Fortive Corporation (FTV) Earnings Call Transcript & Summary

All right. Up next, we have Fortive and CEO, Jim Lico. Jim is going to do a bit of an intro, and then we'll jump right into Q&A. Jim?

Thanks, Steve. Good morning. I guess, it's still morning for everyone. It's great to be here. It's great to be in person, I think, is maybe the greatest fact. So what I thought I'd do for a minute, just given the fact that a lot's changed since -- over the last few years, certainly and maybe a little bit in our story, too, might make some sense to just spend a few minutes on kind of where Fortive is today, the position we have and maybe what -- what's going on in the business here a little bit. Go the other way. Maybe, first, a little bit about who we are and kind of where '22 is at. I think we're incredibly well-positioned for growth and profitability. You can see in many respects, the growth -- we'll do about $5.8 billion here in the year. So a good revenue size, for sure. I think that's the profile of that revenue structure that really is -- really tells our story, one, being the recurring revenue now at almost 40%, certainly, a portion of that software but also services so a much more durable growth company today. Continue to expand gross margins, sort of a testament to our success over years and something we continue to have very strong focus on, so that we can really -- which really helps fuel the investments in growth and innovation. Good profitability and strong free margin cash flow. More U.S.-centric, maybe North America-centric than we were 5 years ago when we spun out of Danaher so continued opportunities for globalization and a number of really strong end markets and a diverse set of end markets that I think give our businesses and our segments tremendous opportunity and leverage in which to grow and build competitive advantage. Maybe more important slide for today is really where we've come from since the spin in '16, 5.5 years ago. Certainly, we've endeavored to continue to make a change in the portfolio -- I think a significant change in the portfolio. I'd like to think of the first 5 years as maybe more transformation. The next 5 may be more evolution, certainly, on the inbound side with a number of things to help our growth rate. We've acquired about $2.3 billion worth of revenue. And you can see tremendous margin leverage in those businesses over time since we've acquired them with over 820 basis points so really strong leverage. We've gone into more durable businesses. We've certainly gone into more secular business that are driven by more secular growth drivers like our environmental health and safety platform, which really helps customers take -- really drive their sustainability strategies. We've done a number of things on the outbound side, both our -- the Reverse Morris Trust that we did with Altra to put our automation business in a very good position for the future as well as the Vontier separation that we did last year, separating our sort of mobility businesses, if you will, into an independent structure. And then we've continued to build other workflows within the business in health care as well as in facilities and asset life cycle management with a number of businesses. All of these businesses that we continue to bring into Fortive -- our growth year have great sustainable competitive advantage around those -- the growth drivers in those businesses and great opportunities to accelerate the growth and profitability of Fortive. This is our segment view. And I think -- maybe what is different from -- certainly from 5 years ago, as we did the Vontier separation and we finalized that a little over a year ago, then we went into these new segments, all 3 segments have tremendous opportunities in front of them. I won't go into a lot of detail here. I'd rather spend the time with Steve and all of you in Q&A. But suffice it to say that where we stand today is strong. All these segments have very strong, durable growth drivers. They tend to focus on products, both hardware, software and service solutions, that really make the world safer and smarter, can be in a hospital, can be in an engineering lab, can be in a manufacturing facility. But really, all of our solutions focused on that in slightly different ways. You can see the construct of those segments all with very strong profitability, some with better gross margins, but all with great -- all good gross margins. And you can see recurring revenue continues to be a focus of us. You can see that in our health segment where 70% of our revenue stream today is recurring. So continued work on the M&A front to build out these segments. Segment CEOs have -- 3 segment CEOs who have responsibility for building their businesses both organically and inorganically over time. What has stayed the same is the strength of our franchises and brands, and the market positions they have today continues to be a hallmark of who we are and businesses in which the Fortive Business System, the construct of our continuous improvement culture, which really is applicable to all of these business, and not only allows us to acquire great businesses but also allows us to continue to make them more competitive and help them win in the marketplace, which ultimately builds more profitability and cash flow for our portfolio. And that's where we stand today. You can see some of the comparisons from '16 here, certainly, a better growth rate from GDP plus growth to really more mid-single-digit growth through the cycle. And that being more durable given the -- and more resilient given the 40% recurring revenue, almost over doubling that number from a few years ago. Significant software revenue. We'll do roughly about $950 million, almost $1 billion in software within the portfolio of several software companies that are well-positioned in their markets and in a great position, I think, in many respects to continue to grow at an accelerated pace, which ultimately means that percentage of software revenue within our company will continue to go greater even without any inorganic activity simply because our software businesses are growing at a rate that's above our fleet average. That'll continue to drive our margin structure and obviously also is a great tenet for continued strong free cash flow into the future. So hopefully, it gives you some sense of what we've done, how we started, where we -- what we've been doing and where we are today. We're really excited about talking about the future. A lot going on in the world today, for sure. I'm sure we'll get into that -- some of that as well. But I think we're really well-positioned here for the future. Looking forward to talking about the future of the company. So with that...

