Neil Hunn: Yes. I think just more longer-term on the SaaS migration. We have a little bit over $900 million and an on-premise maintenance. That — as that converts, it converts — is our recent history, the last two or three or four years it is north of two times on an ARR basis as it converts from on-premise maintenance to SaaS and cloud. So when we do that, it’s actually going — we believe historically it’s been a bit of a net growth driver. While we might — we will convert perpetual licenses which are end period one-time revenue to SaaS and that’s a classic J-curve. The companies that are undergoing this transition, we’re going to convert this $900 plus million of maintenance at a clip that will overwhelm that J-curve effect. So we believe it’s a net growth driver. Foundry is a bit unique, in that they are making a, just a — almost like a day-one pivot and their business model shift, and the other companies are doing more of a migratory approach
Joe Vruwink: Okay. That’s all helpful. Thank you.
Operator: An our next question today comes from Allison Poliniak with Wells Fargo. Please go ahead.
Allison Poliniak: Hi, good morning. Just wanted to turn to tech-enabled products. Obviously, a strong year. As we think about that guide, Neptune and Verathon are certainly big components of that growth. Does that kind of diverge to some extent as one start to appease the other, it seems like there’s a lot of development at Verathon that can drive some of that. Just any thoughts there?
Neil Hunn: So I mean both, and as we talked about, both Neptune and Verathon were just great. And last year both grew faster than the segment. Obviously, they are a predominant element of the segment. We believe that the long-term growth rate at Neptune is probably in the high single digits area. And we believe that the long-term organic growth rate of Verathon is probably a bit higher than that. It’s — we want — we want to believe that it’s going to be a low double digits. We want to see a couple more years of that, some more R&D productivity. We’re super encouraged by the pipeline of R&D and the momentum they have in the market across the three product categories. So that’s where we expect the long-term growth rates to be there.
Allison Poliniak: Got it. And then just following up on the M&A side of things, leverage at 3 times, obviously strong cash flow generator. But it sounds like the pipeline is incredibly active with quality transactions. What’s the comfort level in terms of going above that range? Is there a way to think through that, just any thoughts? Thanks.
Neil Hunn: Yes, I mean, we’re always — our long-term policy is between 3 times to 3.5 times. If you look back to 2015, ’16, you can never be right at that level, some you go above it and come below it. It’s always this this process and where do you draw a line through those swings. We’re going to just — we’re business model pickers. As you know, we’re going to continue to look for the very best businesses at the most attractive valuations that meet all of our criteria, and then we’ll look for the best way to finance those from that point. We certainly understand, I think acutely risk, both risk in the businesses, risk in the capital structure, and that’s a big part of how we think about deploying capital and how we value assets.
Allison Poliniak: Got it. Thank you.
Operator: And our next question today comes from Christopher Glynn with Oppenheimer. Please go ahead.
Christopher Glynn: Thanks. Good morning, guys.
Neil Hunn: Good morning.
Christopher Glynn: I had a question about the TEP segment. So you commented on the supply chain issues from the last couple of years are resolved. So curious if you are seeing some nice benefits emerge from production planning and if that drive some natural margin and productivity tailwinds that we should see in the margins in 2024?
Neil Hunn: Well, I think scaling certainly helps. We’ve added a fair amount of capacity at Neptune. We’ve added supplier capacity at Verathon. We’ve added supplier capacity at the rf IDEAS — the RF products businesses. And certainly were not the similar for most companies. The supply chain operations teams are going from a — from a model that was focused in the last three or four years on resiliency to maybe a more balanced between resiliency and sort of just-in-time, which certainly will help with inventory turns and asset velocity. So we do think there’s a little bit of money trapped in inventory for us, so will be more of working capital advantage if we can execute on that plan. In terms of margins, I’ll look to Jason. I think it’s probably more just scaling infrastructure. I mean, what we — our cost of goods is so low relative to industrial type companies that the input cost are a fraction of the cost structure of our Enterprise, but your thoughts about that?
Jason Conley: Yes, no, I think we’ll have leverage that, that will be a little bit above what the EBITDA margin is for the business. I mean, you do have some of the growth that we’re seeing is in single-use products, which are great because they have a lot of recurring revenue — reoccurring revenue. But they come at a little bit of a lower margin. And then when Neptune grows, it has a little bit of impact to the segment too. So, I would expect leverage to be consistent with what we’ve seen in the last couple of years just based on those factors.
Christopher Glynn: Great, thanks. And then about the aspiration to 8% to 9% organic growth and driving things higher, certainly understand you have a lot of coordination of experts and best practices across the enterprise. What would you characterize this top of the list businesses with particular action plan opportunities in that respect?
Neil Hunn: So, we appreciate the question, right? So we started this portfolio of 5% to 6% growth. We’re in a point of, we think 7% to 7.5% on the way to 8% to 9%. So we’ve made a fair amount of progress over the last four or five years. It’s less about which company. It’s more about the process and discipline across all 27, now going into 28 companies. And you’ve heard us talk about this on repeat in the past, but it’s just if anything were consistent. So it’s about how do each of our businesses design a strategy in terms of where to play and how to win, and where they have the right to win for durable long-term growth. The second thing is, then how do you process enables the execution of that strategy so that you’re on repeat.
We can use our long-term forever ownership period as a long-term competitive advantage. So as we stack capabilities that become enduring, then we can outpace our competitors. And then third, is how do we run a talent offense, where we use talent as a long-term competitive advantage. We’ve talked a lot about the upgrade at the field leadership level over the last three or four years. The expectation for performance is much higher, much, much higher. The alignment of our compensation is tighter to that expectation. And so it’s all three acting in unison, that you get the Verathon’s that a decade ago were low-single digit growers and now hopefully low double-digit growers. You take businesses like Deltek, they have the mid and they come solidly mid-plus or maybe they can inch in the high singles over time.
