Josh Pokrzywinski: Hi. We do this every quarter. Morning, afternoon, sort of depends. I hope everybody is well. Not to beat a dead horse on this hardware backlog conversion and sort of what’s in the guide but not, but I just want to be clear here, Chuck, on that comment that you only have about half of the excess backlog getting worked down. I don’t know how fungible that backlog is even within something like Tek where it’s a little bit more weighted. But am I to understand then that like orders on a volume basis could be down close to double digits. And you guys are basically still hitting the guide if you can work down that backlog fully this year, providing there’s no like other governor in the way? Is that sort of a fair way to think about how that’s calibrated?
Chuck McLaughlin: Yes. I mean, that’s not what we’re seeing here in there. But what we are seeing is reason we can’t get the backlog down more, it’s more supply chain constrained we’ve got so much material is the way I’m thinking of it. So if orders go down $10 million more, that doesn’t necessarily change our revenue guidance. That’s what you say. I would agree with that.
Josh Pokrzywinski: Got it.
Jim Lico: And that’s where going — yes, I was just going to add that it’s — as you said, it depends on the business as you pointed out, a little bit more backlog intact. So it does matter where the orders go down relative to how we can make it off. So that certainly is part of it. But we ought to think of that extra — the half that isn’t planned to go out as an insurance policy, again some additional decline.
Josh Pokrzywinski: Got it. That’s helpful. And then I guess sort of related to — I think it was Jeff Sprague’s question on price cost. Maybe taking a step back and just thinking about kind of total bullet effect on supply chain. I would imagine there were some frictional costs last year that probably get better, but maybe you’re also kind of working down some inventories. So, is there some sort of like offsetting absorption hit to the absence of those frictional costs? Or how would you sort of balance those two as a net headwind versus tailwind for this year?
Jim Lico: Well, I would take it this way. There are some spot buy costs that probably go away from 2022, for sure. But there are some embedded costs in the standards that are going to be with us here for a while. I think the real thought is we’re going to have price cost like we have been, we grow gross margins more in 2023 than we did in 2022. So in that sense, I think we’re going to be as we’ve shown over the last several quarters, the media had — we’re not too worried from a factory absorption perspective. If that’s — if you’re going in that direction, we won’t worry about that. We’ll really be focused on is making sure a number of commodities are down or will be lower, things like metals, plastics, but the majority of our buy is electronic components.
And that will take a little bit longer to sort of wean ourselves from some of that inflation that we saw this year. So, we plan to — I think we’re super aggressive in that regard. We’ll get after everything. We have great supply chain teams, but it will take a little while. But I think you’re going to see that throughout the year as the gross margins continue to look good.
Josh Pokrzywinski: Got it. Super helpful. Best of luck, guys.
Jim Lico: Thanks.
Operator: Our next question comes from Deane Dray from RBC Capital Markets. Please go ahead. Your line is open.
Jim Lico: Hi, Dean.
Deane Dray: Thank you. Good day, everybody. Can we put the spotlight on free cash flow by here? It looks like Fortive is the only company we’ve seen that is over delivered in the fourth quarter significantly above your 4Q average. And Chuck, you mentioned some working capital initiatives you could take us through that? But also there was a reference about collections pulled into the fourth quarter from the first quarter. So what was the dynamic there?
Chuck McLaughlin: Yes, a couple of things we have always have a lot of work as you know, working at our working capital across all of our operating companies is the focus that we’ve had all year long and it’s been — it’s been a challenge. It is — it always is, but we’ve really done a great, ASP actually was a stand up there. So I think that’s really what we were talking about there. But they weren’t building ones. We had a couple of really good place. I wouldn’t say pulling so much is really thinking about it as just some time. We thought we had a really, we did have a really strong guide, and we came in a little stronger that. There could be — sometimes you just get your on receipts, sometimes they come in a little late and show up in Q1, this time, I’m probably think maybe $20 million came in a little early.
You really can’t do much about that. It’s just whether sometimes when they cut the check before New Year’s or after — that’s — but we were very pleased with our free cash flow performance all year along.
Deane Dray: Yes, it looks — it came in at $107 million. So that’s right in the sweet spot for you all. And then a follow-up question on cross-selling. Jim, you mentioned sensing having some success in cross-selling. Just kind of take us through what’s going on there? How much is that encouraged, how do you track cross-selling? And what are the opportunities?
