Fortive Corporation (FTV) Earnings Call Transcript & Summary

All right. Moving right along here. We've got the guys from Fortive, Chuck McLaughlin; as well as Jim Lico, CFO and CEO. As usual, please feel free to e-mail me, IB me or put a question in on the website for the event and we're happy to answer those -- get those answered as we go. Guys, thanks very much for joining me today. I appreciate it.

Glad to be here.

Great to be here, Steve.

So maybe just a bit of an update on -- I kind of like to start where we are today and kind of end where we're going. So what are you guys seeing in your businesses so far this quarter? And any trends that are surprising, anything that we have to take in account -- take into account and thinking about the guidance that you guys have in place, many moving parts there?

Yes. I think, Steve, very much playing out the way we thought, obviously, bits and pieces, maybe a little slightly different, but all up, I think, continue to be in the way that we thought things would play out. So I wouldn't say anything different. Obviously, when we started the quarter and the year, we talked about a few things that we needed. We were watching whether it be elective procedures, whether store production, what was going on with some of our customers relative to inventories where we have channel partners. And then finally, just thinking about our ability to get on-site relative to getting assessment services for some of our software businesses, professional services for some of our software businesses. And I would say, by and large, things play out the way we anticipated. So we still feel very good about the strategies we've got going and playing out. That's pretty much what we're focused on.

On the AHS business, kind of any pickup in consumables since the start of '21? And how is growth trending in China versus North America on that front?

Yes. I think when -- we'd say Q4 and Q1 are pretty similar to elective procedures. No big on a global basis, no big ramp between geographies or anything. And in many cases, January was a little bit of a rougher month because we saw case loads start to come back after the holiday season, particularly in the U.S. and in Europe. Certainly, as we see today, some challenges in Europe and in some places like Italy and things. So I would say all up playing out like we thought relative to how we anticipated. We still anticipate things to be better in the second half. I think we're optimistic about vaccines. We're optimistic about what we're hearing from customers around the world. Obviously, there will be some fits and starts, I think, over the next month or 2, but I think at the end of the day, playing out as expected, and we still are optimistic that things would be better in the second half.

Any lift from the TSA on revenues at ASP this year? And then how much of a lift on margins is that, as that kind of rolls off?

Yes. Steve, we saw it sequentially in Q4 of last year. It was up, I think, about 500 basis points from Q3, and that was really around the TSA. So as you come into this year, you'll see a similar year-on-year lift in Q1. But as you go through the year, each -- those TSAs were rolling off through the year. So by the time you get to Q4, there won't be a TSA lift. Keep in mind, though, that our consumables are down with proportionally with the elective surgeries and that's some of the most profitable pieces of the business. And as those things recover, that's also still hiding a little bit of the margin potential here in this business.

Right. So those are kind of 2 offsetting factors, one kind of mechanical and one that's a little bit more market related as it comes back?

Right. I don't know if they're offsetting. They both go the same way. Our margins year-on-year in Q1 of this year will be up over what they were last year.

Right. Right.

Because of the TSAs.

Right, right. The Invetech business here grew pretty strongly in the fourth quarter. You noticed kind of it can be a little bit -- you noted it could be a little bit lumpy. As kind of COVID testing rolls off in '21, how do we think about the comps for that business? And is there any impact on mix there from business like that?

Yes. On balance, first. It's not a big part of Fortive by any stretch of the imagination, but a 50% growth in the fourth quarter, it kind of had to be called out, right? So I think it can't be lumpy. Certainly some of the COVID testing opportunities. It's mostly an engineering design house for customers. It has some opportunities for cell therapy that we're working through, which could provide -- which will provide growth to the business. We'll see a second half headwind for sure. And on balance, that's going to be a margin -- that will be a margin profile improvement for the segment itself as maybe the ASP revenue replaces it. Some of the other parts of the portfolio having a little bit more profitability as that revenue replaces that we'll probably get a little bit of a mix improvement as well in the second half.

Got it. Okay. So it's not necessarily a needle mover at that stage of the game?

