Fortive Aktie

Little late here. So we're going to launch into it starting back up with Fortive Corporation. And very pleased to welcome back Olumide Soroye, CEO of Fortive. Olumide, I think you were here three years ago, if I'm not mistaken, when you were President of iOS maybe two years ago. So very pleased you're back with us. And also Mark Okerstrom, CFO of Fortive as well.

So Q&A, it is. Let's launch into it. So maybe a good place to start would be, it's now been almost a year since the separation of Ralliant. Maybe just talk about the first year of life as a public company, what's been achieved, what's still on the come?

Yes. Well, it's great to see you. Thanks for having us. Obviously, a pleasure to be here. And -- it's -- we're really pleased with the progress we've made on the three pillars of our Fortive Accelerated strategy that we laid out almost a year ago now. And we -- the first pillar that we set out was that we could deliver in this portfolio of new Fortive faster, profitable organic growth. And we just are quite pleased that over the last year, we've shown sequential acceleration in core growth every single quarter. And the set of growth initiatives in innovation, commercial and recurring customer value that we've deployed are still ramping, which really sets us up nicely for continued acceleration.

The second pillar we set out was this idea that we're going to be very disciplined with capital allocation with complete focus on best relative returns and maximizing medium- to long-term shareholder value. And if you look at what we did in Q1, $500 million of share repurchases, which brought our total since the spin-off to 1.8 billion or 10% of our fully diluted share count. And our focus on capital allocation strategy that starts with investing in organic growth, really pursuing accretive bolt-on M&A where it provides the best returns, making sure that we return capital in the form of share repurchase and a modest growing dividend remains very clear.

And then our third pillar was this idea that we were going to actually intentionally build and maintain investor trust. And again, in Q1, we were pleased to deliver solid results that was above expectations for the third consecutive quarter as new Fortive. And we like that start, and we look forward to building on the momentum. So overall, our strategy remains in place and our confidence continues to build that it has the power to deliver the financial framework we laid out for '26, '27 and to unlock benchmark leading shareholder returns in the medium to long term. So we're feeling quite good about the first year, and our team is excited.

Yes. Definitely. I want to come back to the first quarter performance because I think it's very important that you actually did 5% -- better than 5% organic growth in 1Q. But maybe just talk about aspiration to grow is fine, but it's not easy to do it. So maybe just talk about the investments you're making and the changes in the process to accelerate that growth and maybe overdrive this the markets?

So I mean, first, we started with the portfolio we now have in Fortive, which we feel puts us in great markets with terrific brands like Fluke, which is just an incredible brand for that space. And I think every other one of our 10 operating brands have just a great story. So it starts from being in the right market with the right race horses, and we like what we have. And the play that we call to accelerate growth in this portfolio was to drive three things: One, innovation acceleration, so more new products, and we've talked about several examples of that over the last year, incredible momentum building in that. Second is commercial acceleration. This means being very agile with placing bets in markets where there's here and now opportunities to capture more share, data centers for Fluke, ambulatory surgical centers for ASP, India and Latin America for Industrial Scientific.

These are specific market opportunities that we feel give us outsized opportunities for growth. So we're placing bets in those. And then the third is recurring customer value, which just means doing more for the 100,000 customers we have across New Fortive. We've completely aligned our team behind those three growth vectors. Every single one of our brands has a portfolio of initiatives behind those. Mark has done a terrific job with our resource allocation to move more resources from corporate cost centers to invest behind those things. And so we're just excited to see it continue to ramp.

So going back to 1Q, you put up 5% and change, 5.3%, I think it was organic growth. Actually put you very comfortably in the top half of my coverage. I think the first time in a very, very long time for what has been in the top half. So I know there was a small benefit of selling days, one-off of selling days. But maybe just unpack what we saw in 1Q. Should we not get too excited by that because it was very broad-based across the portfolio, both segments. Why wouldn't that continue from here? Because obviously, your guidance assumes that doesn't continue.

Yes. So first of all, we agree. We really like the momentum in the first quarter. It was across the board was one of the things we liked especially about that. And it was across the P&L. We saw really strong growth on the top line and really good performance down the P&L, even though we made intentional investments in some areas. And we know that over time, we talked about year-by-year, that we will continue to accelerate growth.

But one of the things we've been intentional about is making sure we can make the right calls quarter-by-quarter. And I think for Q1, we benefited from the selling days, three extra selling days. Q4, we know we will pay back for that. So that's the biggest swing factor between the first half and the second half. But the true line of acceleration continues anyway. And again, '26, '27, we're well within our 3% to 4% core growth financial framework. I would also point out that we do intentionally as a team really being thoughtful about setting expectations at the right levels to give ourselves a chance to build and maintain trust.

Sure, sure. Maybe I don't know if you can give us a little hint of what you've seen during the second quarter. Your comp is actually a lot easier in 2Q. So I think that growth, organic growth should be quite attractive in 2Q as well? I mean, but you tell me if I'm wrong.

Yes. So I mean, we just had our Q1 earnings call just 18 days ago. I think like we said on the call, April, we really came out strong in April, like the trend, nicely aligned with our expectations. And we remain kind of firmly on track with the guide we gave on our earnings call. But I think we're on track.

