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South Korean doctors hold massive anti-government rally over medical school recruitment plan
Critical asset just had biggest fall on record (Ad)
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Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Critical asset just had biggest fall on record (Ad)
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This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
What to watch for as China's major political meeting of the year gets underway
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
South Korean doctors hold massive anti-government rally over medical school recruitment plan
Critical asset just had biggest fall on record (Ad)
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Critical asset just had biggest fall on record (Ad)
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
Trader Joe's chicken soup dumplings recalled for possibly containing permanent marker plastic
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
What to watch for as China's major political meeting of the year gets underway
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet
S&P 500   5,137.08
DOW   39,087.38
QQQ   445.61
South Korean doctors hold massive anti-government rally over medical school recruitment plan
Critical asset just had biggest fall on record (Ad)
Nobel laureate Muhammad Yunus is granted bail in a Bangladesh graft case
Chicago 'mansion' tax to fund homeless services stuck in legal limbo while on the ballot
Critical asset just had biggest fall on record (Ad)
Former Bank of Beijing chairman under investigation, part of China's crackdown on corruption
Trader Joe's chicken soup dumplings recalled for possibly containing permanent marker plastic
This is the #1 Stock to Buy for the AI Tidal Wave (Ad)
What to watch for as China's major political meeting of the year gets underway
Head Start preschools aim to fight poverty, but their teachers struggle to make ends meet

Fortive Q4 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing

Participants

Corporate Executives

  • Elena Rosman
    Vice President of Investor Relations
  • Jim Lico
    President and Chief Executive Officer
  • Chuck McLaughlin
    Senior Vice President and Chief Financial Officer

Presentation

Operator

My name is Julianne [Phonetic] and I'll be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Fourth Quarter 2022 Earnings 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. [Operator Instructions].

I would now like to turn the call over to Ms. Elena Rosman, Vice President of Investor Relations. Ms. Rosman, you may begin your conference.

Elena Rosman
Vice President of Investor Relations at Fortive

Thank you, Julianne, 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 at fortive.com. Our statements on period-to-period increases or decreases refer to year-over-year comparisons on a continuing operations basis. 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 in our SEC filings, including our annual report and Form 10-K for the year ended December 31, 2022 (sic) These forward-looking statements speak only as of the date they are made and we do not assume any obligations to update any forward-looking statements.

With that, I'd like to turn the call over to Jim.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Elena. Hello, everyone, and thank you for joining us. I'll begin on Slide 3. Fortive had another quarter of outstanding operating performance in Q4, delivering 14% core revenue growth, 50 and 110 basis points of adjusted gross and operating margin expansion respectively, 11% adjusted earnings per share growth, 62% free cash flow growth, all ahead of the guidance we gave in October. Our strong purpose-driven culture is supported by our relentless focus on executing for customers and shareholders in 2022. The continued evolution of our portfolio within the markets we play is characterized by strong secular drivers which powered 9% ARR growth in our software businesses, and backlog expansion in our hardware products businesses contributing to record a record core revenue growth for the year. Our performance would not have been possible without the dedication of our 18,000 team members around the world. The team overcame continued supply chain and inflationary challenges which will likely linger into 2023. We believe the power of the Fortive business system is a key differentiator, contributing to a more profitable growth, record gross margins, and free cash flow generation. As we look forward, we're excited to update you on the progress we've made on our multi-year targets and strategies that are driving outperformance at our upcoming Investor Day in May.

Turning to Slide 4. Even against the backdrop of a difficult macro in 2022, Fortive continued to validate the investment thesis that we have pursued since 2016, delivering core growth of 10%, and 20% on a two-year stack basis, accelerating over the last few years. Our portfolio transformation has also driven approximately 1,000 basis points of gross margin expansion since 2016, which has translated into higher operating margins and provides further opportunity to improve margins in the years to come. We also delivered free cash flow growth of $1.2 billion with margins approaching 21%, underscoring our ability to compound cash flow off a higher base, a key Fortive differentiator and value creation driver. In summary, we had said that 2022 would be a show me year and we delivered strong results across all of our segments, which I will highlight in more detail on the next few slides, starting with intelligent operating solutions on Slide 5.

IOFs grew core revenue by 13%, representing its third consecutive quarter of double-digit core revenue growth, with good growth in all regions, with low-double-digit growth in North America, mid-teens growth in Western Europe, and high-20s growth in China. Double-digit core growth at every workflow, combined with our rigorous application of FBS, drove 330 basis points of core operating margin expansion, more than offsetting inflation and FX headwinds. Looking at our performance drivers by workflow and connected reliability, looking at low-teens growth supported by a strong backlog position, and continued success with our new solar and calibration products serving the energy, renewables, and electric vehicle markets.

QOS remains strong in every region however we expect to see some slowing as supply chains continue to normalize. Strong end-market demand drove double-digit eMaint SaaS revenue growth in the quarter with record net dollar retention of approximately 106%. In EHS, revenue grew by high-teens with strong contributions from both the Industrial Scientific and Intelex. Industrial Scientific revenue grew approximately 20%, as strong demand was supplemented by record iNet expansion and higher instrument shipments following the resolution of key supply chain issues at the end of the third quarter. Meanwhile, Intelex posted another quarter of low-double-digit SaaS growth. They have successfully deployed FBS initiatives to accelerate software implementations and create upsell opportunities to customers.

Moving to facilities in asset life cycle. We had low double-digit growth in Q4. Gordian revenues once again increased double-digits as customer labor shortages and deferred facility maintenance continued to drive higher-volumes through the company's job order contracting platform. Our current SaaS revenue grew by mid-single-digit despite a sizable headwind from end-of-life products. Accruent continues to see good success from its recent go-to-market focus and asset management and workplace solutions to enable mid-single-digit revenue growth in 2023. And ServiceChannel saw another quarter of double-digit revenue growth, taking their full-year growth rate to just under 50%. As a reminder, we are transitioning from a largely pass-through revenue base to a better long-term business model that includes more recurring SaaS revenue. This change will create a short-term revenue headwind in the first quarter. However, we expect ServiceChannel to remain a strong double-digit growth business in 2023 with above 20% adjusted operating margins.