No. I think it's -- as I said, it was up 30% in the year, but mostly in the fourth quarter. We called it out in the fourth quarter. It should be a mid- to high single-digit grower going forward. But inevitably, needs to get to a little bit more size before it really moves the needle on the AHS segment.

Got it. Okay. On the IOS side, how do we think about kind of the rate of recovery at Gordian and Accruent?

Yes. I think they're 2 separate stories. As Gordian has been such a good story for us from Day 1, double-digit grower, very good profitable business, and a real underpenetration story, meaning we were going to continue to get growth through just penetrating the marketplace. And as a reminder, for everybody on the call, we get paid through the project costs that get thrown -- that get put through our job order contracting system for the majority of the revenue in that business. We're starting to see those projects start to get loaded into the system. So we're not getting revenue from them, but we're starting to see the projects. So we're seeing some -- we're starting to see some activity come back. We always thought this was a bit of a second half story. as well, Steve, and we anticipate that to continue to be true, and we feel really good about the opportunity in the business going forward. Accruent's feel equally good about the opportunity, but a little bit of a different story, certainly more impacted by both service capability outside assessment services like Gordian, but also professional services. We've also seen a little bit of -- as we know in that business, we were also seeing the sort of move to SaaS, which was a little bit of a momentary challenge. We've seen good growth in the SaaS business, and so we feel good about that. Again, I think we'll see some growth here as things start to come back through the year. And I think probably goes between -- certainly in the mid-single-digit range for the year for sure. And I think as we get into 2022, we'll be through a lot of the COVID-related kinds of things, we'll be through a lot of the SaaS conversion. We think that's a mid- to high single-digit grower into next year with tremendous opportunity. I think COVID has given us even more degrees of opportunity. So while COVID has been a short-run headwind, I think long term, the need for people to reassess their facilities, reassess their lease footprint, those kinds of things are really good secular drivers for the business. And so fundamentally, we think there's lots of opportunity in the business going forward from a growth potential standpoint.

Yes. And I guess if we kind of look out over the course of this year, is it kind of a steady trajectory on growth? Or can it be -- I mean I don't see any reason why these businesses would be that lumpy unless you have some comp issues. When you think about like second, third, fourth quarters, I mean, should these businesses be pretty kind of a stable trend line on growth?

Yes. Unless there'll be quarters where we might get a bigger professional services contract, which might impact the growth. But we ought to see progressively good improvement through the year.

Got it. ISC was down in the fourth quarter, driven by weakness in oil and gas in North America. How do we look at this business coming back here and over the course of this year?

I think what we love about that business is the iNET part of the business, which is really our service business, which -- where we really help customers really deal with their gas detection challenges through a service model. That business has continued to play -- do very well throughout the year. It's really been the -- our instrumentation business that was so challenged in the year and our rental business. We think that's probably still challenged through most of the year. We're not really calling anything coming back, but we think the iNet business continues to be strong. I think we really see the business back in probably a little bit better shape more broadly probably towards the back half of the year, probably more closer to into 2022.

Got it. Got it. Okay. And then lastly, for iOS, Fluke was pretty good in China versus North America and Europe. How do we look at that business from a geographic perspective here for this year?

Yes. I mean I think as we get through some of the comps in the first half, you start to get into a growth rate that I think is -- continues to be good, but is not as much impacted by the comps. We've seen progressively better business in Fluke, as you noted in the fourth quarter. We started things continue to come back. We believe that will continue to be true. Obviously, a comp in the second quarter will look -- the growth will look a little strange just given the comp. But I think we're building a great business here across Fluke. It's a tremendous franchise. It's been a big part of our margin expansion story as an example in iOS in the fourth quarter. We think margins can continue to grow. So I think all in all, we certainly believe the business will continue to improve on a 2-year stack basis, and I think that's probably how we think about it. And I think it will be driven more by the U.S. as we progressively get through the year, obviously, with China really after the first quarter of last year, China did pretty well most of the year.

And within iOS, anything moving around in kind of the first quarter here different than what you would thought, whether they're -- it's all the same, but there's some puts and takes or everything kind of trending in line in general?