Okay. And all the noise we see on the geopolitical front, Middle East, et cetera, that's not having a factor right now, not -- what we're trying to say is, are you seeing any negative impacts to the second quarter from the Middle East.

No, not at this point. I think from a direct point of view, just to put it in context, Middle East is a very small part of what we do. It's about 2% of total Fortive revenues. So it's really small. Most of what we do is in Saudi and UAE and mostly Fluke and Industrial Scientific, where we actually are seeing really strong order growth in the Middle East right now. So from a direct market point of view, nothing significant. And we don't see any repercussions showing up outside the region at this point.

Okay. That's good. Maybe we can just dig into the end markets. And I think the Fortive as you've got the health care portfolio [ HS ] -- and then within IOS, you've got the more industrial type businesses, ISC, Fluke and then you've got the software businesses. So maybe just talk about, first of all, in health care. Again, very encouraging what we saw in 1Q. That business has been quite episodic. It's been a little bit two steps forward, one back, maybe two back, one forward. What changes are you making, number one, to accelerate growth specifically within ASP, but secondly to make it a bit more maybe a bit more consistency as well.

Yes. So first, we really liked what we saw in AHS and ASP in Q1. It was a bit better than our expectations, and it was better in terms of capital equipment, customers beginning to place more orders, consumables on the low temperature [indiscernible] side, the demand patterns remain really strong. Services were strong. So across the board, we saw strength.

And the work that we've been doing with that team because these are great businesses, differentiated technologies, deep customer service expertise, deep customer loyalty. And we've been driving really the same three things I talked about to elevate the performance in ASP and in the segment overall. One is innovation. So you saw us take the STERRAD ULTRA GI to Europe. We kind of launched that in Q1 and a lot of exciting other things coming. So one is just the pace of innovation. Second is commercial execution. That's a business for us that's still very heavy U.S.-based, but the need for health care and sterilization is very global.

So that team is now doing just great work to create local capacity in India and China and really drive growth in Latin America and also look for other health care centers like ambulatory surgical centers outside the hospitals that can use this instrument. So a lot of commercial execution and frankly, scrappiness to gain share in the market. And then the third one is recurring customer value, which is we're now going to our customers and selling add-on products to them at a pace that we've never done before.

And those three things combined with the passion of the team and the foundation of the business give us really good confidence about the track ahead for the business. We are intentionally investing for growth. So you'll see some quarters where the margins look lower because we're actually deliberately investing for growth that we believe will be exceptional payback in the medium term, and you see us continue to do that.

Okay. The headwinds in that space, you've got hospital CapEx is pretty anemic. You've got reimbursement pressure, federal funding is getting cut. Would it be -- are you confident that AHS is a 3 to 4x grower in 2027 based on what you see right now? Do you think that the commercial initiatives can overcome some of those headwinds?

So I mean it's interesting because we've actually seen for the hospital spending pressure and sort of tension ease since Q2 of last year, and that easing has continued. And that's showing up in hospitals now, some of the deals in our funnel that's been there for a long time, they're now placing the orders.

So we actually think we're on an improvement trajectory in terms of the market conditions despite all the pressures in hospitals because in the end, the way hospitals make money is volume through the operating room. And that's where what we do plug in. So no matter the pressure, they have to keep flowing through the operating room. So that's the first thing.

The second thing I'll say to your point is we're not counting on the market getting better or worse. We're counting on the things that we control, and it's the innovation we're driving the commercial execution and those recurring customer value initiatives that our team is driving. The team we have at ASP has never been more excited about what's possible. And again, Mark and team are doing a really good job of moving resources around so we can actually invest in the right places.

I will be coming to you, Mark.

I'm good. Whenever you're ready. .

He's enjoying this.

Yes. Maybe I should flip the question and say, is there some pent-up demand in that segments? I mean maybe that this could be a good space to be in the next couple of years if there is some pent-up demands.

Yes. I mean I think it is the case that there are a lot of purchase decisions that were deferred, especially kind of Q2, Q3 last year in the midst of the one big [indiscernible] passing and people trying to understand the implications of that for the economics. So there's certainly some pent-up demand, there's new construction demand.

And frankly, there is the fact that in the end, the underlying circular driver of demand for health care is aging demographics around the world that's going to need more intervention and most of them have 1 or 2 chronic conditions. So I think it is the case that the pent-up demand, the underlying drivers make this space want to watch over the next couple of years. And we're certainly trying to be ready for that.

Okay. And then moving to the non-software businesses in IOS, obviously, most notably Fluke. There's definitely an industrial cycle aspect to that demand profile. Any views on short-cycle demand right now and how that's progressing?

We really liked what we saw in Q1 at Fluke. We do think some of that's the underlying short-cycle demand. Some of it is just the strength of Fluke and some of it is the work we're doing to really drive growth in attractive arenas like data center and defense and some of these geos. But we certainly feel, as we've all seen with the PMIs, it does feel like there's a general lifting of all the boats that's happening a little bit. And from what we saw in April, like I mentioned, it was really strong trends and aligned with what we saw in Q1.

We always view that as a true [ focus ] business where -- not Fortive business, but a [ Fortress ] business, where you're the dominant player across your product categories. Is that still the case? Or are there pockets of competition in that business?