Turning now to Slide 6. Precision Technologies delivered another strong quarter of double-digit revenue growth in every business. Core revenues increased 20% driven by high-teens growth in North America and greater than 20% growth in both Western Europe and China. PT also delivered 240 basis points of adjusted operating margin expansion, with higher volumes, price realization, and productivity more than offsetting inflation and FX. Some highlights for the quarter include record quarterly revenues and operating profit at Tektronix, which continued to benefit robust backlog, driven by new product launches, share gains, and new entry in mainstream oscilloscopes. We saw orders slow in Q4 as expected as demand normalizes following the 40% growth we've seen over the last two years. Sensing technologies had another quarter of mid-teens growth driven by strong price realization across all businesses and continued demand in Qualitrol's utility and power business, offsetting industrial and semiconductor demand softening. Combination of Gems and Setra in 2022 also drove approximately 200 basis points of margin expansion and four working capital turns improvement. Pacific Scientific EMC saw high 20s growth in the quarter, facilitated by capacity expansion and improved materials availability.

Moving now to Slide 7 in advanced healthcare solutions. As expected, core revenues increased 5% in the quarter, driven by broad improvement across all healthcare operating companies. By major region, mid-single-digit growth in North America reflected the benefit of our higher installed base and some improvement in hospitals, partially offset by low-single-digit decline in Western Europe and a high-single-digit decline in China. The exit rate on China electric procedures was the lowest we've seen post COVID, at roughly 30% of normalized levels. January 2023 volumes were roughly half of prior year levels, which is reflected in our Q1 outlook for the segment. In the fourth quarter, AHS segment margins were down 260 basis points, driven primarily by higher inflation, partially offset by favorable M&A. Notably, margins were up approximately 400 basis points versus Q3. This is our fourth quarter guidance, margins were unfavorably impacted by additional transactional FX and lower margins Fluke Health Solutions. As we look ahead, the team is starting to see traction on their pricing and productivity initiatives, which we expect will deliver margin recovery in 2023.

Some other highlights for the quarter include, ASP finished the year with core revenue growth of 5% as capital share gains and consumable volumes more than offset COVID headwinds in China. Even with inflationary pressures, ASP ended Q4 with the strongest margins of the year and continued to deliver strong working capital improvements. While hospital profitability remains pressured due to labor and inflationary challenges, Censis continued to drive robust growth in its CensiTrac SaaS offering in Q4 and for the year with mid-teens net-new ACV and record cross-sell opportunities. Lastly, Provation is ahead on its return expectations, having contributed $0.10 to earnings in 2022. As customers continue to standardize on Provation across their health systems, we are seeing accelerated SaaS growth setting them up for a strong 2023.

Turning to Slide 8. The Fortive business system is a powerful mindset that makes continuous improvement in way of life at Fortive. We drive deep engagement across our teams and hold them accountable for delivering on high expectations. As a reminder, in October, we brought together over 400 team members at our CEO Kaizen event. Our most senior Fortive leaders including our segment leaders and a number of our operating company presidents collaborated to drive significant improvements in growth, margin, free cash flow, and breakthrough innovations across four operating companies: Fluke, ISC, Tektronix, and Censis. We're proud of the success our teams are having sustaining results to directly attributed to this event including at Fluke, we reduced small changeover times by over 50%, eliminating stock-outs and critical plastic components and reducing PacSci backlog. At ISC, we applied lead conversion in the Fortive material system to improve quality, output, and turnaround time for iNet and rental customers dramatically reducing the cost of repairs for product redesign.

At Tektronix, we applied lean conversion to circuit board repair, increasing on-time delivery to 98% by altering material flow, installing 5S part management and building standard work and documentation and procedures. And at Censis, we applied value stream mapping and transactional process improvement to identify the inefficiencies and waste, resulting in a 50% reduction in time to onboard new customers. With Kaizen activity accelerating in 2023, we expect significant results across Fortive in the year ahead.

I'm incredibly proud of the work we've done in 2022 to deliver powerful results and continue our progress towards building a more sustainable future as you can see on Slide 9. We believe in taking a holistic approach to creating value that includes setting aspirational and actionable targets across each of our sustainability pillars as shown on the page.

Leading Fortive today is a diverse board and leadership team, with recent hires and promotions, advancing our commitment to top talent and diversity. Strong and inclusive culture is core to Fortive's mission with inclusion and diversity a critical component of FBS. Last year, we published clear goals to increase our diverse supplier spend, gender representation, BIPOC representation, and senior leader diversity by 2025. We believe this has resulted in part to an increase in our employee engagement scores up five points from pre-pandemic levels. Our progress also extends to how we protect the planet. It includes the early achievement of our 2025 greenhouse gas goal in the adoption of our new ambitious goal on 50% emissions reduction by 2029. It's our shared purpose that also pushes us to create innovative and sustainable products and services. Today, approximately, 60% of our revenue is derived from products and services that enable more sustainable outcomes, aligned to the United Nations Sustainable Development Goals. And we have award-winning products that promote sustainability for our customers.

Lastly, the commitment to drive meaningful and sustainable outcomes the matter most to our stakeholders is reflected in our recognition by Newsweek for the fourth consecutive year as one of America's Most Responsible Companies.

With that, I'll pass it over to Chuck who'll provide more color on our fourth quarter financials and our 2023 outlook.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Thanks, Jim, and hello, everyone. I will begin on Slide 10 with a quick recap of our fourth quarter performance. We generated year-over-year core revenue growth of 14%. Acquisitions, net of divestitures, contributed 1.5 points of growth. FX headwinds were approximately four points.

