Good morning, everyone. Welcome to day three of Citi's 2023 Industrial Tech and Mobility Conference. Very excited to have you. Very excited to have Fortive Corporation with us today. We've got Jim Lico, who is the President and CEO, and Chuck McLaughlin, who is the SVP and CFO. I'm gonna turn it over to Jim. He's got some comments, and then we'll get right into the fireside. Jim, thanks for joining us. Yeah, thanks, Andy. Good morning, everyone. The vaunted third day 8:00 A.M. slot is always something of great value. It's great to be here, and I know it's webcast as well. We'll go through a few slides very quickly just to sort of set the stage for the Q&A. Maybe just a little bit about what we've been trying to convey here coming out of earnings and really excited to be here with everyone. You know, I think 202022, we said was a show me year. What we really meant by that is we thought it would be a year where we'd have an opportunity to really demonstrate the value, the high quality value of our portfolio. I think you saw that amongst a number of ways, but you certainly saw some of the secular growth drivers, I'm sure, which we'll talk about, that we've tried to attach ourselves to over the last few years. It's been differentiated from a performance perspective. I'll talk about that in a slide or two. We've also seen, I think, as we got back, we got back to really doing what we do, which is utilizing the power of the Fortive Business System to really create real performance. With COVID over the last few years, we've done a lot of things virtually. 202022, as we got through the year, we started to do everything in person. I think you saw that accelerated performance in a number of ways, whether it be how we dealt with supply chain issues or how we really continued to drive free cash flow. I think it really shows the benefits of, and the power of our business system. Then finally, just how we create value. We're in a great position from a balance sheet perspective. I'm sure we'll talk about M&A, and how we can continue to utilize the balance sheet to continue to build a great, a great business. Hopefully you get a chance to really see our segments. We resegmented a few years ago after the Vontier transaction, and we're in a great position in all three segments. In its simplest form, Fortive is really about connected workflows in really a few different customer venues, factories, commercial buildings, engineering labs, and hospitals. Really delivering safety and productivity and quality solutions with both hardware and software. It's really that simple. It's really everything we do today in each of those segments is really focused on bringing those connected solutions to a set of customers that really are specific to each segment. We think it's built a differentiated performance. It's a way to create incredible value in franchises that are enduring in terms of customer value and a great way to continue to build and grow your company over time. Just a slide around where we think our performance is, and I draw you to a couple of real key metrics for us. Certainly core growth, gross margin expansion, operating margins, as well as free cash flow margins. Those are really the four metrics that are really important to us, the numbers that we drive every day in what we do. We think we've made a great progress over the last several years. I won't read the slide to you, but certainly we continue to move our growth rate up in ways that are incredibly positive. We've made incredible progress around our gross margins today, which gives us a tremendous opportunity to continue to grow operating margins over time. We think we're just starting you know, our efforts towards continuing to build world-class operating margins. Finally, our free cash flow. I think 2022 really differentiated us. We've always had incredibly strong free cash flow. I think in 2022 you really see that differentiated with the progress we made as well. I'm sure we'll talk about some of that. Finally, just really just the power of the Fortive Business System, whether it be how we handle the supply chain issues and how we've utilized the, our tools in FBS to really drive gross margins in years where most people were trying to keep their gross margins maybe still year-over-year consistent. We grew gross margins last year, and I think that speaks to the power of FBS. All right, from an innovation perspective, we'll we've launched a number of great new products in 2022, and I think 2023 will probably be our best year for innovation since we've been public. Finally, I think just the work we've done to continue to build new businesses to create differentiated performance. FBS means just as much today in a healthcare business or a software business as it does in a legacy in industrial manufacturing business that we've had as part of the portfolio for, you know, 20 or 30 years. Finally, we think that creates a tremendous opportunity for double-digit earnings growth and free cash flow growth, really to continue to accelerate that flywheel, which is so important to us of driving growth, expanding margins, using our free cash flow to acquire, and then creating tremendous value through the Fortive Business System. A few quick