Hello. My name is Josh, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Fourth Quarter 2021 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Ms. Elena Rosman, Vice President of Investor Relations. Ms. Rosman, you may begin your conference.

Thank you, Josh, and thank you, everyone, for joining us on today's call. With us today are Jim Lico, our President and Chief Executive Officer; and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non-GAAP financial measures on today's call. Information required by Regulation G are available on the Investors section of our website at fortive.com. Our statements on period-to-period increases or decreases refer to year-over-year comparisons on a continuing operations basis. During the call, we will make forward-looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks, and actual results might differ materially from any forward-looking statements that we make today. Information regarding these risks factors is available on our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2020. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements. With that, I would like to turn the call over to Jim.

Thanks, Elena. Hello, everyone, and thank you for joining us. We delivered solid performance in the fourth quarter, closing out a very strong year as we focused on delivering for customers in an ongoing challenging environment. While we saw sequential growth and margin expansion across the portfolio, revenue in the quarter finished roughly $50 million below expectations as continuing supply chain constraints and the impact from the Omicron surge hindered our ability to deliver on our robust orders and backlog. Our businesses performed well despite these challenges, generating 190 basis points of core margin expansion and 13% adjusted earnings growth in the quarter. Our tax rate was flat on a year-on-year basis at 9%, however, lower than our expectations coming into the quarter. Free cash flow and conversion were lighter than expected as we invested in inventory to support customer demand and saw lower customer receipts at year end. For the year, we delivered core revenue growth of 9.5% and expanded adjusted operating margins by 210 basis points, driving 32% year-over-year growth in adjusted earnings. Strong demand for software-enabled workflows yielded double-digit software growth in 2021 and the fourth quarter. These results are a testament to the higher growth, more resilient, higher-margin portfolio that we have constructed through organic innovation and strategic M&A. With this portfolio and our team's disciplined and rigorous application of the Fortive Business System, we are well-positioned to deliver long-term sustainable value creation for all of our stakeholders. As you can see on Slide 4, all of our segments contributed to our solid fourth quarter results, including over 100 basis points core operating margin expansion in each. Supply chain constraints within both our supplier and logistics networks as well as COVID-related challenges suppressed core growth across a number of our businesses. Looking at the segments in…

Thanks, Jim, and hello, everyone. I'll begin on Slide 8 with a quick recap of our fourth quarter performance. We generated year-over-year total revenue growth of 3.8% with core growth of 1%. Acquisitions contributed over 3 points of growth in the quarter, primarily from ServiceChannel while FX was a modest headwind. Year-over-year orders and backlog in our hardware businesses grew 14% and 84%, respectively. Adjusted gross margins approached 58% in the quarter, and operating margins were 24.4%, near the high-end of our guidance. This reflected 190 basis points of core operating margin expansion with over 200 basis points of price realization. Turning to the right side of this slide. Jim covered the segment highlights earlier and I wanted to provide some further color on the regions. North America revenues were roughly flat, reflecting strong demand across multiple end markets, offset by supply chain constraints impacting Tektronix and Fluke, as well as lower consumables at ASP. Western Europe saw year-over-year declines across much of the portfolio, including a difficult COVID-related compare at Invetech. That said, we had good growth at ASP, where elective procedure rates have held up better, and consumables are benefiting from recent growth in our installed base. Asia as well as our high-growth regions grew revenues double digits in the quarter, driven by mid-teens growth in China with strong performance across the portfolio. Turning to Slide 9. We generated $265 million of free cash flow in the fourth quarter representing 92% conversion of adjusted net income. Working capital was a use of cash, as we made investments in inventory to support our robust revenue plan for 2022. And we also saw a change in receivables trend with lower customer receipts in the fourth quarter than we had expected. Staying with cash, we deployed $2.6 billion through M&A in…