Turning to the geographies. We saw another quarter of double-digit core revenue growth in each of our major regions. North America revenue was up low-double-digit with broad-based strength across our businesses. Western Europe revenue grew mid-teens, with volume contributions in hardware products and favorable pricing, partially offset by a decline in healthcare. In the fourth quarter, bookings slowed in North America and Western Europe as expected. Asia revenue increased high-teens, but low 20% in China, driven by robust growth in intelligent operating solutions and precision technologies, more than offsetting a dramatic drop in elective procedures in China, impacting advanced healthcare solutions. Lastly, we saw broad-based performance in our high-growth markets with mid-teens core growth.

Turning to Slide 11, we show operating performance highlights for the fourth quarter. Adjusted gross margins increased by 50 basis points to 58.3% as volume and strong price realization continued to demonstrate the value proposition of our products and solutions, more than offsetting higher inflation. Adjusted operating profit margins expanded 110 basis points to 25.5%, up 230 basis points on a two-year stack basis. Adjusted earnings per share increased 11%, to $0.88, reflecting a strong fall-through on higher volumes and productivity, partially offset by higher interest and tax expense. Normalized pretax earnings in the quarter were up 16%. Free cash flow was another standout. Strong year-end cash collections and the benefits of our FTS driven working capital initiatives yielded $428 million of free cash flow in the quarter, taking the full year to $1.2 billion.

Before turning to the guide, I wanted to provide some context on our 2023 outlook on Slide 12. We expect that 2023 will be another year of growth and margin expansion in each of our strategic segments, supported by secular tailwinds driving market expansion and new customer innovations. Our recurring revenue businesses had roughly 40% of sales and are expected to benefit from the work we did in 2022 to increase demand generation and strengthen our go-to-market items [Phonetic] driving double-digit SaaS and license revenue growth. Elevated backlog in our hardware products businesses, particularly, at Tektronix, is expected to de-risk moderating demand as order rates normalize in 2023. Further, the benefit of 2022 pricing actions is expected to carry over into 2023, driving another year of above-trend pricing realization along with increased sourcing and value engineering savings contributing to gross margin expansion. We also expect our productivity initiatives to yield strong incremental operating margins including actions in the first half of the year to countermeasure the slowing macro environment. Budget paybacks related to these initiatives are expected to average one year. We have included these benefits in our margins and earnings outlook for the second half with carryover benefits into 2024. In summary, we believe our 2023 outlook reflects a more resilient revenue and earnings profile as we expect to weather the evolving macro environment.

Turning now to the guide on Slide 13. We are introducing 2023 guidance. Starting with the full year, we expect core revenue growth in the range of 3% to 5.5%. Our outlook reflects a year-over-year foreign exchange headwind of just under 1% on revenue. Adjusted operating profit is expected to increase 5% to 10% with margins in the range of 25% to 25.5%. Adjusted diluted net EPS guidance of $3.25 to $3.40, up 3% to 8%, which includes higher interest and tax expense, and free cash flow is expected to be approximately $1.25 billion, representing conversion in the range of 100% to 105% of adjusted net income and a 21% free cash flow margin. For the first quarter, we anticipate core revenue growth of 5% to 6.5% with an FX headwind of 2.5%. Adjusted operating profit is expected to increase 4% to 9% with margins in the range of 23.5% to 24%. Adjusted diluted net EPS guidance of $0.71 to $0.74, up 1% to 5%, which includes higher year-over-year interest and tax and free cash flow of approximately $170 million, reflecting the stronger cash collections that pull forward into Q4 as well as our normal seasonal variations.

Turning now to Slide 14. We're expecting at 48/52 split of revenue first half to second half, which reflects a step-up approximately of $120 million of core revenue growth, which when you compare to last year, it's less than half of the increase we saw in the second half of 2022. The step-up in 2023 is largely driven by acceleration in new products, a ramp in the growth rate of advanced healthcare as we lap China COVID lockdowns, and an increase in software and other recurring revenue streams. FX and interest account for abnormal earning seasonality as FX becomes a tailwind in the second half of the year and interest expense is expected to decline as we pay down debt with available free cash flow as the year progresses, giving us a bigger than usual step-up in EPS first half to second. In summary, our revenue outlook reflects a similar linearity profile to 2022. And while core growth decelerates first half to second half, it accelerates on a two-year stack basis.

With that, I'll pass it back to Jim to provide some closing remarks.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Chuck. I'll now wrap up on Slide 16. In summary, I'm incredibly proud of the contributions of our 18,000 team members to make 2022 a record year for Fortive and further differentiate our more resilient financial profile. As we turn the page on 2022, that resiliency will be on display again in 2023 as our outlook reflects an expectation for slowing growth as customer demand normalizes after two years of robust double-digit hardware product orders. But it also reflects the benefits of the investments we've made to accelerate strategy, strengthen our market positions, scale our software revenues, and develop new innovations that are solving our customers' toughest safety, quality, and productivity challenges. As you've also heard today, we're seeing the benefits of our continuous improvement culture, unleashing the power of the Fortive business system to deliver more profitable growth and strong free cash flow again in 2023, allowing us to compound returns through disciplined capital deployment. When taking together, this creates a powerful formula for value creation with a high-quality portfolio of desirable brands, favorably leveraged to sustainable secular trends, industry-leading margins and free cash flow generation, and best-in-class execution enabling Fortive to outperform in almost any environment.

With that, I'll turn it back to Elena.

Elena Rosman
Vice President of Investor Relations at Fortive

Thanks, Jim. That concludes our formal comments. Julianne, we will now take the questions.


Questions and Answers

Operator

[Operator Instructions] Our first question comes from Steve Tusa from JPMorgan Chase. Please, go ahead. Your line is open.

Steve Tusa
Analyst at JPMorgan Chase & Co.

Hey. Good afternoon.

Jim Lico
President and Chief Executive Officer at Fortive

Hi, Steve.

Steve Tusa
Analyst at JPMorgan Chase & Co.