words. Andy, I promised five minutes. I got it done in five minutes, we'll get going. Yeah. I almost might have done that in five minutes. Thanks, Jim. Look, I just want to address the near term first briefly, and then we'll move on. You know, I think you had mentioned, on your Q4 call an expectation that, you know, customers might start the year in a wait and see mode. Just kind of what have you seen from customers? Then, you know, I know you had talked about your orders normalizing. I know you were at my peers conference, so maybe you or Chuck can sort of clarify your commentary around orders normalizing, what that means for Fortive. Well, I think maybe, you know, number one, I would say, you know, we saw after two years of such strong orders. You know, as an example, Tektronix being up 40% over two years. We expected things to normalize at some point in time. You know, we really think, you know, our core growth is really mid-single digits through the cycle. Inevitably, we're gonna come, start to come back to that number over time. With such strong orders and backlog, and I'm sure we'll talk about that as well-We would expect. That's what we saw. We saw it in the fourth quarter. Mm-hmm. In Q1 is, you know, comps will make a difference first half to second half a little bit. Orders will look a little bit better in the second half. Reality is just from a sequential perspective and what we're looking at in just in total dollars, there's no big escalation in the second half. You know, we think we're in a good position. We, you know, relative to customers, we're seeing some slowing in Sensing. Mm-hmm. We expected Tektronix customers to maybe take a little bit of a pause, wait to see what the macro looks like in 2023. We've seen some of that, but nothing different than what we expected. Okay. Kind of what you had talked about. Yeah, exactly. Pretty consistent. Yeah. Yep. Got it. Let me ask you specifically about China. You know, it was up 20% for Fortive in Q4, even despite, you know, COVID pressures. You know, now that we're done with Chinese New Year, sort of what are you seeing there? And I know you said COVID in China led to 50%, you know, elective procedures in AHS, you know, as a percentage to those 19th January. Yeah. Like sort of where we are on that. Yeah, we had a great year. As you said, the fourth quarter was great. The whole year was pretty strong. Our teams did a great job of dealing with a lot of the issues that were over there. What we've seen so far is strength in the three businesses that are, you know, four big businesses over there that make the biggest difference. Fluke, Tek, and Sensing continue to be good over there. Point of Sale is good. As you said, healthcare, you know, electives were in 30% in December. They got to about 50 in January, and they progressively getting a little bit better every month. March is always a big month for us in China. I wouldn't necessarily say we've seen everything that we'll see, but so far so good. Just one more question on the regions. Like, you know, you said if there's gonna be a weak point in Fortive, it's gonna be Europe this year, but you outperformed last year in Europe. Yeah. I've heard that from you guys before, you know, that you're worried about Europe. Maybe you can talk about that. You know, here in North America, do you expect this to be the sort of strong point? Yeah. I think there's two things at play out. One is, you're right, Western Europe is in particular has been good. Mm-hmm. Overall, Europe will be a little bit challenged because of some Russia comps and things like that. Mm-hmm. I think Western Europe will be a little slower. You know, we also don't have the benefit of the software businesses in Europe like we do in North America. Mm-hmm. You know, that's the other component here is, you know, the durability that we have in the portfolio is a little bit more in North America than it is in Western Europe. I think we'll see some slowing, but point of sale as an example at Fluke has still remained, you know, pretty good. Mm-hmm. I think there's still an anticipation that maybe there might be some challenges there. Got it. I wanted to ask you know, about maybe longer-term growth, right? You know, you've answered this year 3% to 5.5%, but you talked about mid-single digit plus like across the cycle, right? I think, you know, when you had your analyst day, you talked about higher growth in AHS and IOS, you know, low growth in Precision, but that's not kind of what we've seen, right? if you talk about the algorithm going forward. Yeah. You know, how should we think about those three segments, especially since Precision's been a bit stronger? Yeah. Well, yeah, put a shameless plug in for our investor day in May, so that we'll have an opportunity to give you a little bit deeper dive into the segments of the businesses. I think at the end of the day, that mid-single digit is what we think through the cycle. You're right, Precision Tech is moving up. I think the work that the Tektronix team has done really gives us some confidence to move that growth rate from what was probably out low single digit to mid-single digit. Mm-hmm. They're the biggest part of PT. Mm-hmm. Sensing still maybe is in that low single-digit. A