Great. Could you just maybe start with the obligatory Russia -- Europe question that we've been asking everybody? What's your latest on what's going on in Europe? Has it impacting the -- how the quarter's coming along?

Yes. It's a small business for us, less than 1% of our revenue. We'll suspend operations here in the near term with the exception of our health-care business where we'll still do some humanitarian work, but it has minimal impact. We have enough backlog in the business right now that we can divert any revenue that would have maybe happened in the quarter, we'll divert that revenue to opportunities with customers outside. More broadly, we don't have a lot of exposure in the Ukraine or, really, those parts. And we had expected Europe to slow a little bit this year already. And I think what we've seen so far is within that construct.

And then China, there have been some shutdowns and COVID reemerging. What do you guys -- you guys have a decent exposure there, so maybe...

Yes, we do. I mean, it's a good-sized business. I think that also puts us on the forefront of seeing things early. We saw some of these changes actually happening in the first part of January. And so we've seen some shutdowns in some cities here starting in the beginning of the quarter. And they've been intermittent. And what we've seen so far up until this point, and I think we still continue to see, is this idea that cities are shutting down for a few days, and then they're reopening. It's not this sort of all-encompassing shutdown like we saw in several economies back at the start of COVID in 2020. So there'll be a little bit of momentary disruption for a few days within the commercial activity, but I would fundamentally expect us to continue to be able to deal with the challenges there provided they continue to be like they have been, which is sort of a city-by-city situation. I think the long-term dynamics of the need to keep their economy going is going to put, my own personal opinion, haven't been there for a long time -- a lot over the last couple of decades is there'll be a lot of pressure to continue the economy there.

And then supply chain and labor dynamics, what are you guys seeing there so far in the quarter?

Yes, I mean labor is -- there's certainly been labor inflation, but it's such a small percentage of our cost structure that it's really not a...

What percentage is it?

Well, from -- in a cost of goods perspective, it's 1% or 2%, I think, or something like that. So it's pretty small. It's mostly material. We do -- if we're in manufacturing, we're doing mostly final assembly and tests. So it's really mostly in our supply chain that we've seen it. And obviously, we've seen the inflationary environment. We grew gross margins through last year, all 3 quarters, up until the fourth quarter. We've been well ahead of price cost, 200 -- over 200 basis points of margin expansion last year. We'll continue to have margin expansion every quarter this year. That margin expansion has been pervasive in all segments. So I think we're well -- we're certainly not -- there's no shortage of challenges as you and I have spoke, but I think we've dealt with them. And we -- our planning assumption for the year was that supply chain issues would be with us all year. It was our countermeasures that would have more and more impact through the year, our ability to sort of fix those things is getting better every month. Our redesigns and our resupplying efforts are taking -- are creating a bow wave of actions that fundamentally help us improve throughout the year. But that's not because the issues are going away. I think the issues are going to be here with us for the -- certainly for this year.

What on the supply side is -- are the long poles in the tent. I mean, are there specific components that you're seeing challenging?

Yes. I would -- I'm not sure we're that different than a lot of folks. Certainly ASICs are a challenge. FPGAs are a problem. Those are very important pieces of our -- of instrumentation. So that certainly -- a little bit on the memory side, a little bit on the battery side. But I would say, by and large, it can be a 12 -- in some cases, it can be a simple 12-pin connector that can be a problem. So it's really around managing the variety of issues as well. We always Pareto these challenges, but I can tell you the Pareto is not 1 or 2 things. It's a lot of things. And that's why I think it's so important for us to -- FBS and our ability to manage how we manage daily, how we manage weekly and all that really helps us deal with these challenges as well. So I think we'll continue to -- I'm very confident we'll continue to deal with the challenges that are ahead of us.

And this is all kind of in line with how you guys would have thought about it back in January?