Can you just talk about for IOFs, the the margin expansion kind of sequentially from the first-quarter to the full-year, the kind of key building blocks for that?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. Hey, Steve. It's Jim. A couple of things. One, obviously, growth plays a role in that. And so as we continue to progress, we'll see that. As we noted, slowly [Indecipherable] cycle a little bit lower growth in the first quarter, we can talk about that, but that's -- but margins will expand. So, that's the revenue coming back certainly and the software business is there as well as just continued progression of a lot of the actions that we've got. Price will continue to be a helpful piece of that growth driving gross margin expansion along with our productivity initiatives. So, I don't think we've got anything dramatic from the first half and second half in terms of anything that you wouldn't normally see seasonally in terms of growth, price realizations. Productivity initiatives get more traction as you go through the year. Those are probably the big drivers outside of just normal revenue.

Steve Tusa
Analyst at JPMorgan Chase & Co.

And then should we assume this excess $350 million backlog, if that all obviously gets kind of washed out this year and then what's kind of the pace of that being washed through?

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Steve, this is Chuck. Actually in our modeling, no, we wouldn't expect that all of this washed out based on -- but of course, it depends on the order rate, which was one of the plenty reasons why we think that we've got a pretty resilient forecast here if the order rates moderate beyond where we think they're going to be, we could still dip. It's really still -- we've got supply chain is getting better, it's just -- it's not resolved, so it sounds like we can just flip a switch and get it all out, but we'd probably cut it in half.

Steve Tusa
Analyst at JPMorgan Chase & Co.

Okay. Great. Thanks a lot.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Steve.

Steve Tusa
Analyst at JPMorgan Chase & Co.

Our next question comes from Julian Mitchell from Barclays. Please, go ahead. Your line is open.

Julian Mitchell
Analyst at Barclays

Hi. Good afternoon. I just wanted to start with some more detail on the product hardware orders. So, I think those were up mid-single-digit Q3. It sounds like they're up maybe low-single Q4. And then you've got this slowdown commentary. And then also on Slide 14, you talk about orders improving through the year. So, is the way to think about that you're trying to say that orders that ended last year up low-single maybe they're down in the first half, grow in the second half, and then that's what informs the PT organic sales guide, because if I look at that on Slide 17, you're starting the year up double-digit, the year as a whole is up low-to mid. So, you're sort of implying the organic sales end the year flat or down. Is that just kind of the orders flowing through with a six-months lag? Is that how we're thinking about it?

Jim Lico
President and Chief Executive Officer at Fortive

Well, I think first, we would think in the second half of '22 is basically flattish for orders for those businesses. So, a little bit down in the fourth relative to -- and right around where we thought. If you remember from the third quarter, how we said, yeah, we also saw some orders that came in in the first half or the second half. So, that's kind of the backdrop of what we just described. Backlog in and around where we thought it would be from an ending year. So, the backlog, obviously, as Chuck just described, that obviously helps in the -- with some of the sort of the order down slowing that we saw. We expect orders to kind of be around the same in the first half relative to those product businesses, Julian. So, you think about probably the second quarter -- first quarter and second quarter being probably negative in those businesses, but backlog obviously mitigates a number of those things and then it starts to pick up a little bit, some of that pick-up is an easier comp obviously, because of what I just described in the second half of '22. And there's a little bit sensing probably stays flattish through the year, there's probably not a big improvement through the year in sensing, but a little bit of improvement in Tek and we think Fluke will come back as well -- it typically comes back a little faster.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

And Julian, the only thing I would just remind you is we have an easier comp and PT and Q1. So, when you start -- when you're looking at a dollar standpoint, it's not as dramatic as you move through the year. In fact, I think from a dollar standpoint, we would expect that it would -- there would be an upward trajectory in PT each quarter sequentially.

Julian Mitchell
Analyst at Barclays

Thanks. And when we look maybe within PT at Tektronix, maybe flesh out a little bit more what you're expecting, you've got that high-teens growth first quarter of the year is up mid-single. But I guess, if I look at a lot of what's happened inside electronics, it feels like people are in kind of the teeth of the destocking right now and have been for three or even six months. So, I understand maybe it protected a bit by the backlog in Tektronix, that means you have a sort of gradual descent through the year. Maybe just help us understand kind of where you see channel inventories in that business. And again on Tektronix, it looks like the guide implies down revenue in the back half. Just wanted to kind of confirm a couple of things there.

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. Well, number one, I think on the back, as we said in the prepared remarks 40% order growth over the last couple of years. It's obviously a little bit higher growth rate than what we'd normally expect for cash. So, when you start to see the full year, it's a moderation or normalization back to that mid-single-digit growth. I would say, when you think about customers very much playing out the way we anticipated in terms of moving the business, the business just doesn't have as much of influence from consumer electronics anymore. We're seeing a lot of that distortion with the things we've talked about in terms of power, data centers, industrial IoT, all of those drivers are really driving the business much more today than ever before, making it more resilient. So, those are all the things we've described that I think really continue to have the business. It does de-sell a little bit but it moderates off a really, really large number. So, I think mid-single-digit growth for the year is what we're calling out here. It could be a little bit better. We're still end of the year with a decent backlog as Chuck was just describing a couple of questions ago. So, I think when we look at the business for the year, very healthy, channels have almost no inventory. So, we continue to see good point-of-sale strength. And some of that is just fulfilling past due to some extent. But there really isn't a channel inventory situation whatsoever. And so, I think we're in a good place. Orders will slow a little bit but some of that is just the big heavy comps that we've sort of had over the last couple of years. So, we think we're in a good place and we think we'll exit '23 in a good place as well.

Julian Mitchell
Analyst at Barclays

That's great. Thank you.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Operator

Our next question comes from Scott Davis from Melius Research. Please, go ahead. Your line is open.