lot of the good work that we've done at Tek, we're also doing in Sensing. You know, I think that'll continue to do. I think PT will move the overall growth rate of PT. It'll continue to move up. It's really about the secular drivers. We'll talk about them, I'm sure, but it's really been the repositioning strategically that we've done with Tek over the last few years has been really powerful. I mean, I should just ask you about that now, Jim, like to sort of talk about Tek, right? You got a lot more recurring revenue. You know, we have the electrification of everything going on. Like, how important is maybe the electrification of everything to Tek? You know, 'cause even 10 years ago, people worried it's a very cyclical business. Yeah. Good point. Like, what does it look like now you think over the next 5 years? Yeah. Well, intentionally, we've done a lot to make it less cyclical. As you said, we put big service business into the, into the portfolio. I think the biggest thing we've done over the last few years is, as you said, you know, it's all of this great software and data analytics and things that we can do now have to sit on hardware, and that hardware needs upgrading, right? We've talked about the semiconductor infrastructure that's gonna get invested in and things like that. Obviously EVs, but everything needs a battery now. When those batteries need to be designed into things, into everything they need, they need an oscilloscope. Our solutions are really benefiting from the fact that these secular drivers are really causing big R&D spend into these kinds of opportunities with our customers. That obviously we're big beneficiaries of that work. Jim, like you've had a lot of new product intros on the oscilloscope side. I guess I think that's really good, right? The concern is like, do we lap a new product intro or something like that. Yeah. How do we think about that as we go out over the next couple of years? Well, the cadence has been, as you said, tremendous over the last several years. The part of the background work that was done a few years before that was really getting us onto platforms that will allow for more rapid introduction. We used to have a lot of different separate platforms and software architectures as part of the embedded software, and that led to a longer design cycle. This is probably 10 years ago. What we did first was t ry to consolidate a lot of those, and that's a great work that's been done. Now that allows for much more rapid introduction of product. Mm-hmm. You know, even the 6 Series that we launched a few years ago, we launched a new version of that. Mm-hmm. a year later. It's just the continued ability to sort of fast cycle product, do product development has been a big part of their introduction phase of technology, and I wouldn't see that slowing anytime soon. I wanna shift gears and ask you about recurring revenue, right? You're at 40% recurring revenue right now, give or take. We know you've got it, you know, double-digit SaaS this year, licensing revenue in 2023. As these recurring revenues grow faster than the company average, you know, how do you think about that affecting the company? I think you've talked about, you know, within five years, 45%-50% recurring revenue, 20% software as a percent of sales. You know, are you ahead of schedule versus that 2021 analyst day? Like, how should we think about it? I mean, I'm sure you'll tell us in May, but, you know. Give us a little preview of that. Well, I think, one of the things that's happened the last couple years is the hardware businesses have grown really well, right? Yeah. I think strategically, we would say, yeah, we're ahead. Mm-hmm. Where the numbers are gonna be at, 100 basis points or 200 basis points, they're gonna move around from year to year, depending on the revenue streams. Mm-hmm. I think when you look at the franchises we've built around recurring revenue. Mm-hmm. one being the healthcare businesses, you know, 70% recurring revenue in healthcare, great franchise, great customer value. The facility and asset lifecycle now incredibly sizable franchise and set of brands that's really strong in software. Certainly what we've done on the EHS side as well, which is almost all recurring revenue, even if it's hardware. I think, you know, we built these franchises that are incredibly strong strategically, and we're ahead of the game in that. You know, we're intentional about recurring revenue for sure, but the real, you know, the real goal is durability, durable growth, right? Mm-hmm. At the end of the day, a more durable growth. We're still, you know, we still have some cyclical parts of the company, but much less than it was several years ago, and we'll continue to endeavor to make that less and less and make that revenue, those revenue numbers, you know, more and more durable and go up over time, like you, like you saw on that slide. Let's talk about margins for a second. You know, again, longer-term target of 75 basis points a year. I think you're right on top of that for 202023 in terms of the guidance. You know, but you're coming off a relatively, you know, sticky supply chain year. I mean, it seems like price versus cost should be a pretty good tailwind for