I think it's what you -- more which is the former. There's always puts and takes that go about this, but in general, there's -- I think that it's playing out largely as we expected. Keep in mind, we knew January when we gave the guide. So we feel things are continuing to progress and the macro is getting nominally better as we move towards spring.

So within Precision Tech. How is Tektronix? How's the outlook there for '21? Any impact from the trade restrictions still lingering out there? I know we're -- people kind of put all that to bed, but anything -- I guess, just an update on Tektronix and how that's doing?

Yes. I think we had a good mid single-digit growth fourth quarter. We see -- our outlook there is good. We've had -- in a number of areas, our service business has held up well. So I think we have a good year there this year, for sure. Trade restrictions, as you pointed out, we were probably more worried about it 3 months ago than we are today, but continue to see that on the horizon as potential. But right now, we're not calling out anything that would necessarily be a headwind right now, at least.

So Tektronix can be a solid grower kind of throughout? Or are we also thinking about kind of a bit of a second half for that guy as well?

No. I think we'll have -- we'll obviously have easier comps in something like the second quarter, in China in the first quarter. But I think you'll see -- we'll see growth throughout the year. And again, you can fall into that sort of 2-year stack basis. We should see growth through the entire year.

And then lastly, Sensing Tech. How is that business doing so far? And what do you expect for -- over the course of this year?

Yes. Sensing Tech has got -- it's a series of businesses that have niche positions. And certainly, right now, we saw some improvement in the tail end of the year that had us have some backlog in the first quarter. I think we have a pretty good insight into the first half. We think things are pretty good. I think it's still -- how the second half plays out. I think it's still within the story of Precision Tech. We're still sorting through, given the OEM nature of some of those businesses. We're hearing good things, but I think it's still -- I think we'll see how it plays out. I think at the end of the day, Precision Tech is probably going to be pretty good in the first half, just given comps and I think continued improvements in things like profitability. So I think we still are optimistic about the second half, but let's see how some of the things play out relative to some of our OEM customers, which I think they're still trying to sort through as well.

What -- how do you -- so just moving on to the margin side. Can you just remind us of what kind of -- I mean, I know companies aren't really been talking about this anymore, but is there anything kind of on a temporary cost front that's coming back that -- what kind of mitigate what would be kind of normal incremental margins? Or you just kind of blow through that this year with the growth?

Yes. Steve, I think that for the year, what we've been saying is that it's 35% incremental margins in the year. But when you look at it by quarter, it's really something in the 20s in Q2 because that's when some of the -- most the preponderance of our temporary actions will come back when you look year-on-year. If you look at the rest of the quarters, we would expect 40% incremental margins this year with the exclusion of Q2. So it's -- that's where most of our temporary actions that are already back in the run rate. Just when you get to the year-on-year, that's what you're going to see.

And the 40% is something that you guys feel as though is that's kind of the run rate to think about going forward?

Yes. With where our gross margins are now, we think that's -- we've stepped up to that. Also, where the growth -- where the portfolio is going to grow through the cycles, we think it is, and we would expect that we'd start to -- certainly start to see that.

And I guess somewhat related to that, on the R&D front, I think you guys have definitely moved that up. Obviously, that's somewhat of a function of the businesses that you're buying. Is that -- do we see that kind of moving higher? Or is the current level an appropriate level of spending in your view on R&D as a percentage of sales?

