Fortive(US:FTV)2022-02-03 21:19Financial Data and Key Metrics Changes - The company reported total revenue growth of 3.8% year-over-year with core growth of 1% in Q4 2021, with acquisitions contributing over 3 points of growth primarily from ServiceChannel [39] - Adjusted gross margins approached 58% in the quarter, and operating margins were 24.4%, reflecting 190 basis points of core operating margin expansion [40] - Free cash flow generated in Q4 was $265 million, representing 92% conversion of adjusted net income [43] Business Line Data and Key Metrics Changes - Intelligent Operating Solutions (IOS) posted total revenue growth of 6.4% in Q4, with core growth of 0.8%, driven by low single-digit growth in North America and high-teens growth in China [14] - Precision Technologies segment saw total revenue increase of 2.1% with core growth of 2.6%, including mid-teens growth in China [21] - Advanced Healthcare Solutions reported total revenue increase of 1.5%, despite a core revenue decline of 0.8% [24] Market Data and Key Metrics Changes - North America revenues were roughly flat, reflecting strong demand across multiple end markets, offset by supply chain constraints [41] - Western Europe experienced year-over-year declines across much of the portfolio, while Asia and high-growth regions grew revenues in double digits, driven by mid-teens growth in China [42] - The company noted that elective procedure rates in the U.S. were lower than anticipated, impacting revenue in the Advanced Healthcare Solutions segment [24][68] Company Strategy and Development Direction - The company is focused on delivering long-term sustainable value creation through its disciplined application of the Fortive Business System [12] - Significant progress was made in executing the M&A strategy in 2021, with acquisitions like ServiceChannel and Provation expected to enhance growth and free cash flow profiles [30][34] - The company aims to continue building a more resilient growth company capable of converting more revenue to earnings and more earnings to cash [49] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain constraints and the impact of the Omicron variant on operations, but expressed confidence in strong demand and backlog levels [9][65] - The outlook for 2022 includes expectations for differentiated growth and margin expansion, with revenue guidance in the range of $5.7 billion to $5.9 billion [48] - Management indicated that elective procedures are expected to remain flat to 2021 levels, with potential upside if conditions improve [76][78] Other Important Information - The company reported a tax rate of approximately 9% for the quarter, flat year-over-year, but lower than expectations [10] - The company has made significant progress towards sustainability goals, including carbon emission reduction targets and responsible sourcing initiatives [35][37] Q&A Session Summary Question: Follow-up on organic sales guidance for the year - Management expressed confidence in the acceleration of core growth in the second half of the year, supported by strong order momentum and record backlog levels [64] Question: Assessment of Advanced Healthcare Solutions competitive position - Management noted good growth outside the U.S. and strong margin expansion, indicating a positive outlook for the segment despite challenges in elective procedures [68] Question: Expectations for core growth trajectory throughout the year - Management indicated gradual acceleration in core growth, with expectations to exit the year at a strong rate due to improving supply chain conditions [74] Question: Supply chain resilience strategies - Management discussed countermeasures being implemented to enhance supply chain resilience, including qualifying new suppliers and redesigning platform architectures [81] Question: Total software revenue growth and SaaS metrics - Management reported low double-digit software growth in Q4 and high single-digit ARR growth, indicating positive momentum in software-enabled solutions [87] Question: Clarification on backlog and inventory levels - Management confirmed that the backlog is primarily driven by demand rather than inventory buildup, with good sales out and demand environment [92]