1 with.
At $50 or 60% conversion and accelerates through the year as it as the last couple of years, probably a little bit ahead of that in Q1, but won't get over 100% until probably the second second quarter and into the second half.
I appreciate it.
Thanks.
Coming up.
Sure on the hour. So if we can take our final question Josh.
Your last question comes from the line of John Walsh with Credit Suisse. Your line is open.
Hi, there everyone.
Yes.
Maybe just a couple of two cleanups, one I don't think I heard you talk about kind of the multiples you're seeing in your pipeline or some of the private multiples resetting like we are seeing in the public markets or what does that look like in terms of something maybe breaking free here.
Yes, John .
We always say the funnel is pretty good and I would say that thats very true we remain busy.
Private market tends to lag a couple of quarters here from what you see in the public market.
They go through all the cycles of denial and things like that so I suspect we'll will.
As we look at things and as we continue to be disciplined about what we look at.
We will we will take that into account as we look at things knowing that potentially it takes a little while for that to occur and I would say we feel very good about the two deals we've done over the last few months with service channel and then probation closing at the end of the year. So lots to do with those two businesses to really.
Taken and help those businesses continue their great business that we bought great businesses, we've got great opportunity. There. So so we're spending time on making sure they become.
They get a great start in Florida, and we remain disciplined and we'll watch the these private transactions, but I do think it'll be a couple of quarters before those valuations start to see themselves to hit in the in the private market.
Great and then maybe just a follow on to this micro controller supply.
Supply chain question.
How much of your sales ramp through the year do you kind of already have commitments from suppliers that you at least on paper.
Access to those components that you need versus.
How much actually needs the supply chain to get healthier as we go through the year.
Well I think as I said.
It's a bit of.
There's lots of things going on we can have we have letters from suppliers very often and then and then they fall down on those so so our boots are good we're going to make them more of our own lock here and as.
As we go forward relative to redesigning re qualifying those kinds of things.
I anticipate with a strong backlog we have what we've put in the guide is a level of confidence with the things we've got but it is it is a little bit of hand to hand combat every every day on what happens and people where they stand on commitments I think it's been well documented the capacity challenges in some of the challenges that exist within the semi.
Conductor industry and more broadly just the electronic component industry, because it's not just semiconductors. So.
Yes.
We will continue to prevail I think I think when you look at our may be batting average on actions that continues to improve through the year.
And we expect it to continue as these countermeasures work, but but certainly as we think about things getting better we don't have a belief that it dramatically gets better what we really see is the benefit of the actions that we've been taking a higher probability of those actions really taking place as we get through the year.
Great. Thanks for taking the questions.
Thanks, John .
And I think yes.
Yes.
Jim do you have any final yes, so thanks, everyone.
For the time hopefully this time works better for you.
And this process works well for your timeframe I know youre, an incredibly busy day and a busy time of the season. We appreciate the time and energy that you've put into spending spending some time with US obviously, we're available for follow up calls I think what you see in the year hopefully you got a sense of suddenly there were a number of things and challenges in the fourth quarter.
I come back to the nine 5% core growth we had for the year. The great margin expansion that we've had over a couple of years quite frankly over a two year basis. The strong free cash flow that we've continued to demonstrate we walk into 'twenty two a lot of our strategy playing out in terms of healthcare a lot of our strategy play out and software as we described and I think a lot of the actions we are.
Taking to take advantage of the innovation that we've put in some of our hardware businesses, particularly at fluke and Tek and within sensing. So we're incredibly fortunate to be in a position where in the world is not without its challenges.
We certainly think we are well positioned to take advantage of those as we move through the year. We look forward to the continued follow up in conversations with you and hopefully we'll get a chance to see in person here sometime in the next few months, thanks and have a great day.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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