Jim Lico: Yes. Dean, I think number one is, as you — I know you know when we’ve seen a little — in a couple of places, we’ve seen new loan book. When things get a little slow, particularly starting the year out. New logos maybe a little bit harder to grab on to as people maybe take a month or so to maybe an extra 30 days to close the business. But cross-selling and up-selling is something you can do every day. And so our Presidents are very much tuned in times like this where maybe things are a little bit more — there’s a little bit more ambiguity out there as to how the year is going to play out. The teams are really conditioned to really move the sales motion to more cross-selling and that really drives our net dollar retention.
We talked about it in a couple of individual places we’ve got over — we’ve got a number of businesses that are well over 105 now, we’re about 102. So the metric we really used to drive that is cross — is net dollar retention. And so what we’re really pushed on early in the year is get those renewals, drive gross retention up and then drive the cross-selling and up-selling as well. So, I think we’re well — from a process perspective, FBS has a number of tools that support those efforts, with customer success organizations. That’s a big focus for us here at the start of the year.
Deane Dray: That’s really helpful. Thank you.
Jim Lico: Thank you.
Operator: Our next question comes from Joe O’Dea from Wells Fargo. Please go ahead. Your line is open.
Jim Lico: Hi, Joe.
Joe O’Dea: Thanks for taking my questions. Hi. I wanted to start just more macro and I think you know what you’re talking about on the orders front is more just kind of backlog normalization as supply chain corrects. But as you go through that mean, how do you think about coming out on the other side? And how do you think that it’s sort of soft-landing type of environment when we see sort of industrial production and we see PMI, so just in general, what you’re seeing on kind of structural growth or outgrowth and kind of confidence that backlogs normalize and then the growth is there on the other side?
Jim Lico: Yes. Joe, I think it really goes back. It will have an opportunity to really give a lot of this detail on our Investor Day in May. But I think what we really think about this is really how we move the growth rate on long-term through the cycle growth rate to mid-single-digits. So we got two really strong years of growth 10% average in the last two years. That’s on the backs of a number of things we’ve done from a portfolio perspective and just demand has been better than historically. But as we get into 2024, and we normalize around the kind of things that we would see. We certainly would continue to see that mid-single digit as a number on the backs of continued stabilization of the macro for some of our product businesses obviously continued improvement in our healthcare businesses and just the strength of success that we’ve had in software.
And those sort of combination pillars are really are going to be what really drives that mid-single-digit growth rate. As we said, as things normalize here, hopefully sooner rather than later.
Joe O’Dea: Got it. And then I think in the prepared comments, you mentioned some actions to counter some of the slowing. You’re not sure what might be happening on the cost front, but anything that you could expand on there?
Jim Lico: Well, yes, I think as Chuck described, it’s really kind of across the segments. And it really deals with a number of things. Certainly, looking at certain product lines that maybe are a little slower than over the next few years, we closed a couple of rooftops, continue to do some things on the lease front as we continue to consolidate our real estate footprint. So a number of those things are really what we’re talking about. It’s an accelerated rate, given kind of after a couple of years of 10% growth, we’ve may be more focused on the growth, maybe a little bit more focused on supply chain. But now as things start to normalize here, we’re back to getting after some things, and in the traditional sense, we want to be ahead of those things, and that’s really what we’re talking about.
Joe O’Dea: Great. Thank you.
Jim Lico: Thank you.
Chuck McLaughlin: Thank you.
Operator: Our last question will come from Joe Giordano from Cowen. Please go ahead. Your line is open.
Jim Lico: Hi, Joe.
Joe Giordano: Hey, guys. Hey, how are you doing? I just want to follow-up a couple of things on the orders here. Particularly, let’s strip out like the AHS and look more on the hardware stuff in PT and Fluke and Tek. What gives you confidence that orders in the second half of the year start to get better? I guess like just the revenue guide suggest that you exited kind of the lowest point of the year. And you said, Fluke — Tek orders were up like 40% over a period of time here. So, like is it just going from plus 40 to normal levels? Is that like reasonable or like could you see declines in orders because of the magnitude at which they expanded over felt relatively short time?