Scott Davis
Analyst at Melius Research

Hey, Jim and Chuck and Elena. Hope you guys are well. If I look back at my notes, I think you said the service channel probation would be like $0.12 accretive in '22. It sounds like maybe that came in a couple of pennies better. Is that accretion step-up meaningfully in '23? I would think just given the growth rates of those businesses, that would be a nice tailwind for you. But I know you did make some comments on the SaaS adjustment on service channel though as an offset.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Yeah. Scott, you got it right. We came in at, I think, $0.14 in 2022 and I would expect that would grow as you expected. We'd build on that $0.14 in 2023. Faster growth rates there, also more profitability in the first half in service channel and things. So, all of that are going to give us a nice tailwind.

Jim Lico
President and Chief Executive Officer at Fortive

And Scott, just to maybe add on, the first quarter service channel thing as we talked about in the prepared remarks, this is really -- the SaaS revenues continue to be incredibly strong in the business. But we did have a little bit more pass-through revenue in the year than we anticipated. That's why we grew the business to almost 50% on a full-year basis. So, really strong growth this past year. But we'll move to a better business model which is a little bit less pass-through revenue and a much -- but the strength of the SaaS business has been there all along. We've now got a data analytics platform that we're offering as well. So, we've really got to kind of get through that in the first quarter and a little bit in the first half, but the profitability really does raise considerably as well. We got what we needed in '22 in that regard. We'll be in even better place in '23 simply because of the business model transformation that we intended to do is really starting to going to hit the full end of the P&L through the year.

Scott Davis
Analyst at Melius Research

All right. That's helpful. And, I think it was Jim, you mentioned in your remarks that the discretionary procedures in China finished the year, like a 30% number which -- 30% a normal, I think I'm reading it as. That -- which just sounds crazy. But is that -- are you still seeing that in January? I would imagine the reopening -- just the timing of the reopening, that stuff would pick back up here in 1Q pretty aggressively, but I don't know. But are you [Speech Overlap]

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. So, I mean, you got it exactly right. December in particular was really low. I think that speaks to the strength of AHS quite frankly in the revenue line as we were able to weather that storm because of the strength of other regions of the world. We talked about the 5% growth that we had in different segments. So, we think we're about probably 50% in January, so about half of where we were a year ago. But you're right, this is going to ramp, we're seeing some of that improvement couple of weeks ago, we think it was the low point. But it's not picking up to 70 in a week, but we should see continued improvement, again, on the other side of the Chinese New Year holiday and we'll get a better review of things as we always do. But we would anticipate that this will continue to improve throughout the year as China just kind of gets back to normal, and we've certainly started to see that.+

Scott Davis
Analyst at Melius Research

Okay. Well, best of luck. Thank you. I'll pass it on.

Jim Lico
President and Chief Executive Officer at Fortive

All right. Thanks, Scott.

Operator

Our next question comes from Jeff Sprague from Vertical Research. Please go, ahead. Your line is open.

Jim Lico
President and Chief Executive Officer at Fortive

Hey, Jeff.

Jeff Sprague
Analyst at Vertical Research

Hey. Thanks. Good day, everybody. Hello. Hey, Jim, as you're well aware, right, there is a process going on out there for National Instruments and a lot of speculation out there about your interest. I'm sure you're fairly limited on what you might want to say. But any color you could give us on your appetite for any deal that large or you've expressed interest in the past in hardware-related deals. Anything there make any sense for you?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. So, I think number one, we obviously know the company and have read the news, so you're exactly right. We wouldn't comment on any process that we'd be involved in or not involved in, particularly a public one. But I would say this, I mean, we've known NI for a long time. I can remember meeting them 15 years ago or so. So, we know them well. We partnered with them at Tektronix and have for a long time. So, I think what we've said strategically about all of our funnel was there was a balance of large and small deals, hardware and software. So, we can -- the balance sheet is an incredible place right now as you know. So, we're in a great place to do things. But we're going to be disciplined. We're going to make sure that every situation we approach, we approach it strategically, how well it accelerates what we want to do. And I'll leave it at that. But I think more broadly around M&A, we're in a very good place relative to our opportunities ahead of us. And we certainly are playing offense in that regard.

Jeff Sprague
Analyst at Vertical Research

Great. Thanks for that. And then just totally shifting gears, just back to kind of the inflationary pressures in AHS. At this point, do you have the cost and other actions in place to be neutral or better as we move through 2023? Maybe just put a little finer point on how you see kind of price cost and kind of the margin impact playing out over the balance of the year.

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. So, I think more specifically around AHS, we called out a couple of kind of one-time headwinds in the quarter. We -- I think there's a number of things that are working in our favor relative to the '23 year. Number one is North America. We had good growth in North America and anticipate that will continue. We're not necessarily calling everything getting perfect in North America, but we do believe it will get better. And we saw that in the fourth quarter. And that's a good thing for our margin structure. And then number two, to your point, we're seeing a little bit more price realization in the fourth and into this year. Things are starting to get a little traction. We've talked about that on the call that it just takes longer and we're starting to see that. And then finally productivity, the team is -- our leadership team has really adopted [Indecipherable] and they've really embraced a number of things to really drive productivity. So, we don't see the additional inflation either as well. So, but with combination of, we don't see incremental inflation at this point and we have those actions getting deeper and deeper into the margin structure, if you will, through the year. So, we feel like we're in a much better place starting here in '23 both from a market and obviously the kind of actions that we need to continue to make the business better. And I would just kind of -- you didn't ask it, but we have grown gross margins in AHS -- operating margins of about 130 basis points over the last two years. So, despite those challenges, we're in a good place. I call that the launch pad for where we are today.

Jeff Sprague
Analyst at Vertical Research

Great. I'll leave it at that. Thank you.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Thanks, Jeff.

Operator

Our next question comes from Nigel Coe from Wolfe Research. Please, go ahead. Your line is open.

Jim Lico
President and Chief Executive Officer at Fortive

Hey, Nigel.