Thanks, Chuck. As many of you know, Fortive celebrated its fifth anniversary as a public company in 2021. And as you can see on Slide 13, we continue to validate the investment thesis that we have pursued since 2016. Our through-cycle core growth has doubled from low single-digit to mid-single-digit as we have more than doubled our base of recurring revenue and meaningfully added higher-growth, higher-margin software businesses to our portfolio. Our gross and operating margins have increased as well. We've improved gross margins over 800 basis points. And back in 2016, we started off talking about 30 basis points to 50 basis points per year operating profit margin expansion. Now we're talking about 75 basis points on average per year through the cycle. As a result, earnings and free cash flow is also up meaningfully over this time. We are on track to a 20% free cash flow margin in 2022, up from approximately 18% in 2021, further differentiating Fortive. Wrapping up on Slide 14, and before we move to questions, I'd like to thank our team members for their exceptional commitment to our shared purpose and core values, which underpin everything we do and how we do it. Extraordinary teams delivering extraordinary results again in 2021, even in the face of unprecedented supply chain constraints and prolonged COVID headwinds, our teams remain focused and committed to delivering for our customers, each other and our shareholders, delivering financial results well ahead of our initial expectations coming into the year. While each of our businesses continues to evolve and improve across key metrics, we know there is more to do. As such, we expect another year of differentiated growth and profitability in 2022, taking us one step closer to delivering on the multiyear targets set back at our May 2021 investor conference. Finally, we know you have a choice and we want you to be with us for the long term. We're confident the work we do to create long-term sustainable competitive advantages for our operating companies and our strategic segments yields best-in-class sustainable returns for Fortive for a long time to come. With that, I'll turn it back to Elena.

Thanks, Jim. That concludes our formal comments. Josh, we are now ready to take questions.

[Operator Instructions] And your first question comes from the line of Julian Mitchell with Barclays. Your line is open.

I just wanted to follow-up on the sort of organic sales guidance for the year. So you're starting out with core growth of low single-digit in Q1. That's moving to mid to high for the year as a whole. And I suppose, particularly in IOS and PT, where there is a lot of kind of short-cycle hardware, what gives you the confidence in that acceleration? I understand fully that supply chain conditions make it a little bit easier for you to execute on orders. But conversely, as you go through the year, we may find that orders slow down. And so, I just wondered what gives you that confidence in that sort of second half or back half core acceleration in IOS and PT.

Good to hear from you, Julian. Morning and afternoon, our time zone here, I guess. First of all, I think when we look at the full year, as you said we see some improvement through the year at Fluke and Tek. We had a very good fourth quarter in Sensing. So I think the supply chain constraints have been in Sensing, but we have good confidence there. I think when you look at the backlog situation at Fluke and Tek, as you pointed out, very strong, record backlog in both businesses as we start the year. And quite frankly, we don't anticipate any backlog reduction in the first half and really minimal backlog reduction in the full year. So, we see the demand side of this from an order perspective, we talked about that in the prepared remarks, as an example, Fluke up 20% in orders for 2021. So, I think, we definitely - and we're seeing the drivers that we've talked about, some of those secular drivers continuing to play out. So whether it's the strength in innovation, whether it's some of the things that we've been doing in particular markets to differentiate the business, we see the demand front still very good in the first half. So certainly, there'll be maybe a little bit of a slower growth rate from 2021 from an orders perspective. We still see the demand environment very good to deliver the year. And quite frankly, we think we'll go into 2023 very strong as well.

Thanks very much. And then just my second quick one on Advanced Healthcare Solutions. It's been a tough period, obviously, for two or three years with the TSAs and then COVID and the lingering sort of aftermath. Just wondered when you're looking at that business, would you say that after that sort of tough three-year period, the guide is fairly conservative there for 2022 now? And how do you assess the competitive position of AHS? I suppose, particularly in the ASP piece, do you think that's been losing share or it's holding its own?

