Fortive(FTV) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue growth of 9.3% year-over-year with core growth of 5.3% [34] - Adjusted gross margins increased by 60 basis points to 57.6% [37] - Adjusted operating margins increased to 23%, reflecting a 30 basis points expansion year-over-year [37] - Adjusted earnings per share rose 11% to $0.70, with free cash flow generation of $196 million [38] Business Line Data and Key Metrics Changes - Intelligent Operating Solutions (IOS) saw total revenue up 15% with core growth of 8.7%, driven by strong demand in North America and Western Europe [19] - Precision Technologies (PT) revenues grew 3.4% with core revenue growth of 4.6%, impacted by a low double-digit decline in China due to COVID lockdowns [22] - Advanced Healthcare Solutions (AHS) revenue increased 8.5% with core revenue growth of 0.6%, facing challenges in China and Western Europe [25] Market Data and Key Metrics Changes - North America revenue was up high single digits, with low teens growth in software and related services [35] - Western Europe revenues grew mid-single-digit, offsetting declines in advanced healthcare solutions [35] - China revenues declined low teens, but backlog in China showed high teens order growth [36] Company Strategy and Development Direction - The company aims to build a more resilient, less cyclical business model, focusing on high recurring revenue and software-enabled workflow solutions [46][47] - The M&A pipeline remains robust with an estimated capacity of approximately $5 billion over the next three years [15] - The company is committed to sustainability and innovation, with plans to publish its fifth sustainability report [30][31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to weather potential economic slowdowns due to strong backlog and recurring revenue streams [56] - The company anticipates sustained core growth driven by strong customer demand and record backlog, with expectations for strong margin expansion [14] - Management highlighted the importance of countermeasures to mitigate supply chain challenges and improve operational performance [77] Other Important Information - The company executed a share buyback of approximately 1 million shares totaling $64 million in the first quarter [15] - The company has doubled its recurring revenue as a percentage of total revenue to approximately 40% since 2016 [47] Q&A Session Summary Question: What is the current situation in China regarding the economy and order pace? - Management noted that orders were up double-digit despite shutdowns, with commercial activities remaining strong [54] Question: How would the company handle a potential mild global recession? - Management indicated that the strong backlog would provide a buffer, allowing the company to dip into backlog if necessary [56] Question: Can you elaborate on the adjusted operating margin expectations? - Management explained that while revenues were flat, they expect margins to improve in Q2 due to various factors including service channel integration [62] Question: What is the outlook for orders in the current quarter? - Management reported good order strength across regions, with a positive outlook for durability in order patterns [66] Question: What tangible steps have been taken to improve volume output? - Management highlighted the effectiveness of countermeasures and improvements in supply chain management as key factors [76] Question: How is the performance of Accruent and Gordian? - Management confirmed that both businesses had a good quarter, with Accruent showing signs of growth and Gordian performing strongly [86]