Yes. I don't -- we'll probably see a little bit more inflation on the freight side because of oil. We'll start to see freight surcharges.

How big is freight for you guys?

It's 1% or 2%. And I don't -- we were anticipating freight increases just sort of because of the -- more of the contraction of supply as opposed to what was happening with oil. So it's well within the guidelines that we thought for the year. And we put in -- our price cost has been well ahead all year. And this won't -- what we've seen thus far from an inflationary perspective across the board won't change our view on price/cost.

Do you have to go out with another price increase to hit that number? Or is it already stuff that's embedded in the...

At this point, it's about getting price than putting anything new in. We have those levers if we need to. But we put a lot of price in. As you know, we've historically -- because of the strength of our brands, we've always been able to sort of deal, I think, in the price world. We've always had 75 to 100 basis points of price every year anyway. And so we've put significantly more of that price into the market. I think its ability to get after and get it than it is really putting anything new out there.

What percentage -- you guys obviously have a high percentage of kind of recurring revenues, consumables. What percentage of your COGS are purchased materials, if you will, because you don't have a lot of raw, more like purchase...

Yes -- no, it's probably 80%, 85% of our COGS.

Right. But your COGS is a smaller percent of sales as others because of the high gross margin.

Right, yes, exactly.

And then the other variable that I think is -- moves around a bit quarter-to-quarter would be elective procedures. 3M yesterday said kind of flat quarter-to-quarter. They're assuming it gets a lot better, up 10% exit rate in the fourth quarter. What do you guys see in there? Remind us of what you expect on that front.

Yes. We always -- I think our guiding assumption was -- having been wrong on electives pretty -- a few times in the last couple of years, I think what we tried to do is -- we obviously saw electives go down in the fourth as Omicron came into the U.S. We saw -- and so our assumption was that procedures actually go down Q4 to Q1, and then they would progressively get better. That would inevitably mean that '21 and '22 were pretty close to even. I think that's still our right planning assumption. So we don't anticipate -- they will get a little bit better through the year, but we don't expect them to get dramatically better. I think that probably is upside in the business if we see that, but I think we want to be a little bit more of a [ Missourian ] here and see it before we'd call it out yet.

So when you look at the health-care segment, pretty dramatic margin expansion. It's a big part of the bridge from '21 to '22 for the growth rate that you're putting up in profit. Can you just talk about the visibility on that and the pieces of that? Obviously, electives you're saying are flat. So it's not necessarily mix on consumables, if you will. What's underlying that visibility and that strength?

Well, I think -- and we had good margin expansion in health last year despite the consumables situation. So I think it's a few things. One is, I think, the core of FBS, really going after and improving gross margins on the hardware that we sell. We've had really good equipment sales over the last couple years. We've grown our installed base 3% the last few years each year. And that we've been growing that installed base, and we've been improving equipment margins during that time frame. So that's one lever that is with us, and it's going to continue. Will continue despite electives not being up, the fact that we've grown the installed base then means that we're getting more consumables. We're just not getting it from electives. We're getting it from the fact that we're growing the installed base on a global basis. So I think that's -- so we're getting a little bit more consumable. So those 2 are really big efforts. And of course, when we bought the business from J&J, we set it up with a cost structure. We always knew there would be places for productivity, and some of the margin expansion is coming from those productivity initiatives that we feel confident about.

Right. So I guess the profile is you've already got the installed base growth. That drives some consumables mix, but a lot of it seems like it's kind of a self-help dynamic around the ASP business that still is a tail that's coming through from integration. And if electives come back, then that should be a nice good guy with upside...

It will be. I would say it will be upside. If we get consumables coming back the way -- I think it was appropriate to plan the way we planned. If consumables come up, it will definitely be an opportunity. It's the highest margin part of ASP, for sure.

So another element looking out that we've had questions on, and I think they've just been a little bit more inflammatory after what happened in the fourth quarter is the ramp in the acceleration in growth in -- from the first quarter to kind of the fourth quarter exit rate. Is there any other way to frame it than kind of what you guys have already said we may be seeing a couple months of performance out of the businesses like -- it just seems like it's a bit of a heavy lift. But seasonally and looking at the stacked comps, maybe not. What has to happen for you guys to see that kind of ramp?