you guys. You know, what's holding you back from generating more than 75 basis points? In particular, you know, looking Precision Technologies, you know, where you're guiding to less margin improvement versus the other two divisions. Yeah, Andy, I think I'll take that. I think inflation's still out there. Mm-hmm. The rate of inflation is going to slow, but we probably won't put as much price in, so we're probably matching that. There, you know, the biggest lever that we're looking for that we haven't seen yet is maybe around these spot buys for these electronic components. Those haven't yet many, you know, come back. When they do, you could see some upside, but until we see that, we probably won't put that into our forecast. Do you mean, Chuck, like, you're still paying extra for electronic components? Oh, yeah. Yeah, yeah. like, you think that it's possibly going down this year, but you haven't seen it yet? We- It's not in the guidance. We definitely haven't seen it yet. Okay, got it. You know, you mentioned last quarter about restructuring costs, $25 million-$30 million, you know, that would significantly benefit the second half of the year in 2024. It sounded like it's focused on SaaS maybe. Could you elaborate on your action structuring, how it could impact AHS margin? You know, again, AHS margin's been kind of pressured for different reasons. You know, if I look at 2022, obviously you've talked about electric procedure weakness and all that kind of stuff. How much could restructuring help? Are we gonna stop talking about AHS margins? Probably not, because I see a lot of great things coming for AHS margins, so we're gonna be probably highlighting that for some time to come. Yeah. With restructuring, I think it's about 40, maybe 40% to AHS- Yeah. Evenly split over amongst the other two segments. A little bit more, you know, weighted there. Some of it has to do with, you know, it's really doing the carve-out. We always said that there was more things that we could do to streamline, especially around logistics and how we go to market. I think you're gonna see us do some of those things, realign some things. Just a small example, if we have a country, we have a physical presence, and it really just should be through a distributor. We wanna make that adjustment, and that'll improve profitability and margins. There's a number of things, rooftops, those things can be expensive as well. Talking about margins in 2022, specifically around health, you know, we saw really good margin expansion sequentially from Q3 to Q4, up 400 basis points. It came in a little short of where we thought it would be, while the company overall did what we thought. That had to do with FX moving against us. Mm-hmm. health margins, we did a great job for the company staying ahead of price cost, but it's harder to get price into healthcare. It doesn't mean. Mm-hmm. it's not happening. We've accelerated the price, that we got into health from the first half to the second half. That'll continue into this year. Mm-hmm. We're gonna get ahead on price cost, and that's gonna be a tailwind. Health margins, it's a very global business, and we have inventories around the world. When as the dollar strengthened, and it hit all of our segments, but with you know, 4% growth, Health didn't have as much room to- Yeah. to cover that. Then, as we talked about, elective procedures are coming back. I think that we've got a number of things that are gonna flip from headwinds over the last three years to tailwinds when you think about inflation price, elective procedures, FX. I like what's gonna happen here. Chuck, I think it's an important point, right? Because, you know, most of us are industrial analysts, right? It's a little harder, you know, when you look at healthcare from the industrial lens. Like, you know, I'm covering some other companies that have healthcare. Like, you mentioned pricing. Like it just seems sometimes a little harder to push pricing in healthcare. Like what have you guys done to really sort of push that? Well, a number of things. With the carve-outs, we inherited some contracts. Yeah. Some of them didn't have the ability to do anything with price. We've been changing that. We knew that when we did the deal. We didn't know we were gonna run into hyperinflation. Yeah. As we rework those and then now you still are very measured in terms of what you can do each year, but you can do it over multiple years, and that's where you'll see play out in health when you look at a longer period of time. As I said, the price that we're able to put in will be a compounding effect. You're gonna see inflation moderate and then hopefully, you know, get back. I don't know, I'm not gonna forecast what the Fed's saying. You know, that'll become a tailwind as we move forward. Are these like annual contracts, so we think like every year, you know, a certain percentage should sort of readjust like that? Is that the way to think about it? Yeah. There's two things going on is you'll have these contracts that span multiple years- Yeah. You don't get to renegotiate and say, "Hey, we have to have the ability to raise price depending on what inflation does." We've been working on that. There's also, you know, it's healthcare. They