Nigel Coe
Analyst at Wolfe Research

Thanks. Good morning, everyone. Hey, guys. How are you? By the way, [Indecipherable] is going to be very happy that you put him in that comparison basket. So, just want to follow up on Jeff's question. Obviously, the National Instruments needs is out there. Where do you stand philosophically on issuing equity for a deal because based on the math that we're doing, your leverage will get to very high levels. So, just wondering, what is the leverage ceiling you'd be prepared to go to for the right opportunity? And philosophically, would you issue equity for the buy opportunity?

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

NIgel, we've always felt we want to maintain our investment-grade rating. And so, we wouldn't do anything that -- on any type of deal that would jeopardize that. I pointed out in the past, we've done equity instruments like a mandatory convert. And we've always said that in situations where we want to do something,. equity has never been off the table. It just hasn't been needed at this point.

Nigel Coe
Analyst at Wolfe Research

Okay. That's helpful. And then just going back to the FY '23 plan. How much of that 350 surplus backlog are you sort of planning to eat into underpinning your plan? And then maybe just touch on the service channel SaaS transition. It seems like it's a very sort of discrete sort of intra-quarter, maybe 1Q-first half event. These SaaS transitions tend to be kind of drawn out when we look at other companies. So, just curious why that would be so short-term.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Nigel, I'll take the first part. We would expect to take of the excess backlog that we're talking about. Probably up to half of it is included in the assumptions for this year in this guide. But to be clear, this is what we consider excess and that's still -- we get more out if supply chains get better. So, there's a little more there, but it's still constrained by supply chain throughout this year. But getting better.

Jim Lico
President and Chief Executive Officer at Fortive

Nigel, on the service channel question, I wouldn't think of it as a SaaS transition. The SaaS revenue continues to be good. It's this -- we grew the business well over 70% Q1 of '22. And so, with a large amount of this just pass-through revenue. And so, if you think about it, we have a customer, some of our contracts have -- we're passing through a number amount of the facility maintenance cost that they have plain plumbers or electricians. We're just doing less of that. And so, it's really not a SaaS transition in the traditional sense. In fact, we're replacing that solution though with some other added benefits. And so, we've -- that's why it's a short-term transition. It's really kind of going from losing some of this one-time pass-through revenue that quite frankly we didn't make any money on. So, I would see it as that, and that's why the short-term as opposed to sort of a conversion of what you'd see traditional license revenue to SaaS revenue. We're not going to see that. This is -- ServiceChannel is a 100% SaaS revenue company.

Nigel Coe
Analyst at Wolfe Research

Right. Okay. Thank you.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Thanks.

Operator

Our next question comes from Andy Kaplowitz from Citigroup. Please, go ahead. Your line is open.

Andy Kaplowitz
Analyst at Smith Barney Citigroup

Good afternoon, guys.

Jim Lico
President and Chief Executive Officer at Fortive

Hey, Andy.

Andy Kaplowitz
Analyst at Smith Barney Citigroup

Jim, you and Chuck mentioned increased productivity initiatives planned in all segments that primarily benefits the second half of '23. I think you already mentioned FBS within AHS. But could you give us a little more color around what some of the bigger initiatives are and maybe size these initiatives for us. And then if there's any sort of cost to undertake these initiatives.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Yeah. Andy, in the first half, we'd expect to put up $25 million to $30 million of the cost to get after some of these structural things that some of them are rooftops, a few of those. But there will likely be some outside the U.S. maybe there are some regions that we want to convert to a theatre -- approach rather than a direct approach and I'm thinking here in our health margins. We've always thought that there was costs that we needed to improve and improve our go-to-market there. And we're just getting after that.

Andy Kaplowitz
Analyst at Smith Barney Citigroup

Got it. And then Jim, can you give us some more color into what you're seeing by region? It looks like Western Europe has continued to be strong for you. We've talked about China and AHS, but outside of AHS, it's strong. So, what are you thinking for '23? You talked about orders slowing in Western Europe and North America, but is that more a function of supply chains normalizing or are more of your customers a little cautious to start '23?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. It's interesting. I think we've always thought for the last several months that customers would inevitably start '23 on a little more conservative just given we've seen some of the tech layoffs and some of those things, the PMI where it is. And so, that's number one. That's kind of our planning assumption from an order perspective. Now also knowing that we had -- we're starting the year with a good backlog situation. I would say if you think about it regionally, Andy, obviously, North America is going to be pretty good and pretty resilient given the fact that we have most of our software businesses have the predominance of their revenue streams in North America. And I mentioned the healthcare, particularly ASP North American story. So, North America is going be pretty resilient. I would say that Western Europe and Europe more broadly, probably are weaker area for the year just given the number of things. Some of that is supply chains normalizing a little bit back to normal. Some of it is just a little bit of weakness as well. China is going to be good all year. Healthcare will be weak in China in the first quarter because of electives, but should continue to get better through the year. So, that's kind of the regional play and that's sort of our planning assumptions going forward. So, I think it's still early days, obviously, with a lot of the year to play out here. But that's sort of fundamental to our planning assumptions.

Andy Kaplowitz
Analyst at Smith Barney Citigroup

Appreciate it, Jim.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Operator

Our next question comes from Josh Pokrzywinski from Morgan Stanley. Please, go ahead. Your line is open.

Josh Pokrzywinski
Analyst at Morgan Stanley

Hi. Good -- we do this every quarter, morning, afternoon, it sort of depends. I hope everybody is well. Bot to beat a dead horse on this hardware backlog conversion and sort of what's in the guide, but not -- but I just want to be clear here, Chuck, on that comment that you really only have about half the excess backlog getting worked down. I don't know how fungible that backlog is even within something like Tek where it's a little bit more weighted. But am I to understand then that like orders on a volume basis could be down close to double digits and you guys are basically still hitting the guide if you can work down that backlog fully this year, providing there's no like other governor in the way? Is that sort of a fair way to think about how that's calibrated?

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Yeah. I mean, that's not what we're seeing here in there. But what we are seeing is the reason we can't get the backlog down more it's more supply chain constrained. We've got so much material it's the way I'm thinking. So, if orders go down $10 million more, it doesn't necessarily change our revenue guidance. If that's what you're saying, I would agree with that.