I think when you look at R&D, it's a bit of a -- it's a tale of many cities, right? I think since the inception, Steve, we've been pretty committed to making sure that these businesses have the appropriate amount of R&D in them. And we do that on a case-by-case basis, we don't fixate on any one number, but to make sure that our innovation capability continues to accelerate. Because we've talked about this. But first and foremost, when we came out, we knew we wanted to create a centralized data analytics and machine learning capability. We made pretty substantial investments in that capability at a corporate level, akin to how our FBS investments are. It really is an organization that supports efforts throughout all of our businesses, and that's been an important investment to make sure that we're get -- we're really creating the next level of innovation down the road. And then as it relates to the businesses, the software businesses have historically had a little bit more as a percent of R&D. But we will continue to invest, I think, in the other parts of our portfolio that are even more hardware-centric. Tektronix has always had a high level of R&D relative to its sales. Fluke has too. Sensing has a different capability, just by nature of -- it's OEM related. So it tends to have a little bit lower percentage. But I think, ultimately, it's about the outcomes. And the things that we sort of think about from an innovation perspective, do we continue to get things like price? Do we continue to see gross margins improve? Because fundamentally, we want customers to pay for that innovation. And I think one of the best testaments to the level of high-quality innovation that we've invested in, over the last 5 years is the growing gross margins. It's not just been from the business model changes. We've continued to grow gross margins at all of our businesses throughout the portfolio. And that's just not great factory improvement, sometimes in our hardware businesses. It's fundamentally even more about the innovation capability that we've grown in the business, made a part of FBS and fundamentally, customers are willing to pay for with better pricing over time.

And how much do you spend in R&D for your kind of -- for your software businesses? Like what's kind of the kind of rate you target as normal over time for businesses like that?

You're probably -- yes, you'll see it in the teens. I mean it's going to vary a little bit by -- it kind of depends on -- as an example, if we're a single platform, you've got businesses like Intelex and eMaint, as an example, Censis, that are single platform opportunities. So they might be a little bit lower. Accruent, where you've got multiple numbers of platforms, you have a little bit more investment in that. We think there's productivity, by the way, to be found through platforming over time. It's part of our value proposition. So it's going to vary a little bit. Gordian doesn't have as much because it tends to be more a data business. It doesn't have necessarily all the platform investments. So it's going to vary by business. I think it's important for us to understand the business itself and what we're doing individually within the strategies of those businesses. But you're going to see software businesses typically in the teens, that's not going to be unusual.

Got it. Got it. So longer term, I think your target is mid-single digit organic, 40%-plus recurring revenues, 30%-plus EBITDA margin, I think 20% of software sales. That's kind of, I think, kind of the high level targets you guys have set. Like, I think the growth side is probably there. How much -- is the -- pathway to get to that number? Is that like a 5-year story? Is that a 3-year story? Like where do we -- how -- what are the kind of levers? Obviously, acquisitions are going to play a key role here. What kind of timing do you think from targeting that type of framework?

Well, I think, first and foremost, it starts with strategy, right? At the end of the day, it's about the strategies within the individual businesses. I think we feel incredibly strong about the organic opportunities within the businesses today and where the portfolio sets within the segments. So you're certainly -- as an example, on the recurring revenue, we're already at that number pretty much, right, with 39%-ish. So in that sense, we're already at the precipice of a number of those numbers, as you said, on the organic growth rate, the recurring revenue. So I think we feel [indiscernible] those targets. But the time frame can be accelerated. As we think about accelerating strategy through M&A, the time frame for those percentages gets accelerated. So it's probably in a 3- to 5-year time frame, depending on the types of deals we do. When you start to talk about 20% software, as an example, we feel really good about the EBITDA growth rates in the businesses. But it can be accelerated through some things like scale and that kind of thing within current businesses. So I think it's a 3- to 5-year time frame for those targets. But I think, ultimately, we're in a very good glide path relative to those opportunities just because of the work we've done over the last 5 years to build the portfolio we have.

Have you -- through this downturn and what you saw from these businesses, do these businesses perform kind of as you would have expected? Were there some that kind of made you think twice about the cyclicality of some of them. I mean, you guys did a pretty good job of operating, of course, but anything that kind of stood out to you through the downturn that surprised you positively or negatively about these businesses that you have to add?