don't, you can't put as much price in a one year. There's typically a cap. You can keep going after it for multiple years, and that's what we'll do. Just while we're on healthcare, I just want more on this. Like, so, you know, you look at a business like I think it's Invetech, right? Like where you had some pandemic tailwinds and stuff. Yeah. Like, you know, how should we think about 2023 as a more normalized year for a business like Invetech? How do we think about pandemic, you know, headwinds in terms of comparisons ending, you know, things like that? I think Invetech, you're right. That was one of the few places where we actually had a Covid tailwind. Yeah. With that shows up in Q1. I think as you certainly get into the back half of the year, that won't show up, and it'll be that won't be a headwind for us going forward. Helpful. One more on that. Just like consumables, like part of the ASP story is really, you know, the consumable part. How do you feel about that, you know, as you go into... Well, you know, in Q3 we talked about, what health was gonna do from growth rate. Yeah. A return to mid-single digit growth in Q4. Consumables were actually up 7% in Q4. That was driven more by North America, Western Europe, Covid receding. Yeah. You know, we're gonna have an issue with in China as we talked about. Mm-hmm. slowing because you know, of how they changed their policies. In Q1, January particularly, their hospitals were overrun. There's not a lot of elective procedures. Yeah. That's a wave, much like probably we saw last year with the Omicron variant. Yeah. Exiting Q1, it won't be back to normal, but it's going to start becoming sequentially better. Yeah. I think we're looking forward to seeing what's, you know, the, China's a big market for us. Yeah. In healthcare, seeing that play out as it did with, what we're seeing in North America as well. Yeah, got it. Jim, let me ask you about, like you asked you about Tektronix. Let me ask you about Fluke, you know, in the sense that also, you know, it's your largest business in IOS, right? Again, in the past, I think investors have thought about it as relatively cyclical, but I think you've done a lot to it over time. Let me talk about what you've done. You know, how do you think it sort of develops? You know, if we do have a more significant economic downturn, like how would it act? Yeah. Well, it, you know, they've had a very strong couple of years, not just because of, you know, the macro, but because of the work they've done. Probably the biggest thing we did to put more stability and durability in the business was build a very large healthcare business, which we then moved into the health segment. Yeah. Yeah. You don't see that in the health numbers today. In the Fluke numbers today. I think at the end of the day, 2023. You know, we've not seen the sort of negative POS in any way, shape, or form. Mm-hmm. We've had double-digit point of sale pretty much across the world for, you know, several quarters now, going back even into 21. You know, we've seen some of that point of sale moderate into the high single-digit range. Yeah. Still pretty good. We're seeing a little weakness in smaller distributors. Mm-hmm. You know, some of the public folks that many of you know. Mm-hmm. That kind of thing are still very good and they're big customers of ours. Point of sale remains good, and inventory levels are not real high. You know, we feel pretty good about our ability to have a still a good year there. You know, there'll be some inevitable weakness that- Yeah. that will happen in some places. you know, The business still has some correlation to PMIs. Yeah. You know, we saw a little bit of order weakness there, a little bit less. We don't have the Tektronix backlog position is very, very strong. Fluke's is good, but not as good. We'll see a little bit of that play out. I think at the end of the day, the things they've done, this is gonna be their best year for innovation. Yeah. We feel like, a lot of the things that we can do to really make the year better are certainly in place. Jim, let me just ask you one follow-up there. Like, what do you think is going on? You know, like PMIs obviously are down a bit. Looks still pretty good. Yeah. You know, what do you think is behind that to a certain extent? Well, there's a tail of customers. Mm-hmm. don't have the solutions. I think the other thing, and this is maybe more broadly for us. Mm-hmm. you know, almost everything we do today is designated towards saving labor. Mm-hmm. In many respects, when you think about the connected workflow-. Mm-hmm. The advantage to a customer of the connected workflow is being able to utilize hardware and software to do things that predict, to predict labor, to make things more productive. Inevitably, those are solutions that are even more important if things start to slow a little bit. Mm-hmm. I have one example. It's not in, it's not with Fluke, but with health. Mm-hmm. You know, we have, we have a new productivity suite that we call Censis AI- Mm-hmm. which helps the sterilization organizations predict labor and understand what they have ahead of them. Mm-hmm. Get ahead of any labor shortages they might have. Well, in this labor environment in