So Fluke is -- I can say this myself. It's an extraordinary business. It's a global brand, high-quality products. We've been in business for 7 to 8 years, where you wouldn't know it with the pace of innovation, the fastest it's ever been. The commercial scrappiness of that team to keep finding share, going after data center use cases, going after defense, going after early career technicians. We're in the middle of this big shift in the workforce with newer next generation coming into the profession and the team doing work to train them on Fluke. So that's what they know to do their jobs on. Just a terrific platform with incredible energy right now, and I think a lot of upside ahead.

Okay. That's good to hear. And then software. Obviously, a lot of concern out there around the sustainability of software business models in general. Maybe talk about what you're seeing right now in terms of customer engagements, pricing, adoption rates, AI pros and cons, how are you using AI to accelerate growth, maybe areas of potential threats down the road? Anything you can kind of enlighten us with would be great.

Yes. No, absolutely. And just to frame this up, so Fortive 80% of what we do, highly differentiated hardware products like Fluke, Industrial Scientific, ASP, 20% software-related types of things. As we've talked about in the past, the software things we do are incredibly protected with certain competitive modes, proprietary data that are very deep, in some cases, regulatory lock-in, so this is what you have to use for EHS.

In some cases, two-sided networks like in ServiceChannel. And then in some cases, frankly, it's just -- it's not just software, it's a system of record and action. Each of our platforms have different combinations of these protections. And what we're actually finding is AI is an incredibly exciting accelerator for us in those businesses because they're so deeply entrenched in the customers' workflow. And we've deployed AI in two ways.

One, really just taking all the AI native tools, putting it in the hand of all of our developers and now things that it can -- they used to do in 9 months, it can do in weeks. And that's just increased our innovation velocity. But importantly, it's also given us a chance to bring in some AI enablements embedded into our workflow to customers. And what we're finding is because all customers want to do something with AI, but our businesses give them a chance to do it at scale in a way they can actually get value, they can show their CFO and their board, just incredible engagement from customers around this new solutions that we're launching that's helping our retention rates.

And frankly, it's given us incremental pricing power, which we're doing a whole range of things from kind of outcome-based pricing to add-on app-based pricing to, in some cases, talking utilization-driven pricing to make sure that these high-value use cases are not just table stakes that keep us there, but actually get us incremental value. So again we feel excited about how all of that is playing out for our specific software businesses, which, again, it's the smaller part of our software area, but we feel good about the setup we have.

So net retention, for example, would that be tracking better than it has been? I think 105% was sort of the metric. Is that now tracking better?

Well, I think one of the good things, if you look at all the quantitative metrics from just the overall growth of the software businesses, we've said it's faster than overall fleet. That's continued to be the case. If you look at all the underlying metrics from GDR to NDR elements, that's continued to trend in a way that's exciting as well. So we -- and again, I say all this, but we say paranoid because the space is changing so quickly. But everything we're seeing in terms of our engagement with customers and the metrics we're looking at for the specific software businesses we have is actually quite exciting.

Yes. Recognizing that 80% of your business is hardware, you [indiscernible] that there's [ 80% ] the other way around, the way the market views sometimes. But it sounds like the two way -- the two-sided business model of Gordian, ServiceChannel, the regulatory aspects of EHS are really important [ walled gardens ]. What about Accruents and Provation?

Yes. So Provation, I would describe as the decades of data on GI procedures that's very deeply proprietary. And the fact that there are physicians that wouldn't practice in the hospital if you don't have that software solution for GI procedures. And so that provides an incredible level of protection for that business. So think about it as data and the customer loyalty. On the Accruent side, it's interesting. We have really a business that's very deeply vertical solutions that are assembled.

So there's a solution that is key solution for electronic document management system in manufacturing plants and a solution that is the solution for kind of real estate kind of contract management in retail. And for each of this, there are systems of record and systems of action in the fields there. They're not broad horizontals. They're very deep and very specialized, which means, frankly, the addressable market is small, and we have a pretty big chunk of it. And it's just not worthwhile for most players to come after. That's what it comes down to.

Any questions from the audience? Yes, one here.

Just a follow on from Nigel's question. Interested in how you guys are thinking about software M&A at this point? And what framework would you use to assess the viability of that type of business, given the concerns around the ecosystem today?

Yes. Thanks for the question. So I mean, I think for us, M&A is a piece of our capital allocation strategy, and we'll only do M&A if the risk-adjusted returns are better than other uses of capital. And as we're building our funnel, it starts with the software area of the company.

So if 80% of our service area is highly differentiated hardware, our M&A funnel will skew towards that because that's where our service area is. Software is part of our portfolio, but I'll say the bar is really high on a software deal because first, it's got to meet our rigorous strategic and financial criteria.

So that's the first hurdle to pass. Second, it has to be durable in an AI native world, right? That's the second. So all those things I talked about that we like about our current software businesses. It has to have proprietary data, two-sided networks and all of those things. And then thirdly, it has to be a price point that fits with our return criteria. So that's a really narrow path to get a software deal through right now. So I wouldn't say we wouldn't do a software bolt-on. But if you take all those things I talked about our surface area, the criteria you got to pass through, it's just -- it's a high bar.

Yes. Any other questions? No. Mark, let's turn to margins. You've been dealing with quite a few headwinds, stranded costs from the spin, tariffs and yet margin expansion, margin performance has been really attractive. So maybe talk about the path ahead. Where are we on those headwinds? And as growth picks up, why wouldn't margin expansion?