Yes. Thanks. First of all, I think when we look at the fourth quarter, it's really indicative of our strategy playing out. When you think about one of the things we said from the onset is that we could take those high-growth markets and really regions outside of the United States. And as we brought them into a more focused business, we would deliver success. And you see that in the double-digit growth that we had outside of the United States in the quarter. We saw good mid-single-digit growth in capital around the world. And as we said, we've grown the installed base over the last few years. So we feel good about a share perspective because we see that on the equipment side. As you point out, a little bit tougher on the electives than we anticipated. That's been a tough thing to predict. We feel we're going into the year relatively - maybe not conservative but appropriate in terms of looking at what happened in the fourth quarter, not anticipating that getting better through the year, even in Q1, maybe a little bit lower on the electives as we see Omicron. But I think as we stand today, we had great margin expansion at ASP and in health in the fourth and you'll see that in the first even as well. And we think the strategy is playing out very much. We've done a nice job on the gross margin and operating margin side at ASP. More broadly, I think we've positioned the segment well with the addition of Provation, certainly another a great add to the segment. So, I think it's been appropriate relative to predicting ASP. And I think when you look at the core growth rate for the full year in 2022. You see our strategy playing out more broadly. And you certainly see that as we accelerate growth through the year and, quite frankly, continue to deliver strong margin expansion.

Your next question comes from the line of Steve Tusa with JPMorgan. Your line is open.

So, I guess just cutting it a different way, how do you expect the year to build from a core growth perspective? Should we expect a nice step-up in 2Q? Is the third quarter? Like just maybe a little bit more color on kind of the organic growth trajectory as we kind of move through the year.

Steve, this is Chuck. What we expect is probably not going to be a surprise. We're constrained right now with supply chain. But as we move through time, we expect that some of that will gradually accelerate. I mean, we're talking about going from 3% up to high single - up 7% for the year. So I think that it just gradually - there's not a step function that happens. It doesn't happen all at the end of Q4 is what's built into this guide.

Right. But I get to the high - I guess, to get to the high end, I mean, you're talking about something that's beyond that, obviously, where you're starting just how the averages work. So I mean, are you going to be exiting the year at like a double-digit rate on organic?

Yes, we would expect to. We think that we've got, as Jim talked about, strong order momentum coming into this year. We don't - while we expect that supply chain will allow us to increase our shipments, we're not sure that it - and we have a really strong backlog position. So we do expect supply chain as we go through the year to get incrementally better each quarter and would have us exiting year very strong.

Right. Because I mean, that like $50 million or whatever that you missed out on this quarter, I mean, just looking on a quarterly basis, that's 4% of an impact in any given quarter from that. Is that kind of kind of lessen the trajectory to an extent there? Okay. And then just one last one on ASP. Why are you guys' kind of forecasting electives to be flat? I mean, have you really seen a change in trend there that makes you worried? That seems to be like really conservative. So I don't know, is there something you're seeing that others aren't on that front?

No. It's really that what we realized we haven't been able to predict it going forward. So what we want to show is, hey, this is where it is right now. You can see the margin expansion has been good all year long, and we don't expect us to have growth there. And this is what happens if a basic don't get better. And maybe, if anything, it's acknowledging that we can't actually predict that. We would say that if electives go up, then we'd have upside here.

Maybe just to add on to that. Maybe just add to that real quick is that, we typically think of this as the Omicron variant and the new variants, it's also the combination. We said this in the prepared remarks that there are some specialty staffing challenges in the United States. And so we think it takes a little longer for that to bring to come back. But I think the strength of the momentum building on the installed base and as we said, the strength of really, quite frankly, the growth we've had outside the United States, those two combinations really showing our strategy play out. So yes, I think we've been a little bit more conservative on the elective side. But I think what we're seeing with the margin expansion and some of the things I just mentioned, certainly, the strategy playing out and creating momentum for the business through the year.

Your next question comes from the line of Andrew Obin with Bank of America. Your line is open.

Just a question, sort of a supply chain question for you. After the tariffs, I think you guys made some adjustments to your manufacturing footprint. As we are sort of experiencing the supply chain constraints, particularly hitting Fluke and Tech, what are your thoughts about how to make the supply chain more resilient going forward? Thank you.