Yes. I think -- well, I think there's a little bit of a head fake that the fourth quarter growth rate didn't end up being as high as we wanted it to be. And so it's an easier comp when we get to the fourth quarter of this year. I think when we look at the first half to second half, we feel very comfortable with that transition. I won't even call it a ramp because it's not that big a ramp to really go from the first half to the second half. What has to happen? Well, we certainly need to continue those countermeasures on the supply chain to continue to make those improvements. But that's something we control. So I like that fact. The fact that we have a record backlog going into the year -- our hardware backlog up 84%, a significant part of what we need to do is just to get after that backlog. And so it's not orders we need. I would say the additional data point, and then how we've talked about this is the fact that we started the year very good on the order front. So demand has continued to be strong. Point of sale has continued to be strong. So where we have information on point of sale, which is primarily at Fluke and Tektronix, those point-of-sale numbers are very good, and they're in line with our order rates, which is good to see. So I think all of that means we're going to sort of exit the first half still building backlog off of an already record backlog and supply chain countermeasures taking hold. And as you said, a number of electives -- maybe electives get a little bit better, maybe they get more, but we don't need that. So I think the second half is set up. Now what we said, which has -- is that the first quarter is 23% of our year from a revenue perspective, and that's in line with pretty much every year we've had. So it's -- when you look at the 2-year comps and when you look at some of those things, I think the first half to second half ramp doesn't look as big a lift as what people anticipated when they first see the headline number, if you will.

And then what happened in the fourth quarter? I mean I think -- I didn't meet with you guys during the fourth, but I think there was some concern that those that have met with you guys in November didn't kind of get the tone that maybe that there was a concern in what happened in December. I mean, did that kind of take you by surprise? And at what point did you kind of know that there was this kind of shortfall coming?

Yes. I think -- well, I think what we said was, in the third quarter, we said, hey, we saw a lot of supply chain challenges -- really starting in the second quarter, we talked about them. And when we entered the fourth quarter, we said the supply chain issues are getting worse than they were throughout the year. And we also said December is always a big month. I think what we saw was Omicron going down, which cut our health care -- some of our health-care revenue. That $50 million miss was about 2/3 supply chain, 1/3 COVID. So COVID's getting worse through the quarter with December being the worst month on electives. Some hospitals deciding not to buy equipment and that getting pushed into 2022. So you've got that effect. You've got several suppliers falling down in the middle of December and us working like heck to countermeasure it. And fundamentally, that means on, what, a $1.4 billion quarter, $1.5 billion -- we missed by 50. But it -- I'm not making excuses for that. We intended to get that out. But a couple -- we just ran out of days in the quarter.

Right. Kind of a bit too back-end loaded in the quarter, which I guess it always is. Turning to the acquisitions you guys have recently done. ServiceChannel looks like a pretty good one, off the bat. You guys talk about kind of a flywheel dynamic and expanding customer wallet and things like that. What are the keys that we should be watching for from a KPI perspective to judge how well that acquisition is going? And maybe any update on revenue growth and margin potential.

Yes. We're really happy with the business. We end -- the bookings numbers are -- off of a year ago are super high. In the fourth quarter, I think there was 60% or 70%. So be careful about those numbers. But it is a 20% growth business. It grew about 30% in '21. We feel very good about the position of the business. The team -- as well as the team, we've been through our 100-day strat process, which really identified a number of growth vectors. We've brought some team members in to help accelerate innovation to continue to build the business. That's a -- it's certainly a double-digit growth business for a long time. The one aspect of the business, it was breakeven. And the prior owners had really set the business up for growth and have been really investing in growth. And we felt that this was at a bit of a transition point where it could start to add profitability to the business now that it had built to scale from a commercial standpoint and from an R&D standpoint. So we believe we'll get it from breakeven to an exit rate in '22 at 20% operating profit. We feel very confident that, that is something we can get to. So early days still, 6 or 7 months into the deal, but we feel confident about the growth rate. Everything we've seen from a new logo perspective and from a ability to kind of continue to up-sell and cross-sell customers is happening. The product is every bit a great product like we thought and due diligence. So I don't want to be pollyannish. There's always some things we've got to go fix but really excited about having the business...

And where does net dollar retention stand now for this...

104%, I think, 104%. So 104%. So -- and we think this is a business that can be 108% to 110%.

And then there's Provation, which I think barely has -- you don't even have a quarter of performance around, but I think there's a bit of consternation in the market about competitive dynamics here, I guess. Maybe talk about how, during your due diligence, what kind of barriers you think this -- my view is niche software is going to be harder and harder as the big guys try and tuck it into their solution and grow it, which ultimately means they throw resources at it for an ultimately lower profit pool for the entire industry like everything in the world. So why is this -- why do you think this is different? What are the key barriers that differentiate this and make this a sustainable growth story for many years to come?