Thanks for the question. I'd just reiterate our overall framework is 50 to 100 basis points of margin expansion over the next couple of years. We feel really good about that. There have been various puts and takes on the margin picture, but the overall story has been that we have taken deliberate action not only to just take up the stranded costs, which were roughly $50 million, but to go above and beyond and flatten segment structures, look for opportunities across our G&A functions to actually streamline and reduce costs, all with the goal of being able to redeploy that spend towards strategic initiatives across commercial acceleration, innovation, acceleration and recurring customer value.

And I think I would just expect more of the same going forward. Again, we look at that 50 to 100 basis points of margin expansion as a guideline for us to operate the business under. And so to the extent that like we saw in the first quarter, we see upside to that, we will look for ways to deploy it to the extent that it can further accelerate and drive profitable growth.

It sounds like you're prepared to have a bit of volatility around the quarters in terms of investment spending at AHS. I'm just wondering if you were to overdrive to if you have an exceptionally strong volume quarter where you're running 150 basis points, let's say, would you be more biased to investing that away -- just wondering how you think about that.

Yes. I mean we definitely think about things on an annual or multiyear basis. So we're not looking to do things that would be suboptimal from a capital allocation perspective at any time to produce an optical outcome. So if we didn't have good use for the capital, we would absolutely let it flow through. And I do think just if you look at the structural aspects of this business, all of the businesses, as Olumide mentioned, are leaders in their space.

They've got pricing power. The margin structure is very attractive, which allows us to have strong operating leverage through the P&L. The Fortive Business System is alive and well, and so we're grinding out optimization opportunities. So I do think there is opportunities for us to overdrive. And I think the more successful we are in accelerating growth, we'll see more of that, but the bias will be to reinvest it in and actually drive better performance. And that may result in quarterly movements here and there, and I think we're fine with that.

And then obviously, the most visible aspect of operational efficiency is the corporate line, the corporate. That seems to be running a little bit below the $125 million, $130 million, I think, was the guide. Is that now sustainably lower going forward.

I would think so. I mean we're in the $27 million a quarter zone, so call it, $110 million or so. I mean there will be inflation moves. There's little puts and takes in it, but I think that's a good spot. And we have deliberately taken down our teams to reinvest into the business. And I think we'll continue to look for ways to do that.

Yes. I apologize for the corporate expense line. And again, I apologize for the tax rate question coming up. The tax rate has been running low for a very long time for Fortive. I think some of the global tax regime changes have been pushed out. Are you confident you can maintain this level of tax rate going forward? Or is there a bias towards 20% longer term?

I don't know about 20%. I think we feel good about the mid-teens zone. And I think if the global minimum tax regime, the rules, there's still some uncertainty around the U.S.'s the applicability to the U.S. I think that's generally going to put upward pressure on the tax rate. I probably think about that in the 200 to 300 basis point zone. But I don't -- we don't see 20% as the place that we're headed.

That's great. And then capital allocation would be a good place to sign off on. You mentioned bolt-on acquisitions, Olumide, rebuilding the M&A pipeline. Where do we sit right now on -- obviously, you've been very heavily levered on buybacks since the spin. Is the MO still to buy back as much as you can at the stock price? Or are we getting a bit more balanced in terms of the philosophy going forward?

I think the philosophy remains the same, which is that we've got four primary uses of capital, invest in organic growth. We think about M&A and share repurchases as interchangeable with a bias to bolt-ons. We've got a modest and growing dividend. And really, it's all about the relative returns across those. I don't see right now the relative returns having dramatically changed.

I mean our free cash flow yield continues to be in the 5.5% to 6% zone. We generate $1 billion of free cash flow a year, give or take. But I think at some point, when we've got a longer track record of delivering strong performance where growth acceleration starts to really show up as a pattern, not an anomaly, that we may see some multiple expansion at that point, the relative math might start to change. I mean we have taken our leverage up a bit. We did that in the back half of the year.

We did that again in the first quarter to shift some repurchases forward given the value we saw. So I wouldn't expect what we did in the first quarter, which was $0.5 billion to be the recurring quarterly pattern. But I do think we continue to have a bias to share repurchases and the overall mix given what we see today.

That's great to hear. We're out of time. So Olumide any last closing remarks.

Well, thanks for having us. We feel really great about the first year here. We're firmly on track with the financial framework we laid out. And we -- to Mark's point, really believe we have a chance to unlock benchmark being shareholder returns in the medium and long term, and that's what we're going to stay focused on doing. So thank you.

Thank you, and that was a great discussion. Thank you Mark.

Thank you.

My name is Shamali, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's First Quarter 2026 Earnings Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference.

Thank you, and thank you, everyone, for joining us on today's call. I am joined today by Olumide Soroye, Fortive's President and CEO; and Mark Okerstrom, Fortive's CFO. During today's call, we present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortive.com.

We will also 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 risk factors is available in our SEC filings, including our annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q. 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. Our statements on period-to-period increases or decreases refer to year-over-year comparisons, unless otherwise specified, and our results and outlook discussed today are on a continuing operations basis.

With that, I'll turn the call over to Olumide.