Yes. Andrew, I think number one, as we said, supply chain constraints, typically, I would think about it in two categories: one, from a supplier perspective, and the other around freight and logistics. So let's take the supplier side. You're certainly right. A number of our countermeasures that we had relative to the tariffs put us into some locations around the world and Asia that were hit harder by COVID. That's certainly been part of the challenge. The second part of it is, when we think about microcontrollers, when we think about ASICs, when we think about FPGAs, those are components, particularly on the ASIC side, where we've really designed around sole source differentiated technology, which has historically given us better margins and better differentiated technology from a product perspective. You see that mostly in the higher-end products at Fluke and at Tech. And that's why Sensing didn't have as big an impact relative to this because they tend to use more commercial off-the-shelf products. So we're getting those things changed where, as you said, the question of what we're doing, we're qualifying new suppliers, we're redesigning some platform architectures around the ability to source in different places. We're moving some - we're moving supply base out of some maybe higher-risk COVID locations in the world. And all of those actions played out and will play out in the fourth - in the first quarter. That's where you see the core growth getting a little bit better at both Fluke and Tech in the first quarter. And then it continues to improve through the year. So we're not anticipating necessarily a big shift in change relative to the supply side in the year. What we're really seeing is the benefit of our countermeasures building through the year. So that's how we think about it. On the freight side, it's clearly freight lane challenges from Asia to the U.S. And you see some of that in the growth rates in Asia between Asia and the United States. Some of that has impacted by the fact that we just don't have to ship product as far when we're shipping product into Asia than we are into the U.S. So that's a broad, broad swath of the actions that we're taking. And it takes a little while to get some of those things all in place, but we'll see that improvement. We're seeing that improvement now and we'll see it build throughout the year.

That actually makes a lot of sense. Thank you. And I missed the first couple of minutes, so I apologize if you've answered it, but I'm looking Slide 13. And you sort of brought out total software revenue for 2021 and 2022. As I think about the fourth quarter, what was the total software growth? And specifically, if also you could give us a sense zeroing in on SaaS, whatever metric you want to highlight, revenue or ARR, just to see how - what's happening there because that's a big part of the growth strategy going forward? Thank you.

Total software growth was low double-digits in Q4 and in the full year, so that certainly has the benefit of ServiceChannel. I think our core revenue growth was mid-single-digit in the fourth. So good. And I think really what we saw that was really good was our ARR growth in the fourth quarter was high single-digits. So I think we saw a good benefit from a number of our strategies playing out both core and certainly with the addition of ServiceChannel and Provation. That gets to the 2022 targets that we highlighted in the slide you're referencing. We'll see that growth be double digit in Q1. So we're really seeing, I think, good - we saw some good benefits. It takes a little on the SaaS side for that revenue to impact the full year. But as I said, we'll see it in the first quarter. Feel good about where we're at relative to the core businesses, but also what we had in both ServiceChannel and certainly what we're seeing early days of Provation.

Your next question comes from the line of Nigel Coe with Wolfe Research. Your line is open.

Thanks. And I’ll say good morning, because its - it is morning where you are. So just want to dig into Fluke and Tektronix. How did the sell-in versus sellout to the channel play out? Because I'm assuming that the channel wants more products. So I'm just curious, if there's a big disconnect between the sell-through, the distribution channels? And any color on where inventories are right now would be helpful.

Yes, thanks. And Nigel, I think, I said this on the third quarter call, but we think about - when we think about inventory now, we also think about, given that we've got a substantial backlog, we're also going to look at what distributors have on order, so that we make sure we understand relative to true demand versus maybe inventory building on their side. And I think in that regard, we see good sales out and we don't see big inventory on hand or relative to the inventory build. So we're seeing a good demand environment relative to both Fluke and Tech. And I think it is somewhat impacted by the availability. So we would say, hey, it's probably even - it could be even better if we were delivering at the on-time delivery rates that we typically do, which is in the high 90s. So I think, in general, as I sort of said to Julian's question as well, we're seeing good demand on the demand front. And I think we're starting - we're seeing that in some of our channel partners' external comments. So we feel good about the demand environment where we have distribution businesses on a global basis. Where we're delivering maybe a little bit better in Asia, we saw better sales out and we saw good sales in. So I think we feel confident about the level of activity that's going on with customers. We've got a lot of good innovation, as we highlighted in the prepared remarks in the quarter, and we have really accelerated innovation in 2022 at both Fluke and Tek, which we also think will have a nice impact.