Yes. It's about $100 million business today. So roughly good gross -- or good net dollar retention. This is a business that's very profitable, 30% kind of EBITDA margins. It's going to be accretive for us this year, about $0.08. So coming out of the bat. So I think it's -- and everything we've seen so far, as you said, even though you said it's early, we feel good about where the business stands today. That said, there's been some noise out there about competitive dynamics, totally appropriate. Given the position that Epic and Cerner have in the hospital, there's always a question of how do you compete with -- in the case of Epic, there's a Lumen's product out there. I would say a couple things. One is we did more customer due diligence on Provation than we've ever done. And that -- what we got from that was doctors loving the product. I think when you sit in the GI suite the way you do, one of the things that's different than a lot of places is that the doctors -- the GI docs have a lot of pull. And quite frankly, the procedures are really important to the profitability of the hospital. So it's really important. We've seen cases in due diligence where doctors actually would not change practices if Provation was not the software being used, and that's because of the value proposition that exists around the whole workflow. But within the procedure itself, the clinical superiority, the ability, the framework in which we take people through those procedures and the really fast response time to get to documentation, the linkage with photos is really simple and easy. And so all of that means the doctor can do things quickly. They don't -- as we know, doctors don't like to do documentation. And so the ability to do what used to take 15 minutes or takes 15 minutes with competitors, takes about 2 to 3 minutes with us. So it's those sort of competitive advantages, we think, are really good, and it really builds on, I think, on the work that they've done -- to also build out the workflow. So it's also really sticky because it's not just within the procedure itself, but it's the pre- and post-work that happens within the procedure. I think the combination of things makes it a really winning proposition, and quite frankly, a real value proposition for the doctors themselves.

Did you evaluate or see this Lumen's product through your due diligence? And what's kind of the -- what's the current market share split, if you will, of the 2 platforms?

We think there's -- everything we've seen is below 5% for their share. We've found very, very few situations in hospitals. That said, we don't want to discount that in any way, shape or form in what we want to do. And there are other competitors as well. We have a relationship with Cerner, which I think is really important. We're on their Millennium platform. They've dropped their GI suite solution for ours. So they're going to be our partner in Cerner hospitals. We actually have higher market share in Epic Hospitals than we do -- higher penetration in Epic hospitals than we do Cerner hospitals. So that gives us an opportunity to sort of continue to accelerate penetration on the Cerner side as well. So I think we're very well-positioned from a partnership and technology perspective to be...

And Lumen's has been out there for a while?

2017, I think.

Okay. 2017, so they've had kind of plenty of...

Yes. And they'll probably make the product better. I would anticipate that. But we have a lot of places where we compete, and this is one where we'll work really effectively, and we know we've got to accelerate innovation and those things to continue to compete over time.

And this year, just remind me what you expect for growth for the business this year?

Double digit. I think it's probably in the 20% range, yes.

20% range this year.

Yes.

Okay. When you think about your software business in total, it's supposed to be $950 million this year, decent size. Just talk about the makeup of that. How much is SaaS? And then what we can expect in total, where margins are today, where they can go, how fast that kind of part of the portfolio is growing in total? Because these are parts of that, $200 million plus of that, but there's still a decent amount that's not the 2 you just said.

That's right. Right. I mean, and we think the software business is going to grow double digit this year. From a profitability perspective, if you take out ServiceChannel, which is almost breakeven, you're really in our intellects business where we're sort of investing a little bit more. All of our software businesses are over the fleet average already today. And we don't have a software business that doesn't have the opportunity to be a Rule of 40 business. And we have one that's a Rule of 50 business today. And I think those opportunities to bring the rest of the sort of younger parts of Fortive up to -- into the 40s and 50s is there in every one of those businesses. So it's a good margin structure today but certainly can be a much better part of our margin story in the future.

And how do you -- do you just leverage that growth? Or are there actual operating impacts that you can have from FBS and...