Josh Pokrzywinski
Analyst at Morgan Stanley

Got it. And that's where I was going,

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. I was just going to add that, as you said, it depends on the business, as you pointed out, a little bit of a backlog at Tek. So, it does matter where the orders go down relative to how we can make it up. So, that certainly is part of it. But we ought to think of that extra -- the half isn't planned to go out as an insurance policy. Again, some additional decline.

Josh Pokrzywinski
Analyst at Morgan Stanley

Got it. That's helpful. And then, I guess, sort of related to, I think, it was Jeff Sprague's question on price cost. Maybe taking a step back and just thinking about kind of total bullwhip effect on supply chain, I would imagine, there were some frictional costs last year that probably get better, but maybe you're also kind of working down some inventory. So, is there some sort of like offsetting absorption hit to the absence of those frictional costs? Or, how would you sort of balance those two as in that headwind versus tailwind for this year?

Jim Lico
President and Chief Executive Officer at Fortive

Well, I would think of it this way. There are some spot-by costs that probably go away from '22 for sure. But there are some embedded costs into standards that are going to be with us here for a little while. I think the real thought is we're going be ahead of price cost like we have been. We'll grow gross margins more in '23 than we did in '22. So, in that sense, I think we're going to be -- as we've shown over the last several quarters, we're going to be ahead. We're not too worried from a factory absorption perspective, if that's --- we're going in that direction, we won't worry about that. What we'll really be focused on is making sure a number of commodities are down or will be lower, things like metals, plastics. But the majority of our buy is electronic components. And that will take a little bit longer to sort of wean ourselves from some of that inflation that we saw this year. So, we plan to -- I think, we're super-aggressive in that regard. We'll get after everything. We have great supply chain teams. But it will take a little while, but I think you're seeing -- you're going to see that throughout the year as the gross margins continue to look good.

Josh Pokrzywinski
Analyst at Morgan Stanley

Got it. Super-helpful. Best of luck, guys.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Thanks.

Operator

Our next question comes from Deane Dray from RBC Capital Markets. Please, go ahead. Your line is open.

Deane Dray
Analyst at RBC Capitals

Thank you, and good day, everybody. Hey, can we put the spotlight on free cash flow here? It looks like Fortive is the only company we've seen that has over-delivered in the fourth quarter significantly above your 4Q average. And Chuck, you mentioned some working capital initiatives, if you could take us through that, but also there was a reference about collections pulled into the fourth quarter from the first quarter. So, what was the dynamic there?

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Yeah, a couple of things. We always have a lot of work, as you know, working capital across all of our operating companies is the focus that we've had all year long. And it's been a challenge. It always is. But we've really done great job. ASP actually is a stand-out there. So, I think that's really what we're talking about there. But they weren't the only ones. We had a couple of really good places. I wouldn't say [Indecipherable] so much as really thinking about it as just some time. We were -- we thought we had a really -- we did have a really strong guide and we came in a little stronger. There could be sometimes you just get year-end receipts, sometimes they come in a little light and they show up in Q1. This time, I would probably think maybe $20 million came in a little early. That -- you really can't do much about that. It's just whether they sometimes when they cut the check before New Year's or after New Year's. That's -- but we were very pleased with our free cash flow performance all year round.

Deane Dray
Analyst at RBC Capitals

Yeah. It looks you came in at $107 million. So, that's right in the sweet spot for you all. And then a follow-up question on cross-selling. Jim, you mentioned sensing having some success in cross-selling. Just going to take us through what's going on there. How much is that encouraged? How do you track cross-selling? And what are the opportunities?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. Deane, I think number one is as you -- I know you know, when we've seen a little -- in a couple of places, we've seen new logo -- when things get a little slow, particularly starting the year out new logo is maybe a little bit harder to grab onto as people maybe take a month or so to -- maybe an extra 30 days to close business. But cross-selling and upselling is something you can do every day. And so, our presidents are very much tuned in times like this where maybe things are just a little bit more -- there's a little bit more ambiguity out there as to how the year is going to play out. The teams are really condition to really move the sales motion to more cross-selling. And that really drives our net dollar retention. We talked about it in a couple of individual places. We've got over -- we've got a number of businesses that are well over $105 million now, we're at about $102 million. So, the metric we're really used to drive that is cross -- is net dollar retention. And so, what we're really pushing out early in the year is get those renewals, drive gross retention up, and then drive the cross-selling and up-selling as well. So, I think we're well from a process perspective, FBS has a number of tools that support those efforts with customer success organization. That's a big focus for us here at the start of the year.

Deane Dray
Analyst at RBC Capitals

That's real helpful. Thank you.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Operator

Our next question comes from Joe O'Dea from Wells Fargo. Please, go ahead. Your line is open.

Joe O'Dea
Analyst at Wells Fargo & Company

Yeah. Thanks for taking my questions. Hi. I wanted to start just more macro and I think what you're talking about on the orders front is more just kind of backlog normalization as supply chain corrects. But as you go through that, I mean, how do you think about coming out on the other side and how do you think that it's sort of soft-landing type of environment when we see sort of industrial production and we see PMI? So, just in general, what you're seeing on kind of structural growth or outgrowth and kind of confidence that backlogs normalize And then the growth is there on the other side?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. Joe, I think it really goes back. We will have an opportunity to really give a lot of the detail in our Investor Day in May. But I think what we really think about this is really how we moved the growth rate -- our long-term through-the-cycle growth rate to mid-single-digit. And so, we've had two really strong years of growth 10% to average over the last two years. That's how in the past the number of things we've done from a portfolio perspective and just demand has been better than historically. But as we get into '24 and we normalize around the kinds of things that we would see, we certainly would continue to see that mid-single-digit as a number on the backs of continued stabilization of the macro for some of our product businesses, obviously, continued improvement in our healthcare businesses, and just the strength of success we've had in software. And those sort of combination pillars are really -- are going to be what really drives that mid-single-digit growth rate as we said as things normalize here hopefully sooner rather than later.