hospitals, that tool is absolutely critical. Yeah. I think what we've tried to do from a solutions perspective is really try to get ahead of that. Fluke certainly has a number of solutions that are focused on that. The other part of it is they're focused on things like solar and a lot of the electricity, you know, grid monitoring things that are occurring, and fundamentally, those aren't gonna change in a slow economy. I think it's a really good segue into sort of your facility and asset lifecycle business because it's kind of the same story, right? You're guiding to low double-digit growth. You did that kinda last year. I think that's the highest growth that you're guiding to with the company. Can you talk about your level of visibility of that growth and sort of what gives you the confidence for the strong momentum? I think it's gonna be very similar to your last. Yeah. -answer. you know, within that, Accruent, you know, has it really turned the corner toward higher growth now? you know, maybe conviction level around, you know, the SaaS-based revenue ramping and service channel, if you could? Yeah. I mean, we had, as you said, great growth in 2022. We'll have a great year in 2023. It, it does start with the fact that, you know, organizations are looking at their facilities footprint, they're looking at their facilities costs, and they're trying to reduce it... Mm-hmm. if they think things are gonna be a little tighter. That's a, that's a lever they'll go to before labor cost reductions, right? Yeah. you know, when you manage leases, when you manage facilities, when you look at fields, you know, when you look at contractor costs on things. Mm-hmm. those are gonna be places where, you know, our customers really wanna go look, and that's what that segment does. Certainly, they're benefiting from that trend, that secular driver, which I think continues. Gordian has been an outstanding part of that story, more in the state and local and federal government level, but I think we've seen, you know, really strong growth there, in part because of the, you know, they provide cost savings to their customers. In the sense of what we've got as a set of solutions, I think we're well positioned for and for this year and really into the future. Relative to Accruent, you're exactly right, Andy. I mean, we've talked about this a little bit. It's been a self-help story. Mm-hmm. We've continued to see green shoots, we think we'll continue to see that through the year. You know, one of the things that, you know, there's been a challenge in that business is just getting this, not necessarily the SaaS conversion, but with so many product lines, getting the top product lines to continue to grow well while we sort of sunset some of the product lines that inevitably aren't as valuable to customers. We did some of that in the fourth quarter, and we're through most of that. As that headwind starts to mitigate, you know, be a smaller part of the revenue base, the really strong growth that we've had in some of the top places where we've been investing will overtake the growth rate and will inevitably continue to improve it. I forgot when I was talking to Chuck about AHS, I forgot to ask you guys about Provation. Like, it sounds like it's got, you know, pretty good momentum now, but maybe you can talk to us. I think it's been, what? About a year. Yeah, a little over a year. What have you done in a year? How does it look? Yeah, it's a great business. I mean, you know, at the end of the day, again, like, sorry to repeat myself so much, you know, in the GI suite, the productivity that it really has and the value that it has is an easy sell to organizations. In that sense, you know, we said we were gonna drive growth in that business over time three ways. Mm-hmm. The expansion of ambulatory surgical centers was gonna drive growth. That was really a secular driver that they were well-positioned to take advantage of. Mm-hmm. Number two was gonna be the SaaS conversion, and number three was gonna be the other specialties that... Mm-hmm. that they were involved in. The year came in, we continued to see those that secular driver of ASCs, and we did well in those. The GI SaaS growth was very good, and it was on the backs of the fact that our SaaS conversions were ahead of plan for the year. Mm-hmm. We didn't really have a lot in the, in the new specialties, so that's really a story probably for the future years. Again, we didn't build much into it, so that's really not a story. Mm-hmm. We feel really good. That business was always very profitable. Mm-hmm. This, they but they grew margins in the year, so it's really continuing to position it for growth. They've been a good practitioner of FBS, and, we think 2023 will be a strong year for them. Jim, it doesn't seem like hospitals in North America are really affecting that business in terms of staffing and all that kind of stuff. Yeah. You know, what we've seen a little bit is we've seen new business. Mm-hmm. has taken a little longer. The sales funnels have taken a little longer. Mm-hmm. Maybe the IT organization has 20 projects, and even though we might be one or two on the list, they may not have enough labor. Mm-hmm. We've seen a little bit of that but, you