For sure. We tried to lay out in our investor conference in May a few of those examples of how we're using FBS within software. I would summarize -- first of all, I think we've got a decade's experience of making the business system more appropriate for the business that we have. So when we were -- back in the Danaher days when we were mostly manufacturing, FBS looked like a manufacturing tool, lean manufacturing. Today, it's much more of a business system, and it's as applicable in a software business as it is at Tektronix. It's been a part of our family for 15 years. And I think it's because we've adapted tools, we've learned from software companies that we bought and brought in their tools because a lot of them have their own tools. And I think it's that combination that's really making FBS appropriate. So some of it will be. We utilize machine learning and data analytics, algorithms that we've developed in our centralized data analytics organization we call The Fort. And we're able to sort of create those churn algorithms that now we can take into every software company and reduce churn, which improves net dollar retention. So part of our net dollar retention story improvement is really an FBS story.

So how has that trended? Where are you today in total with that -- with your software portfolio? Where was that maybe -- you put up that acquisition chart and showed 800 basis points margin improvement. Like what would that net dollar retention number look like? Is it up a few hundred basis points?

It's probably about 102 this year. So it was below 100 when we bought on average. So you're probably up -- in the portfolio, probably able to take it up 100 basis points a year. And that won't -- that may not be forever. Some businesses -- we have product lines, as an example, in the Accruent that are already at 115. So we have examples of really, really high net dollar retention businesses within the portfolio today. We just need to bring up the bottom. It's as much about bringing up the bottom as anything else.

And what would your target be for percentage of SaaS from that -- from your total...

Yes. We're at 50% of that software number today. I think that number goes to probably -- over a longer period of time, probably goes to 70. But it won't go to 100. We have services in there. Gordian, one of our larger software companies, is really -- has software, but it also creates revenue through its procurement job order contracting model, which isn't SaaS. So we'll probably -- if we have a destination, it might be 70 over time. But certainly, a number of our businesses continue to progress, and a number of them are already native cloud, right? And so there's no -- there's really only conversion in a couple of places.

And the net dollar retention number, where -- can that go to 105, 106? What's the -- what's kind of the longer-term vision for how -- for where you can get that with these businesses?

I think the quality of the franchises we have today would suggest we could certainly get into the 108, 109, 110 is -- I certainly think is feasible.

So if we think about lean -- when I think about lean, I always think about kind of inventory and velocity and what that does to everything. Is this kind of the KPI that we should all be watching for this business and how you guys are actually making these businesses better when you bring them in?

It's an important KPI. Yes. I would say in manufacturing companies, working capital is sort of the sum total of all the problems in a company. And as you really make a company better, working capital improves. I think net dollar retention has some of that similar effect because our software businesses, for the most part, are negative working capital. So -- but when you look at net dollar retention, it's the value proposition that you have from an innovation standpoint, right? It's your ability to sustain customers from a commercial standpoint. So it really is a good metric for how do things improve. And your overall ability to improve an organization and a software company will find its way in that metric and core growth, by the way.

So like -- I've patted you on the back a couple times with a couple of these deals. So when we look at Accruent, for example, like talk about what has gone maybe wrong there and then what specifically mechanically you're kind of pushing on to start to see that business climb out from where it's been.

Yes, we try to be transparent about the self-help story at Accruent and kind of where that's at. And we're not -- we were not as fast out of the gate at making the changes we needed to make. And we made some good progress in the last 6 months. We've got a new leader in the business. And so I think those are good things. And what we've really focused on is make -- it was really a number of product companies. What we tried to do is simplify the business. We've moved a couple of those product lines to Gordian because they're really more in the preconstruction phase. We focused the business around some growth opportunities, one of them being sort of workforce planning and getting back to work. We have a number of solutions that are focused on helping organizations bring people back into the office, hoteling, facility planning, those kinds of things. So we focused the business -- our innovation efforts more. We probably have more technical debt from a product platform architecture perspective than we wanted to. So in the last couple years, we've been doing a lot of work to clean that up, and that would be another phase of trying to make sure we get those kinds of things. And then as you said, a number of the -- I sort of bragged on some of the product lines that are at 115, but there are also some that are at 95, right? And so bringing a few of those up is a big part of the effort as well.

And should we start to see where is Accruent today on a net dollar retention for what's left of what you didn't move? And then where should we see that 2 years down the road, 3 years down the road?

Yes. They were about 100 last year, if I remember correctly. And I think that's kind of a place we can start to see, 100 basis points of growth each year. And I think the other aspect of it is we'll -- I think that not only does that improve growth but improves profitability, too, because we're spending a lot of commercial efforts at reducing -- on churn events, if you will. And by reducing churn and by improving up-selling, you just become more efficient in your sales motion.