Joe O'Dea
Analyst at Wells Fargo & Company

Got it. And then I think in the prepared comments, you mentioned some actions to counter some of the slowing -- you're not sure what might be happening on the cost front, but anything that you could expand on there.

Jim Lico
President and Chief Executive Officer at Fortive

Well, yeah, I think as Chuck described, it's really kind of across the segments and it really deals with a number of things. It certainly looking at certain product lines that maybe are a little slower than over the next few years, we closed a couple of rooftops and did continue to do some things on the lease front as we continue to consolidate our real estate footprint. So, a number of those things are really what we're talking about. It's an accelerated rate given kind of after a couple of years of 10% growth, we maybe more focused on the growth, maybe a little bit more focused on supply chain. But now as things start to normalize here, we're back to getting after some things, and in the traditional sense, we want to be ahead of those things. And that's really what we're talking about.

Joe O'Dea
Analyst at Wells Fargo & Company

Great. Thank you.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Thank you.

Operator

Our last question will come from Joe Giordano from Cowen. Please, go ahead. Your line is open.

Chuck McLaughlin
Senior Vice President and Chief Financial Officer at Fortive

Hi, Joe.

Joe Giordano
Analyst at Cowen

Hey. How are you doing? I just want to follow-up a couple of things on the orders here. Particularly -- and let's strip out like AHS and look more on the hardware stuff and PT and Fluke and Tek. What gives you confidence that orders in the second half of the year start to get better, because like just the revenue guide suggest that you exit at kind of the lowest point of the year. And you said Tek orders were up by 40% over a period of time here. So, like is it just going from plus 40 to normal levels? Is that like reasonable, or like could you see declines in orders because of the magnitude of which they expanded over felt relatively short time?

Jim Lico
President and Chief Executive Officer at Fortive

Well, as we said, I think in the first half, we're going to see some of those declines as we described. And I might note, point-of-sale is still really strong, so, at Fluke and Tek. We normally get that scenario in a coal mine question around Fluke. And quite frankly, Fluke's point-of-sale has stayed strong. So, we think that will moderate as some of the macro impact certainly moves that number down. But you're working on such high comps relative to the last few years, is that any moderation whatsoever could make it look negative. But really quite frankly is not a significant issue relative to both the backlog and kind of where we're at relative to historical perspective. So, yeah, we'll -- some of that improvement in the second half is comps for sure. But some of it -- we think sensing, probably, as an example, probably stays a little rough through the year. And we get -- we know what the OEMs are doing right now. So, we mentioned in the prepared remarks, some places in industrial like industrial automation in some parts of the world like China. But on balance, when we look at the sum total of sensing Fluke and Tek, we still think that we are a little bit hopeful of improvement in the second half. But we don't need a big improvement necessarily to really deliver what we described as we've talked to a couple of the questions, we've got some backlog too as an insurance policy against those things maybe declining a little bit more than we anticipated.

Joe Giordano
Analyst at Cowen

Okay. So, you're saying it's more of a dollar thing? I mean, more of a comp map thing than dollars, I guess?

Jim Lico
President and Chief Executive Officer at Fortive

Yeah. That's right. We knew we're -- we're really looking at some pretty significant growth rates over the last couple of years in orders that were much bigger than our revenue numbers, because of the supply chain issues and the creation of a bigger backlog. And quite frankly, if you see our past few backlogs, which we started to burn down as we've talked about throughout the day.

Joe Giordano
Analyst at Cowen

Okay. And then just last for me. You talked about, I guess, the theoretical M&A on the call so far. But if you were in a theoretical situation where equity was a component of a purchase like how do you think about what your return hurdles would be in scenarios like that where equity is part of it?

Jim Lico
President and Chief Executive Officer at Fortive

Well, look, first of all, I think it's clear, we're trying to convey here is discipline will continue to be the word of the day relative to M&A. And I think we -- our return hurdles are gonna be what our return hurdles are. We've talked about 10% ROIC for the various kinds of deals. And we'll continue to think about that. I think what we've been trying to describe as situations in which we'll be disciplined. I think what you've seen in '22 is the strong returns of that. Certainly, the most recent M&A that we've done, Provation and ServiceChannel beating their first year numbers as an example of that, but also the deals that we did five, six years ago, that are just performing outstanding, like Gordian and eMaint and Landauer. So, I think we're in a great place from a balance sheet perspective to deploy capital. And I would be much more focused on our discipline around returns and our discipline around accelerating strategy in places where we can really do that.

Joe Giordano
Analyst at Cowen

Thanks, guys.

Jim Lico
President and Chief Executive Officer at Fortive

Thank you.

Operator

We are all out of time for questions today. I would like to turn the call back over to Jim Lico for closing remarks.

Jim Lico
President and Chief Executive Officer at Fortive

Thanks, Julianne, and thanks, everyone, for spending the time with us today. We really appreciate. We know you're busy this week with a number of things. I think what you heard from us today is a real sense of pride of what we did in 2022. We said '22 was going be a show me year. And I think what you saw through the quarters and certainly in the full year numbers, a real -- the real power the Fortive business system and the ability for us to use the FBS tool to accelerate. We tried to convey the fact that getting back into in-person Kaizen is something that's really important to us from a cultural perspective and from an ability to deliver in any sort of economic times. And that acceleration of in-person events, we tried to demonstrate and show you some examples of that work. We're back to work in that regard as we get into '23. We look forward to continuing to share our strategies in May with you. And I think what you'll see this year and what you're seeing in our guide is the continued improvement in our portfolio in the strength of our culture and our business system. Special thanks to our 18,000 teammates around the world who made that happen and make it happen every day.

Thanks, everybody. Have a great day. We'll look forward to follow-up calls and we'll see you soon. Take care.

Operator

[Operator Closing Remarks]

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