Yes. The question is really more about depletion of inventory rather than buildup. And if the channel is really light, which I think it probably is...

Yes, it was.

Yes, that was from acceleration, which seems to be what people are focused on. My follow-up question is - there on Accruent. It was down again in 4Q. Where are we on this SaaS transition? And when do you think Accruent will get back to revenue growth?

Yes. I think number one, we called it out, and I'm sure probably answered that on the software numbers as well. We did have less days in the quarter. So where we have staff, we have a little bit of impact relative to less days. We think, as we said in some of the guides, we think the combination of Accruent and Gordian, when you sort of think about that, we've moved some businesses between the two on a full year basis at low double digits. That's probably a little higher at Gordian. But we would see - right now, we see Accruent in the mid- to high single digits for 2022. So we had good ARR growth in the fourth quarter. So the combination of the work we're doing, we'll still have some SaaS transition because in many cases, we're relying on new logos and that new logo growth can be a little bit more of a headwind than if we were converting a very large maintenance installed base to SaaS, like we are at Provation. So it's a combination of things that we're doing, new logo growth but – at Accruent and also just continuing to invest in those high-growth opportunities. We talked about it in the prepared remarks, workspace planning as an example, our EMS product line, which grew 50% in the year. So it's a combination. That's not our biggest product line. But over time, at that growth rate, it inevitably takes over being a bigger part of the growth story, and we'll see that starting to play out in 2022 and 2023 at Accruent.

Your next question comes from the line of Deane Dray with RBC Capital Markets. Your line is open.

Welcome to Elena, and thank you, all, for reverting to the morning call slot. Much appreciated, although I was concerned it might throw Jim's biorhythms off, but didn’t happen to be. I appreciate right upfront, you sized the $50 million in revenue miss related to supply chain, but that's really become a catch-all for everyone. Can you give any more specifics, either by product line? Is it semiconductor-related resins, customer readiness? Just maybe take us through what the actual blockages were.

Yes. So I would say first – and first, given the fact that I've been on East Coast time for the better part of 20 years, this is a fine change, but we do listen. And Elena's been a great add for sure, and we're really excited to talk about the frame that we've got at a time zone that's easier for all of you. I think number one, we would think about that $50 million is about 70% supply chain. So think of the remaining piece of that as probably COVID related, a chunk of that being electives being lower than we anticipated and some of that is just kind of some of our service businesses and things like that that had a little bit of challenge in December of getting on site. So the 70% of supply chain, let's break that down a little bit. The majority of that is it's Fluke and Tektronix and a little bit at EMC. And I would say, Fluke and Tek, it really is about electronic components and some of the things I described on Andrew's question, very much around how - a big portion of that is application specific ICs. Those are technologies that are pretty much dedicated to what we do in our product lines. And the work we do, as I described before, is really the countermeasure to doing that. So it's - so I won't go into more detail on that since we already did. But another part of that is what we saw at EMC, and the EMC thing is pretty specific to some specific supplier shortfalls as well as some customer challenges that I would also say that it has a little bit of - you might have seen this in other government - people have government contracts on the commercial side and on the military side, where customers have to come in to validate products before they get shipped. And we saw less activity at the end of the year, just given COVID. So that's a swath of it. But the biggest bucket, the highest bar is really the supply chain issues we described at Fluke and Tek.