Thank you, Christina. Let me begin on Slide 3. Q1 marked a strong start to the year with another quarter of solid performance. We remain laser-focused on delivering on our strategic and financial plans for 2026 and continue to make encouraging progress on executing our Fortive's Accelerated strategy. We have 4 key messages to cover today. First, our teams executed well in the first quarter of 2026, delivering solid performance in both segments. On a consolidated basis, we delivered core revenue growth of just over 5%, adjusted EBITDA growth of 13% and adjusted EPS growth of over 25%. Please note that our core revenue growth in the quarter was aided by approximately 150 basis points of tailwind from additional year-over-year selling days in the quarter. Second, we continue our disciplined capital allocation approach with a relentless focus on optimizing shareholder returns over the medium to long term. In the first quarter, we completed approximately $500 million of share repurchases. We've now reduced our share count by just over 10% since we launched New Fortive in July 2025.

Third, with 3 quarters of execution now behind us, our confidence continues to build in the power of the Fortive Accelerated strategy to unlock benchmark beating returns for our shareholders over the medium to long term. I'll spend a few minutes on this in the next slide. Lastly, we are reaffirming our full year adjusted EPS guidance range of $2.90 to $3. Based on our Q1 performance and trends to date, we believe results are trending toward the upper half of that range.

Moving to Slide 4. Before we get into our Q1 results, I want to highlight some of the progress we're making in executing the 3 pillars of our Fortive Accelerated strategy. Starting with the first pillar, delivering faster profitable organic growth powered by our Fortive Business System Amplified. This quarter, we continue to increase our innovation velocity with several notable hardware product milestones and AI-enhanced product launches. As discussed last quarter, Fluke launched a new data center testing solution, CertiFiber Max, with the fastest throughput in the industry in late Q4. Customer response continues to significantly exceed our expectations, underscoring the strength of Fluke's brand and the effectiveness of our broader data center strategy. We are particularly encouraged by CertiFiber Max's ability to drive meaningful pull-through of other Fluke products into data center applications, including power quality, battery testing, imaging and calibration solutions essential for both build-out and ongoing operations and maintenance of data centers.

In healthcare, we introduced Provation Mira Documentation Assist, a real-time, AI-powered voice-driven documentation capability enabled by deep domain expertise and proprietary data, and embedded directly into GI procedure workflows. This solution enables clinicians to capture structured documentation during the procedure, reducing the need to reconstruct details afterwards and enabling the clinical team to focus on the best patient care.

On the commercial side, we continue to focus on faster-growing end markets and regions, where we've made deliberate targeted investments to capture growth. At Fluke, we continue to invest in commercial expertise across high-growth verticals such as data centers, defense and distributed energy, and we're seeing solid early traction from our focused efforts. And at ASP, we continue to advance our made-in-region strategies in India and China, supported by related commercial investments and we're beginning to see positive impact of these efforts in our results. We're also advancing ASP's growth strategies in EMEA with the European commercial launch of STERRAD ULTRA GI.

On our recurring customer value initiatives, we continue to make progress on driving deeper customer life cycle engagement and improving revenue durability. In Q1, recurring revenue again grew faster than consolidated revenue in both segments. Our recurring customer value progress continued in our iconic hardware brands. Fluke continues to make progress on increasing recurring revenue with double-digit services growth in the quarter. And Industrial Scientific continued to see strong growth and share gains in our Hardware-as-a-Service product line.

Moving to the second pillar, disciplined capital allocation is an integral component of our Fortive Accelerated strategy. Consistent with our priorities, we deployed another roughly $500 million to share repurchases in Q1. Since the spin-off, we've deployed approximately $1.8 billion to share repurchases, representing 35 million shares or just over 10% of diluted shares outstanding. Our revamped bolt-on M&A engine and team is in place, and we will continue to evaluate opportunities for high-quality accretive bolt-on acquisitions that meet our rigorous strategic and financial criteria. Looking forward, our capital allocation priorities remain clear: invest in organic growth, pursue bolt-on M&A where risk-adjusted returns exceed other uses of capital, return capital through share repurchases and maintain a modest growing dividend, all with a focus on best relative returns and maximizing medium- to long-term shareholder value.

Moving to our final pillar, building and maintaining investor trust. We were pleased to deliver solid performance ahead of expectations for a third consecutive quarter as New Fortive. That is a good start, and we look forward to building on our momentum. We remain laser focused on executing against our 2026 financial and strategic plan and continue to have strong confidence in our 2026, 2027 financial framework that we shared at our June 2025 Investor Day.

With that, I'll turn it over to Mark to walk through our financial results for the first quarter in more detail.

Thanks, Olumide. I'll begin with Slide 5. In the first quarter, we delivered total revenue of nearly $1.1 billion, up almost 8% year-over-year on a reported basis and up just over 5% on a core basis benefiting from an approximately 150 basis point tailwind from the impact of additional year-over-year selling days in the quarter. We are pleased to see price and volume growth in both segments driven by healthy customer demand, strong commercial and operational execution, leading to solid performance across the board. We are also pleased to see strong growth in software revenue, reflecting the underlying strength of our businesses and robust customer demand for our increasingly AI-driven new product releases.