Well, I think -- yes. I think for sure, we didn't envision -- I would say, absolutely, the durability of the SaaS businesses and the strength of the businesses, particularly from a margin and cash flow profile is, quite frankly, they outperformed. I think if we didn't anticipate in this sort of downturn environment that we would drive the kind of increase in free cash flow that we had last year. And I think it just speaks to the quality of the businesses that we have in the portfolio. I would say to the other side of that, certainly, we didn't anticipate not getting on-site for software business. We think of a downturn, you think of economic uncertainty, but you don't think of the inability to actually get in front of a customer to do something. And I think that -- so a business like Gordian, as an example, are where we have assessment services. We didn't anticipate that, nor did we anticipate elective procedures, which have basically grown for the history of the world. We didn't anticipate elective procedures would go down because they haven't either. So those are probably the 2 places. But I think when you sort of roll all that up, the free cash flow ability, the ability to really be durable and resilient in a tough time has put the balance sheet and put the portfolio in such a good position. I think certainly, we feel really good about where we're at right now.

Got it. And then when you -- on the flip side, kind of when you think about M&A going forward here, post Vontier, what does that pipeline look like? Is there a preference for a type of business? I assume it kind of fits that framework that your long-term targets reflect. So which of these segments is getting a greater focus for the M&A dollars? Should we expect more software assets or maybe a hybrid industrial technology?

Yes. Well, Steve, you know us well, but maybe for everybody, we start with the framework of, do we like the market. We do a lot of market work. We have to really understand the various markets we play in. Then we do a bunch of work to understand the companies within those markets. And who -- and the prioritization around companies. And then that last question of, can we add value. And those three -- we need a good yes to all 3 of those questions in order to move forward on anything. I think within the construct of that, we feel good about the opportunities that exist in all 3 segments. You probably have a little bit more opportunity in IOS, by nature of the fact that our served market is bigger there. It tends to be a little bit more fragmented. So the degree and breadth of opportunities is a little bit broader there. But we feel good about the hand we have in all 3 segments and the ability to create great opportunities for businesses. And on the foundation of all that is, we've really done some really good work over the last few years to really help make sure that FBS can add value in those businesses. So we feel good around the range of opportunities. Now that said, I think it probably lends itself maybe a little bit more to software. But I wouldn't say it's all software. I think we really feel good that there's a breadth of opportunities around the kinds of things within these workflows that can add value. And as we know, M&A is episodic, you can't always predict which targets are going to become available. But the richness and breadth of the funnel would suggest that we've got a number of different kinds of opportunities that we feel really excited about.

On the software side, these multiples have been a little bit expensive here by most definitions. Any real updates there? I mean, do valuations really matter at this stage? Or is the focus much more strategic because it seems to be for a lot of these deals that everybody is generally doing. How do you think about valuation, I guess, in the context?

Well, we always think about valuations, and let me talk strategically about this, let Chuck talk about the financials. I think at the end of the day, you said it. We need to first make sure that we -- there's 2 components to that conversation. One is, do we really have a point of view around the strength of the market and the long-term secular drivers that are there. And the better the secular drivers, typically, the more the valuation is. But we really want to hone in on those secular drivers to make sure they're there. And secondly, we want to make sure we can add value. I think we can be excited about the business model of software, the recurring revenue. But if we -- and what we've really done over the last several years to really make FBS such an important ingredient to the success of any kind of business that we have. Obviously, FBS was always helpful to health care businesses from our time with Danaher, but the work we put into FBS to make sure that we add value in software. We can talk a little bit more about that, really helps us. I think really have a real firm point of view of not only do we like the market, but can we add value.

I think that's a very good -- could you follow-up on that? And just maybe just mechanically how you add value on that front?

Yes. I mean -- I think I'll give you some examples. I mean, one of the most important metrics in software is net dollar retention, right? That's the installed base you have and how does that grow in the following year. And we apply a number of tools that we've developed over the last few years to really help work on not only churn reduction, but also upselling. We bring some software automation to that as well relative to helping our businesses from a telemetry perspective to understand data usage. We've used the FORT or our data analytics and machine learning team to really help from a data analytics standpoint, understand and deeply problem solve where those things are. And in a place like Intelex where we've driven net dollar retention up 400 or 500 basis points in the last 12 months. So real value. Digital marketing is another place. And a lot of these businesses, we've developed to set up digital marketing tools that are really best-in-class, and we apply those to the business that really helps with that new logo aspect, reaching out to find new logos. And again, we've done that in a number of businesses and Accruent. We've done it in Intelex and eMaint as well. So I think those are just 2 examples. And then certainly across the innovation front, our product development tools, our agile software development process that we have in the Fortive software system is really a key tool that we bring to those businesses that are really important to adding value. And so we do that. When we do due diligence, we're assessing those opportunities. We're assessing the situation, and then we're trying to figure out which tools are going to be more appropriate to the business at hand.