know, I think in the grand scheme of things, that sort of works its way through over you know, after several quarters. Our sales funnels are very strong. I think there's gonna be another Investor Day thing, but I'm gonna ask you anyway. You know, you've got a few key initiatives, right? The Fortive Pioneer Square Labs. Yeah. Like, maybe just update us on, you know, how they're helping? Yeah. you know, with medium, you know, short, medium, long-term growth. Pioneer Square Labs is an incubator. Yeah. Just for everybody's benefit. We have a partnership with them we've had for a couple of years now where we co-develop ideas, and then inevitably we come up with a. We have a methodology of whether or not we take that business and we fund it for a while, then we decide what we'll do with it. The other part of it was we really wanted to take the, some of their practices for really what I'll call breakthrough innovation that they were incredibly good at and apply that to our own product development process. In that process, we are winning big time. Like, a lot of the innovation that you're seeing that we've launched actually comes from some of the things that we adapted from what we've learned from them. On the front of investing, we've not spun anything in, but we've spun some things out. Mm-hmm. Where we end up being investors in. Mm-hmm. That's the intention is to really be more of a spin-in thing. Mm-hmm. We've had some great ideas and we feel very strongly it's been a great win-win partnership for us. The Fort is our centralized activity for data analytics and machine learning and AI. Really we do that centrally as a way to sort of, one is to build critical mass, and number two is to, I think we can. The resources are a little bit fungible by business. We've seen some really success. I think we've had 40 projects that range from internal projects to automate internal processes and reduce labor and drive productivity. Those savings are probably into the millions now. Mm-hmm. We've also had a number of solutions that we've launched. I mentioned the Censis solution. Mm-hmm. That was done in concert with The Fort. Mm-hmm. we've got another set of solutions that we're doing between, with Censis as well in the perioperative loop that the workflow between OR, the operating room, and the sterilization lab. you know, these are really strong foundational work. The Fort's really adding value and is, you know, if you've played around with things like ChatGPT and things like that... Mm-hmm. you know that AI is just gonna accelerate and I think it'll probably mostly in our software businesses because we already have the data platforms in which to monetize that. I think we're in a, both of those activities and endeavors that we had have been incredibly successful. Soon some AI is gonna be asking you these fireside chat questions. I hope not, but you never know. I. Hope I'm answering them too. Yeah, exactly. I wanna open it up to the audience in a second, but let me ask you about free cash flow first. Just in the sense that I think you mentioned it, you know, you sometimes I don't think you get enough credit for your free cash flow, you know, over 20% free cash flow margins, percent of sales, very good. You know, 100-105% conversion for 2023. Maybe talk about how FBS was able to protect your cash flow, you know, in such a difficult supply chain environment. Is there even more you can do? I mean, I know mix probably helps too and stuff. What more can you do there? 'Cause we always want more, as you guys know. Yeah. So do we. Yeah. Well, we did have a great year, as we expected. You know, the consistency of it, I think, is showing up because of FBS and how we go about it. Doesn't mean we didn't leave some, you know, opportunity on the table. It's a tough environment out there. Our inventories are above where we want them to be. We found some other things that we could countermeasure. For example, at ASP, getting FBS in there and the daily management of their working capital. It, you know, over $50 million of working capital has been reduced, and maybe it's closer to well over 50. Over half of that number was this year. Part of that free cash flow is getting after in a tough environment how we manage, you know, some of these new acquisitions. Also, you know, the obviously the software businesses with negative working capital, the faster they grow, the, you know, the more they help us there. Those are a couple of areas where one by design with the software businesses. The FBS, the biggest single one was at ASP. Although I think Tek, I'd be remiss if I didn't point out that they had their eleventh straight year of improving working capital turns at that business. There's numerous places that FBS comes to help. Any questions from the audience? Any question? It's early, so we'll give them time. Yeah. Let me ask you about capital deployment then. You know, maybe just reconcile sort of what's going on for me, Jim, in the sense that you've mentioned being in a good place when it comes to, you know, your M&A funnel on the Q4 call. I think you've also said that, you know, it's gonna take sort of 18 months or so to sort of, I don't know, get buyers and sellers together. It's just a tough market in that