From a geographic perspective, we saw another quarter of solid performance in North America, which continues to be our strongest region. Europe improved sequentially, reflecting stabilizing conditions and solid commercial execution. Adjusted gross margin in the quarter was just over 63%, down about 100 basis points from prior year, which is largely consistent with the year-over-year gross margin trends we saw last quarter and was driven mostly by the net impact of tariffs that were introduced last year.

Q1 adjusted EBITDA was $314 million, up about 13% year-over-year. This strong performance was driven by operating leverage, structural cost savings and the favorable impact from foreign exchange rates, partially offset by continued innovation and commercial growth investments. Adjusted EBITDA margin in the quarter expanded approximately 140 basis points year-over-year to just over 29%. We delivered adjusted earnings per share of $0.70 in Q1, up over 25% year-over-year, marking our third consecutive quarter of double-digit adjusted EPS growth. Strong adjusted EPS performance was driven by growth in adjusted EBITDA and the positive year-over-year impact of share repurchases. We generated $194 million of free cash flow in the first quarter with Q1 conversion on adjusted net income, in line with normal historical patterns. Our trailing 12-month free cash flow conversion remains north of 100%.

Moving to our segment results, starting with Intelligent Operating Solutions on Slide 6. Revenue for the segment grew about 8% on a reported basis with core revenue growth of about 5%, modestly ahead of our expectations. Based on the product mix in the segment, the year-over-year impact of additional selling days in Q1 resulted in a roughly 100 basis point benefit for IOS, making normalized core growth in the segment, broadly consistent with what we saw last quarter. Our growth was driven by both price and volume, reflecting solid performance across professional instrumentation, Facility and Asset Lifecycle solutions and gas detection products.

At Fluke, order volume was strong with orders growth outpacing revenue growth and our teams continue to execute with strong operational discipline while increasingly deploying investment dollars towards growth initiatives. North America continues to be the strongest growth driver, and we were encouraged by another quarter of sequential improvement in Europe. Growth in Facilities and Asset Lifecycle solutions accelerated from Q4 and was again accretive to the IOS segment with particular strength in demand for multisite facility maintenance and marketplace software in North America. Our commercial investments and accelerated pace of innovation across these businesses are beginning to bear fruit. Our gas detection business continues to grow nicely, buoyed by strong demand and share gains from our Hardware-as-a-Service product line in North America, Europe and the Middle East as we begin to see our investments in the business show up in our results.

Adjusted gross margin in the segment was just over 65%, down about 150 basis points year-over-year, which is largely consistent with the year-over-year gross margin trends we saw last quarter, primarily due to product mix and the net effect of tariffs. Q1 adjusted EBITDA in the segment grew 8% to $255 million, driven by operating leverage, structural cost savings and the favorable impact from foreign exchange rates, partially offset by targeted growth investments to support innovation and commercial initiatives. Adjusted EBITDA margin for Q1 was just over 34% in IOS, in line with the comparable period prior year.

Moving to our Advanced Healthcare Solutions segment on Slide 7. We delivered total revenue of $326 million. Revenue grew approximately 8% year-over-year and approximately 6% on a core basis. Our healthcare consumables and software product lines benefited from the year-over-year impact of additional selling days in Q1, resulting in a roughly 300 basis point benefit to growth for AHS. On a normalized basis, we saw a slight acceleration in growth versus last quarter. Q1 growth was driven by solid demand for healthcare consumables, services and software in North America. Low temperature sterilization capital demand improved modestly in Q1, the hospital spending pressures continue to persist. Our software products in the segment continued to deliver strong growth, driven by effective execution and strong provider demand for our gastrointestinal case documentation solution.

Adjusted gross margin in the segment was about 59%, in line with the prior year period, with modest operating leverage offset by the net impact of tariffs. Q1 adjusted EBITDA in this segment was $84 million, up approximately 18% year-over-year, driven by operating leverage, structural cost savings and the favorable impact from foreign exchange rates, partially offset by targeted growth investments to support innovation and commercial initiatives. Adjusted EBITDA margin in Q1 expanded by about 200 basis points year-over-year to just under 26%.

Turning to Slide 8. Our balance sheet remains strong. We finished the quarter at 2.8x gross debt to adjusted EBITDA, reflecting a modest increase in commercial paper to fund share repurchases in the quarter. We continue to have ample capacity to execute on our capital deployment priorities in 2026 and we remain steadfast in our commitment to disciplined capital allocation and an overall approach that seeks best relative returns. As noted earlier, we deployed roughly $500 million to share repurchases in the first quarter reflecting continued confidence in our ability to deliver on our value creation plan.

As a result, diluted shares outstanding were approximately 309 million at the end of Q1. In addition to retooling our process and revamping our M&A team, integration and the execution of our value creation plans for the 2 small bolt-on acquisitions we completed in Q4 are both going according to plan, and we continue to be on the lookout for high-quality accretive bolt-on deals that meet our rigorous strategic and financial criteria.

Moving to Slide 9. We are reaffirming our full year 2026 adjusted EPS guidance range of $2.90 to $3 per share. Given the trends to date, inclusive of Q1 performance modestly ahead of our expectations, we believe results are trending towards the upper half of that range. This outlook assumes a continuation of the market dynamics we experienced in Q1 and reflects current tariff rates. Let me provide a few additional considerations to assist with modeling. Based on current foreign exchange rates, we expect full year reported revenue of around $4.3 billion. We continue to expect core growth in the 2% to 3% range, and given strong order patterns, we believe results are trending towards the upper end of that range.