So is this kind of -- I mean, I guess, is it, in essence, simplified to simplified? Is it, I guess, kind of a screening mechanism like who would be amenable to cross-sell, to an upgrade, to -- like I'm still like -- it's more of the front end, it seems, than the back end.

Yes. We've absolutely advanced -- yes, sorry to interrupt. We've obviously advanced our due diligence capability. We're a lot better today than we were 4 years ago about identifying these opportunities. But yes, as part of our due diligence, we may look at, hey, what -- we'll ask the question, how has your upselling been over the last several years? We'll compare that to the market opportunity. We'll hooked on our own outside in due diligence to understand. We'll have talked to end users and market participants as well. So yes, we've refined our capability a lot better. In the olden days, we used to -- a long, long time ago, we used to walk the factory floor, and we could see where the opportunity was, right? Today, we're much more sophisticated in that way. And it really -- FBS means as much to a software development and a software company today as it did 30 years ago when we were doing this in a mostly a manufacturing environment. And I think it really speaks to the credit of our FBS team to really continue to learn, and we're learning from the businesses that become part of Fortive. That's been a telltale sign of our success over the years, has been to really glean every time we buy a software business, they come with best practices. And we were sponge on those opportunities as well.

Is something like that enough to -- I mean, I remember the days when it was -- you'd buy kind of not an underperforming business but one that wasn't optimally -- performing optimally, and we'd see 1,000 basis points of margin improvement off of a low double-digit base. And clearly, you're basically doubling the EBITDA on that business. I mean is a few hundred basis points of net retention. I mean, I guess that all flows through to the bottom line. So I mean, is that -- it still seems like that construct is not as powerful as what you guys used to do at the old shop?

Well, yes, I mean, we...

The thing, I'd jump in there, is that you wouldn't think so just on the face of until you do the compounding impact, especially in a software business and play that over 10 years, the difference between 8% growth versus 5% growth, 10 years later, you -- it dwarfs what you just talked about, present one of those businesses that went from double the EBITDA kind of thing. And so anyway, it doesn't seem like it until you start playing that out and then you realize, no, that's actually a bigger driver.

And Steve, that gets to the -- that really gets the valuation question because those metrics for better businesses are obviously going to be in better shape, right? So when you talked about valuations and bid asks and things like that, I think it's really incumbent upon us to really understand where that business sits today, how much value we can add because what is true today is that there are A prices for A assets. There are also A prices for B assets. And I think what's really important in our understanding is, if we're going to pay the valuation that really suggests an A-type asset, than it really needs to be an A-type asset, right? It needs to have higher net retention. And the compounding of those businesses, as Chuck described, is going to be much better. So we can add value in those situations, but also the due diligence capability and our understanding of who resides and what markets and why is fundamentally important to the valuation question you asked a few minutes ago.

So if I said, "Hey, here's an asset that looks pretty good. It's a typical software asset. It's growing 3% to 4%, and you can't really accelerate that." That doesn't really seem -- that wouldn't really seem that attractive to you unless you could really take that growth rate through your kind of FBS to something that's more in kind of the 6%, 7% range, that compounding dynamic on the top line over time?

Yes. And I'll use the ASP example, even though it's not a software example, to your point, we saw that the sterilization market was growing mid-single digits. But ASP was not. And we felt very good. First, we did the market work to validate the sterilization market and the infection prevention opportunities was -- had long-term secular drivers. Then we found a company that we felt very strongly that through FBS, we could participate in the market growth rate at an accelerated rate. And now we're starting to see some of -- we're doing the work to get us there, COVID notwithstanding. And I think fundamentally, where we'll find those opportunities. I think what we've paid for that health care asset a few years ago looks pretty bargain-ish at this point. But I think fundamentally, we're going to look for those opportunities. But it has to start with that market growth rate, because the one thing we know is it's pretty hard to change the market growth rate.