Right. Any questions? Got about 6 minutes left. Anybody have...

Just any thoughts you could share on sources and uses for 2022? I know that the Provation deal you closed in December, I think, you funded that with a bit of short-term debt and cash. And then I think February, convertible bond matured. So just any thoughts there? And any plans to term some of that out in the debt markets?

Yes. I think right now, where we stand, first, I think with our cash flow, we can -- we feel very comfortable with being able to get our debt continued down. With right now, no plan to do anything that we would necessarily say is an extravagant use of getting -- needing more cash in an instrument or anything like that.

I had a couple questions on some of the recent acquisitions. The first one is, I mean, Accruent has had its set of issues. You're talking about $100 million base. It was a roll-up before. But you've also acquired ServiceChannel. And so I guess how much of Accruent is really a focus for you as opposed to just integrating it into ServiceChannel and sort of that being the right deal that you did? And my second question was around Provation. And my understanding of it is that it's very well-penetrated in the U.S. And so for the growth to happen, it either needs to expand outside of GI where you already have a dominant share and -- or you need to expand internationally. Can you kind of talk about what the strategy is around those drivers and if the U.S. growth is sort of more tepid while the growth is really going to come from international?

Yes. So a lot there. First, I think, Accruent in and of itself is going to continue to get better, and I think we do have a real effort there. We are certainly with the -- in the broader facilities asset management life cycle, we now have 3 businesses there, as you pointed out. Gordian, which is really focused on state and local governments and has a sort of very vertical-centric aspect of that for the solution, but certainly, parts of Accruent, primarily a product line like Verisae, and our ServiceChannel offering are similar. However, they do go to different markets. ServiceChannel really tends to be somebody who wants a more outsourced model, have ServiceChannel do more of the work. The Accruent solution looks more to the end user who wants to do most of it themselves. They have their own supplier network. They want to manage it. There's a little bit of overlap in people who make those choices. We actually are finding there's less overlap than we originally thought. So we'll continue to watch that. And as we continue to grow both businesses, if in fact we continue to see the opportunities where that customer segment becomes similar, then we might consider some things. We will consider doing more together in Europe as we grow the business in Europe because we have a smaller footprint in both businesses. ServiceChannel has just won some good contracts over there. So there is an opportunity, I think, to do more in different places around the world. North America might remain more separate. But outside of North America, we might do things more together. We have -- and our leadership understands that and is, I think, working exceptionally well together in that regard. On Provation, I would say we're under -- we're penetrated pretty well in the U.S., but there's still a lot of opportunities because of ambulatory surgical center growth is going to continue. And so, there'll be a lot more ASCs out there here in the future and continued more work going in there. And there's not as much penetration in that end market. So we do have -- we do see opportunities still in hospitals but also in ASC. So if I were to bridge the growth, I would say the first bridge is that. The second piece is the SaaS conversion, right? We have a very large maintenance stream that we will convert to SaaS. We've already started doing that. That will provide substantial growth to the business as we convert that maintenance stream. The third piece is there are additional specialties, and we are -- but it's not the biggest piece. It's really -- we were relatively conservative on the work -- on growth relative to new specialties. So really, that's more probably upside in our model than anything else. And then the fourth piece is international. So I think that's the bridge. So the first 2 really provide the real opportunity -- really, what I would say, the first things we're focused on. But certainly, there's opportunities in some of those other areas but probably provides more upside to things than anything else.

When we look at the potential for acquisitions, once you guys delever years' worth of cash flow, you'll be back in the game likely later this year. What are -- how do you feel about multiples? Are we going to look a little bit more at hardware going forward? Or is it still pretty software-focused, the funnel?

I think if you look at the last couple of years -- if you look at our 5-year history, we've done a good mix of hardware and software. And I think that's what I would expect it to continue to be. Any 1 year is going to be opportunities. We looked at seriously as many hardware deals last year as software deals. We ended up just closing on 2 software deals. I think multiples for everything were higher. Sometimes it gets constructed that software multiples were high, but hardware multiples were low. They were different. But if you look at the sheer delta change, they were pretty similar. So I think we continue to be incredibly disciplined around the financial returns and profile that we want to achieve. And we're really confident we want to continue to accelerate strategy in our segments through both a combination of hardware and software.

Okay. Any other questions? I think we're good.

Thank you.

Thanks for the time, everybody. Good to see everyone. Thank you.