sense. Kinda those two things seem different to me. Yeah. Where's your guys head in terms of doing M&A right now? Well, I think number one, you know, we've been busy. I mean, you know, we wanna be busy on all the time. The busy falls into the category of managing the funnels that are in there, cultivating companies, talking to them, being engaged in processes that might be out there. What I said though, mostly through 2022, is we saw a lot of those processes not go anywhere. Mm-hmm. They ended up inevitably not consummating anything. That's the sort of signals you get that say 12 to 18 months, where those processes inevitably go somewhere because now buyers and sellers are closer to the point where. Mm-hmm. They can come to a deal. Mm-hmm. I still think we're in the middle of that timeframe. We're not, we're not finished in it in any way. You know, we'll. The balance sheet's in great shape. We feel very good about the opportunities we have, but we're disciplined and patient. We don't. We've got some great businesses. We've just spent, you know, the last, you know, 35 minutes talking about the great opportunities that we have to deliver in 2023 and we feel very strongly that that can deliver differentiated performance. We also feel that, you know, we'll be active in working on things, and hopefully, we'll consummate some things. You know, I don't worry. We don't worry one month or another, or one quarter or another, or even half a year because inevitably we know those things will be out there. Jim, you know, you just said, like, you've been involved in processes that are out there, so obviously I'm gonna ask you about Natty in one sense, and that is, you know, you said on the Q4 call, you mentioned partnerships with them. How do you think about potential synergies and/or overlap with NATI if you were to pursue a deal? Well, the great thing about being involved in processes is that we don't talk about them. I said I was gonna ask. You gotta ask. You know, and, you know, the reason for that is obviously whether we're involved or not involved, we wanna maintain the level of civility and things in these processes that, you know, and respect those processes. We just wouldn't comment on anyone's process. Okay, fair enough. Question? To address that, can you just talk to what you're willing to do with the capital structure to get stuff done? I mean, we talked about the great shape of the balance sheet. Are you willing to go beyond and what are the limitations? I'm gonna say, for example, there was a big debate at a dinner last night on what your willingness and potentials were. If that could be clarified, it'd be helpful. Sure. Sure. Well, what I think if that, if you're asking, you know, about e-equity, for example, that's, we said that's a non-starter for us. We're not willing to do that in any large, even a hypothetical deal. We wanna make sure we're clear on that. We wanna maintain a investment-grade rating solidly and not put that in jeopardy. I think those are clear guardrails in our point of view. I think that's, we think, you know, we know we have over the next three years, $5 billion of capacity, and that can be deployed towards, you know, driving double-digit earnings growth. That, I think that's what we're focused on. It's fair to say that you've done RMTs in the past, things like that, you can do. It's, how do I say this? You know, exotic is the wrong word, but you can do more, you know, exotic deals or whatever you want. Well, we certainly have done different things. Right. I think those are those always end up being very unique situations. Mm-hmm. I wouldn't want anyone to think that, you know, that those unique situations necessarily dictate how we, how we think about things going forward. Fair. Let me ask you one more question. I ask this question of all companies. What are the top two or three innovations, mega trends, or structural changes affecting your company over the next five years? Are there any emerging industry trends that are perhaps being overlooked, you think? Well, I would say the two things that come to mind around really what we really think about from a mega trend perspective, certainly the labor shortage, particularly around essential workers, whether that's in the factory, whether that's in contractors, whether that's in the hospitals, that labor shortage is a tremendous opportunity for a workflow-focused company. Mm-hmm. I think that's number one. Mm-hmm. I think number two is the energy transition. When you look across the portfolio, whether it's what we're doing in solar at Fluke or what we're doing from an R&D perspective around all things batteries, what Qualitrol's involved in relative to grid modernization, that's probably the number two thing that we really look at and say across the portfolio. Mm-hmm. We're really seeing tremendous opportunity. Mm-hmm. you know what we're tracking, we wouldn't tell you 'cause then everybody would know, so. Right. We certainly in our strategic plan process and what we talk with the board, we certainly keep an eye on those things. We're really excited about the two I just mentioned. Great. Jim, Chuck, thank you very much. Yeah. Appreciate you guys being here. Great seeing you. Thanks, everyone. Thank you.