That's really helpful. And then just a follow-up question on Tektronix record backlog. Can you parse out how much of that is supply chain related, but also with all the semiconductor capacity coming on, you would think that there'd be some demand there that might have also translated into the higher backlog. But are you able to differentiate between the two?

Yes. I would say – Deane, I would say almost no amount of that backlog is customer driven from an inventory or buy ahead kind of standpoint. Maybe a little bit, because we've been raising prices. So I'd say, there's a little bit of backlog in what I would call price increase. But we limit the ability for customers to be able to do that in terms of weeks of supply. So there's some of it, but not a lot. It really is on the demand side. It's certainly on the semiconductor side. We're seeing great growth at Keithley. But we're also seeing it more broadly in some of the products that we designate for maybe industrial markets, some of the power strategies we've talked about. We're seeing some of the new innovation on the two series, some different probe categories, and we mentioned in the prepared remarks, the new 5 Series. We're seeing really good customer interest in those products. Hence, our book-to-bill was – was so strong. So I – we really think the demand cycle for Tek is certainly going to be strong in 2022. And quite frankly, as much as you can get early signs on this, we think strong in 2023 as well, given those dynamics, some of what you described and also with the color I just provided.

Your next question comes from the line of Scott Davis with Melius Research. Your line is open.

I got a couple of things here, but one kind of just bigger picture, I suppose. But – bigger picture is not. ASP, your consumables are down. Are you – is your total installed base of boxes higher today than base units higher today than when you bought it? Has that grown at all, Jim?

Yes. We said – I think, we said, we've had low single-digit compounded growth in installed base over the last several years. I think cap – terminal sterilization capital is actually up mid-single digit in the year. So we've seen growth in installed base since we bought ASP, which is additional boxes in your terminology.

Okay. And then also a clarification. Did you say that when that backlog in PacSci is going to clear out? Is that something that's first half of the year?

We don't anticipate the backlog at PacSci side, quite frankly, Deane – or sorry, Scott. We don't see it completing at all this year. We have a really, really strong backlog at Pacific Scientific right now.

Okay. And then last, just quickly, what is lean portfolio management? I don't recall hearing that term before.

Yes. It's our new innovation tool. It's really a thing and historically, it's really from – it really applies to both software and hardware. It's a new tool that we're deploying in every one of the businesses. And it really is sort of an accelerated product development. It's a set of tools that accelerates product development, manages the portfolio better in terms of how to look at early-stage innovation as opposed to maybe being maybe slight – over the years, we've been maybe a little bit more focused on the next generation of things we do. I think it brings some new concepts around managing not only the things we've got to do in the next generation of things, but also bringing on some new things that really drive full incremental growth base focused on new secular drivers. So built over time, we should see better returns on our R&D investment, and we should see accelerated core growth from those investments as well.

Your next question comes from the line of Jeff Sprague with Vertical Research Partners. Your line is open.

Good day everybody. Just a few loose ends here, a lot of ground covered already. Just on price, the 2% number, was that Q4 or the year? And can you tell us how much price isn't guided - is embedded in your 2022 guide?

Yes. That was a Q4, the 2% overall in Q4 2021. And for what we're thinking, what's embedded in our guide is 2% for 2022. That's about twice what we would normally get as in a normal year.

And on tax, are we in the process of normalizing to some higher level? The tax rate's been certainly on the low side here in the recent past. What's actually driving the increase? And should we expect it to move higher in future years?

Well, I think we came into the year thinking 14% as the right baseline for us, and I think that's pretty good. What drives it down in 2021 is some discrete items that came through usually around some of the bigger transactions, even with the split from Danaher that are really hard to predict. We don't see any of those going forward. So we - a normal, we revert back to that 14%. What we don't have in here is anything about U.S. tax reform or changes. But what we do have is the international tax rate are going up in some countries and there's a global minimum tax rate that's going up. So in 2022, we actually end up with probably a $0.12 headwind versus - and that's embedded in our guidance. The rate is 16%.

So if the R&D tax credit gets renewed, extended or whatever, we're much likely coming down a couple of hundred basis points on the tax rate. Is that right?