Right, right, right. I guess, my point is, you wouldn't pay for -- you wouldn't pay a 7% growth rate type of multiple for a 4% growth business unless you thought you'd get to 7% type of growth, compounding means a lot over time, obviously?

Right. It does. And said another way also, we wouldn't want to find a 90% net retention business and pay that kind of multiple because what would happen is we'd be devoting so much more investment to getting that number off. It would be hard to get to the EBITDA targets that fundamentally you want to get to, right? There's really -- it's a growth and sort of the cost to get that growth that's important is when you're looking at software businesses as well.

Sure. That makes a ton of sense. I've gotten 2 questions from separate people on this topic. I honestly don't know how you can really respond to it. But there was obviously a significant change in the Board. Any comments you can make on that front. I'm a huge fan of Dan Comas, but the other guys are -- were pretty good as well historically. Anything you guys can comment on that front?

I think what we've said is and what we put in the press release is, so just to be consistent, we certainly are incredibly fortunate to have continued to work with Mitch and Steve for a long time. I personally worked with them for 25 years. That's hard to believe, that's a quarter of a century. But I think at the end of the day, we continue -- I think this is an affirmation of the strategy. Mitch -- Steve's never been on another public board, the fact that he was with us for 5 years, and given their other commitments, is a tremendous help to us. It's an affirmation of what we're doing. Certainly, Dan and his capability is a lottery pick from a Board member perspective, and we feel really good. Obviously, Dan has been an important part of Chuck and I's careers over the last long period of time. And we're incredibly fortunate. Dan has obviously been with mentioned Steve for -- since the '80s and really understands their perspective as well. He's got his own points of view. He's been a big part of the growth trajectory changes that have occurred in our prior company. So we feel very fortunate to have had Dan as well as a number of the other Board members that we've added here in the last few months. Shar Dubey and Rejji Hayes. And I think we've had a tremendous opportunity over the last several years to really get an outstanding Board. And Mitch and Steve are still a phone call away. They're going to remain shareholders as we said, and they're incredibly excited about the -- I think if they were on the call, they would tell you they're incredibly excited about the future of Fortive.

And then maybe one last question here on -- coming from the investor side. Just a little more color on -- you said there were some puts and takes and things moving around. A little more color on maybe what's change the most on the high end or what's changed the most on the underperformance side relative to the businesses, understanding they all haven't really in total moved, but are there any outliers, either positive or negative as we kind of move through the quarter here?

No, I don't think anything. Probably the thing that we're -- like many of companies that takes away, logistics supply chain issues have come up. But then there's been some other positives that have offset some of those things. That's really what we were talking about there. Not really a long term -- I mean, maybe supply chain issues are with us long term, but we'll -- the takes will get offset in the year, and we'll get them back here. So it's really around supply chain.

The demand patterns themselves have played out pretty close to how we thought they would.

Okay. Got it. And then for me, the -- what is your kind of level of leverage you'd be willing to sustain if something material came along. There have been some in our group that are up in the 5x range to get -- to seal a deal. How far would you stretch to get to -- what's kind of the max leverage you would go to?

Well, you never want to say never, but 1.5 years ago -- first of all, always with the idea that it creates shareholder value. But I mean, we've been over 3.5 to almost 4x. We've done that before. So clearly, we're willing to do that. But at the same time, investment grade is really important to us. And I think that when we get up there, like we did last time, we will find a way to come back down around 2, 2.5 in that range is a good place to be where you're "comfortable". But having said that, we're down at 1. That doesn't mean we're feeling any pressure to deploy capital. We've got a good year lining up for us here. And we're going to make sure that we will deploy capital. But it's around creating shareholder value, and we'll stick -- be very committed to that.

Great. I think that's all I have. There aren't any other questions here coming from the line. So guys, I really appreciate your time. And best of luck this year, and we'll talk in April.

Yes. Steve, thanks.