In terms of the shape of the year, based on Q1 results modestly ahead of our expectations, we expect Q1 will comprise a slightly higher percentage of total revenue than historical patterns with Q2 and Q3 broadly in line. We would note that Q4 has 4 fewer year-over-year selling days resulting in a $15 million to $20 million revenue headwind in the quarter. We expect FX and M&A combined to be about a 150 basis point tailwind to reported revenue in Q2, moderating to roughly 50 to 100 basis points throughout the second half of the year. We are now modeling a Q2 effective tax rate in the mid-teens, Q3 in the high teens and Q4 in the high single-digit to low double-digit range.

We are also expecting full year net interest expense of just over $135 million. Based on what we see today and based on these modeling considerations, we would expect Q2 and Q3 adjusted EPS to be broadly similar to what we delivered in Q1. As the year unfolds and we continue to execute on our Fortive Accelerated strategy, quarterly phasing may evolve. As a final note, before turning it back to Olumide for closing remarks and Q&A, we're off to a strong start to 2026 at New Fortive, and we remain committed to unrelenting execution on the Fortive Accelerated 3-pillar value creation strategy and financial framework that we outlined at our June 2025 Investor Day.

I'll now turn it back over to Olumide.

Thanks, Mark. Let me close with a few observations on the quarter and where we're headed. Q1 represents a strong start to the year and further evidence of the progress we're making as New Fortive. We delivered solid organic growth, meaningful adjusted EBITDA growth and a third consecutive quarter of double-digit adjusted EPS growth while continuing to invest deliberately and execute diligently against our Fortive Accelerated strategy. We're seeing early traction from our innovation, commercial and recurring customer value growth initiatives. We are methodically allocating capital in ways that we believe will generate the best relative returns over the medium to long term. And we remain steadfast in our commitment to building and maintaining investor trust.

Our teams are aligned, our FBS operating cadence is strong and our confidence in the 2026-2027 financial framework we outlined at Investor Day 2025 is fully intact. I want to thank our Fortive team members around the world for their commitment to our shared purpose of innovating essential technologies to keep our world safe and productive and our 100,000 customers for placing their trust in us every day.

With that, I'll turn it back to Christina to open the call for questions.

Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions.

[Operator Instructions] Our first question comes from the line of Nigel Coe with Wolfe Research.

And by the way, Mark, thanks for the callout on the selling days. That's really helpful. Not all teams do that. Just on the 2Q plan, I just want to make sure we're thinking about this correctly. You mentioned 2Q, 3Q EPS roughly similar to 1Q. Normally, we see 2Q stepping up from 1Q, but we have the selling days impact. So I'm just wondering, the core growth in 2Q, is it looking to be in that sort of mid-single-digit range, but it's pretty flat with sales in the first quarter, but up mid-single digits and margins would also be fairly similar to 1Q as well.

Nigel, thanks for the question. I think you're broadly in the zone. Again, Q2, we obviously don't have the benefit of the days. We do have a slightly easier comp. I called out the FX tailwind that combined with M&A being about 150 basis points. And I think we're -- over the last couple of quarters, we're starting to see just some momentum across each of the 2 segments based upon our own execution with IOS a little bit ahead of AHS. And based on what we see right now, we're expecting those trends to continue through the full year.

Great. And then my follow-on question, I think, Olumide, you mentioned some success with some of the AI-driven product releases within FAL. AI is meant to be a negative, not a positive. So maybe just talk about that a little bit and perhaps a little bit more color on how the FAL portfolio performed in the quarter?

Yes. No, happy to take that. So I mean, I think AI is certainly a disruptive technology that's shaping the landscape. And as we've discussed previously, we feel very good about the businesses we have and how our teams are taking advantage of AI-powered innovation to drive growth in those businesses. And I think looking at FAL as an example, it is a great case example of how we're using AI deployed on top of our mission-critical proprietary data reach software solutions for customers to really deliver new value for them that's driving faster growth in that platform. Now we've talked about a few examples of ServiceChannel AI and what our team is doing with that. And you see that showing up in the numbers.

We're very pleased with FAL's performance in the quarter. It grew faster than the IOS segment core growth of 5.2%. All the operating brands contributed to that growth with ServiceChannel leading the pack with continued strength, especially in North America. And the broad trends in all our key operational metrics, ARR, GDR, MDR are really good. And we're excited about the opportunity to see continued improvement in those metrics as we execute on our Fortive Accelerated strategy, including this AI-powered use cases. So from everything we see, given the nature of those businesses and the kind of quantitative data on performance, we feel quite good.

Our next question comes from the line of Deane Dray with RBC Capital Markets.

There were a number of references about data center and Fluke is right in the middle of all of it. Can you just give us a sense of what the opportunity is? And there's some newer technologies like optical switching that should also position Fluke well. But any update there and kind of what the overall exposure is would be helpful.