No. I think we anticipate that to get renewed, so that's not changing. It's really about the – what's going on internationally in tax rates.

I'm sorry, just quick one. Jim, just back to Accruent. Is there any, I don't know, disruption or dissynergy going on as ServiceChannel comes in, maybe mutual customers where one plus one isn't equaling two? Just any color there. Is that any part of the revenue pressure we're seeing at Accruent?

Not in the quarter. I think what's embedded in - there could be some moving back and forth at this point right now. There's nothing dramatic that's anticipated, Jeff. I would say what we're seeing though is we are seeing those value - I mean, we're getting great visibility into the value propositions of each of those businesses. And I think we have a better sense of selling strategy. And I think we're in a very good place. We may see some challenge between situations over time with customers, but nothing is anticipated from the size. And particularly, some of the growth drivers, particularly like about things like workspace management, no conflict whatsoever. That's really an independent strategy and product line that really resides at Accruent. So I think we've got some good levers to pull in the Accruent business. And obviously, the broader opportunity that we have with ServiceChannel around the things they do is really great. And I think with the combination of what we do at Gordian and Accruent in some of those overlap is only going to continue to help us build a better position and value proposition for customers.

Your next question comes from the line of Andy Kaplowitz with Citigroup. Your line is open.

Chuck, you gave some color on the regions, but can you elaborate as to why Europe was significantly worse than your other two geographies in terms of sales trends in Q4? And it seems like supply chain headwinds have been worse for some of your peers in - so just curious as to what's going on for you in Europe. And then China seems to be holding up well for you. Can you talk a little bit more about your outlook for the key regions in 2022?

Yes. I think - I'll take it. Number one, on the Europe side, we really do have a comp issue in Invetech. Last year, Invetech had really dramatic growth in the fourth quarter and that was really a customer in Europe. So a little bit of a comp situation in Europe as it relates to what we typically see, Andy. When we think about the globe and just kind of going around the world, we had, as you said, very good high-growth market growth in the quarter. We had very strong China growth as we've had very strong China growth around the world all year. We're really - Chuck and I did a review with all of our high-growth markets the other day. And quite frankly, we're hitting that - we're really firing on all cylinders relative to the work that the businesses are doing in China, so we would anticipate continued good growth in China for the year. We think that high-growth markets continue to be good. So I would say that plays out. We have a little bit of supply chain headwind outside of Asia simply because most of our supply base is in Asia for the businesses that have electronics. This is a hardware comment more than a software comment, obviously. But we do see some impact, both in Western Europe and in the U.S. simply because the logistics of getting components out of Asia and into the U.S. and into Europe to our - in many cases, our factories, was a little slowed in the fourth quarter. That improves, I think, over time as some of these freight lanes get a little bit uncongested over time. So that gives you a broad swath. I would also say we'll see North America also improve. A little bit of that elective impact in North America, obviously, had to do with the fact that ASP was strong outside of the United States and really have that elective impact mostly in ASP. So bringing all that back, supply chain improvements really help us globally, particularly in the U.S. and Europe as we go forward here. And as I mentioned and relative to those, some of the activities that we're engaged in relative to improving the supply chain, they'll obviously impact what I would call our developed markets in U.S. and Europe, that probably more predominantly than anywhere else.

Thanks for that Jim. And then Chuck, you're guiding to relatively normal conversion for Fortive, I think 105% for 2022. And I think you mentioned a little bit of counter seasonal improvement in working capital in Q1. So maybe you could talk about your confidence that excess inventory is basically peaking now and will start to normalize as you go through the year. And then maybe you could give us the impact of cash generation if the R&D tax credit is not extended.

I'd probably have to come back to you on the R&D tax credit if it's not extended. That would be surprising but potentially I guess every time - until it's renewed, we'd put that on there. So let me come in in our follow-up call, I'll add that number for you. From working capital, I think that what will happen here is that supply chain rolls out, we'll get more sales out and our inventory turns will improve. And as we talked about also things related to COVID, we expect that receivables come down. That will primarily start to seeing that improvement in the first half. There's always puts and takes in our conversion ratio about what can go on there. There are some things going on with the timing of tax payments there that - we're talking 1% or 2% here that can go either way. But we'd expect normally, we start off in Q1 with a 50% or 60% conversion. It accelerates through the year as it has the last couple of years. We're probably a little bit ahead of that in Q1, but it won't get over 100% until probably the second quarter and into the second half.

So I know we're coming up two minutes short on the hour, so if we can take our final question, Josh.

Thank you. Your last question comes from the line of John Walsh with Credit Suisse. Your line is open.

Maybe just a couple of two cleanups. One, I don't think I heard you talk about kind of the multiples you're seeing in your pipeline. Are some of the private multiples resetting like we're seeing in the public markets? Or what does that look like in terms of something maybe breaking free here?

Yes, John. We always say the funnel is pretty good and I would say that, that's very true. We remain busy. The private market tends to lag a couple of quarters here from what you see in the public market. They go through all the cycles of denial and things like that. So I suspect we'll - as we look at things and as we continue to be disciplined about what we look at, we will take that into account as we look at things, knowing that potentially it takes a little while for that to occur. And I would say we feel really good about the two deals we've done over the last few months with ServiceChannel and then Provation closing at the end of the year. So lots to do with those two businesses to really take and help those businesses continue to - they're great businesses. We've bought great businesses. We've got great opportunity there. So we're spending time on making sure they become - they get a great start in Fortive. And we remain disciplined and we'll watch these private transactions. But I do think it will be a couple of quarters before those valuations start to see themselves hit in the private market.

Great. And then maybe just a follow-on to this microcontroller supply chain question. How much of your sales ramp through the year? Do you kind of already have commitments from suppliers that you, at least on paper, have access to those components that you need versus how much actually needs the supply chain to get healthier as we go through the year?

Well, I think as I said, it's a bit of a - there's lots of things going on. We have - we have letters from suppliers very often and then they fall down on those. So we're going to make more of our own lock here as we go forward relative to redesigning, requalifying those kinds of things. And I anticipate with the strong backlog we have, what we've put in the guide is a level of confidence with the things we've got. But it is a little bit of hand-to-hand combat every day on what happens and people, where they stand on commitments. I think it's been well documented the capacity challenges and some of the challenges that exist within the semiconductor industry and more broadly, just the electronic component industry because it's not just semiconductor. So we'll continue to prevail. I think when you look at our maybe batting average on actions, it continues to improve through the year. And we expect it to continue as these countermeasures work. But certainly, as we think about things getting better, we don't have a belief that it dramatically gets better. What we really see is the benefit of the actions that we've been taking, a higher probability of those actions really taking place as we get through the year. Thanks, John. Elena?

Yes, that concludes our call. Jim, do you have any final comments?

Yes. So thanks, everyone, for the time. Hopefully, this time works better for you. And this process works well for your time frame. I know you're in an incredibly busy day and a busy time of the season. We appreciate the time and energy that you put into spending some time with us. Obviously, we're available for follow-up calls. I think what you see in the year, hopefully, you got a sense of certainly, there were a number of things and challenges in the fourth quarter. I come back to the 9.5% core growth we had for the year, the great margin expansion that we've had over a couple of years. And quite frankly, over a two-year basis, the strong free cash flow that we continue to demonstrate. We walk into '22, a lot of our strategy playing out in terms of health care, a lot of our strategy playing out on software, as we described. And I think a lot of the actions we're taking to take advantage of the innovation that we put in some of our hardware businesses, particularly at Fluke and Tek and within Sensing. So we're incredibly fortunate to be in the position we're in. The world is not without its challenges. We certainly think we are well positioned to take advantage of those as we move through the year. We look forward to the continued follow-up and conversations with you, and hopefully, we'll get a chance to see in person here sometime in the next few months. Thanks, and have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.