Thanks, Deane. So yes, we are very excited about the data center investment cycle and not just the construction and build-out stage, but frankly, the larger and more durable opportunity for ongoing operations and maintenance of this massive data centers that are getting built out. And like you mentioned, Fluke already participates in the tool belt for these data centers with a wide range of market-leading products in power quality monitoring and analytics and high-voltage diagnostics and high-density fiber testing, electrical ground fault detection, power calibration health, et cetera. And I think new technologies like optical switching, to your point, will create additional demand for a lot of these products we already have.

But even more exciting, frankly, is the tremendous job our Fluke team is doing on accelerating innovation that's aimed at data center needs that are not yet fully met. We talked about the CertiFiber Max product that we launched in Q4 of last year and just the incredible customer response to that and how our team is using that new product to pull through the entire suite of offerings we have for these data centers and really working hard at getting spec'd in to hyperscaler standard maintenance tool sets for how they manage these data centers. So we feel really good about the setup and the enduring tailwind that offers for us at Fluke. And the exact magnitude of that is still ahead of us, but we're quite excited.

Great to hear. And then just can you address price/cost expectations for the year ability to offset inflation and any tariff pressures at the margin?

Yes. Price/cost was north of 1% in the first quarter. We would expect that to persist. FBS continues to be absolutely the core Fortive, and that is just -- continues to drive value engineering and cost efficiencies as we move through the year. The tariffs, again, they have been a headwind to our gross margins, even though they're completely countermeasured from a bottom line perspective. You saw that headwind show up in IOS this quarter. It's going to persist through partway through the third quarter when we are fully countermeasured. And then you'll see that dissipate completely as we lap over the countermeasures in the fourth quarter.

Our next question comes from the line of Julian Mitchell with Barclays.

Maybe I wondered if you could flesh out perhaps some of the commentary on the orders strength you've seen recently. I think some other companies have not exactly been shy about touting large orders in recent months. So how are the orders progressing there? And just wondered any update on the cadence of demand in some of the shorter-cycle hardware businesses like Fluke or AHS consumables in recent weeks or months? Any signs of prebuy or broad changes in demand ex restock, destock, anything to call out there?

Great. Julian, happy to take that, and thanks for the question. So I think first on Q1, we were really happy with the orders growth that we saw. Orders grew faster than our 5.3% core, 7.7% total revenue growth, which is a great signal about the trajectory of the business. And the order growth we saw was broad-based across the 2 segments in IOS, Fluke, FAL, ISC as well as on the AHS side, ASP all saw really strong order growth in the quarter. So we're quite pleased with that. And that's a result of just the good conditions in our markets, the strength of our operating brands and the early positive impact of our Fortive Accelerated strategy. So we quite like that.

And in terms of the -- your question on short cycle and indicators there, maybe I'll just use a couple of examples. I think if you look at Fluke, as probably the biggest indicator of that, POS trends remain solid. Book-to-bill was over 1, healthy backlog to end the quarter. Channel inventories relatively normal in the U.S., continue to get better outside the U.S. So we feel really good about the trends we're seeing on short cycle. As you know, Fluke has been a very durable business with order growth in almost every quarter, the last 5 years despite PMI in contraction zone most of that time. So Fluke's continued endurance has been quite impressive, and that continued in the quarter as well. And for ASP, on the consumables side, the same thing, that continued to show the resiliency that you would expect. And even adjusting for the extra selling days, low-temperature sterilization consumables continue to grow in a very durable way. So we felt all the signals were good for us.

That's very helpful. And then if we think about operating leverage or operating margins, there were very high operating leverage in Q1 year-on-year, even with the tariff headwinds. I understand there was a sort of selling days mechanical impact. But when we look at the balance of the year, anything we should bear in mind on operating leverage as we move through the year? I imagine there isn't a big Section 232 tariff effect for Fortive. So yes, any sort of help there you could provide?

Sure. Happy to. So again, I think just to reiterate, we are very confident in our medium-term financial framework, and that calls to 50 to 100 basis points of EBITDA margin expansion over the course of this year and next year and each year. And that's the framework we're operating under. And really the way we've been managing the business is taking costs out of areas where they're not particular value added. You saw us flatten the segment structures, take out corporate costs in addition to the stranded cost reduction and reinvest that in initiatives that we believe will accelerate growth and deliver excellent returns. And that's the formula.

What you will see this year, though, is that because we've got this days impact in the first half of the year, we've got easier comps in the first half of the year. In the back half of the year, the comps get a little bit harder in Q3, and then you've got the days impact in Q4, and you will lap over a lot of the pretty significant cost actions that we took in the third and fourth quarter of last year. You'll see a little bit of a shift, if you will, or a little bit less margin expansion in the back half of the year than certainly we were able to deliver in the first half of the year. But we -- again, we feel super good about the overall margin trajectory of the business. FBS is working. We're reinvesting in initiatives and that seems -- it's early, but it seems to be driving growth and the financial framework is well intact.

Our next question comes from the line of Andy Kaplowitz with Citigroup.

Olumide, If I could follow up on AHS. I mean you mentioned, I think, slight acceleration in Q1 despite some continued hospital CapEx pressure in the U.S. So how would you characterize fundamentals? I know you answered Julian's question on consumables, but overall equipment, does the environment continue to get better here this year, differences between North America and China? What are you seeing on the AHS demand side?

Great. Happy to address that. So I mean, we were pleased with the performance in the AHS segment and ASPs role within that in the quarter. And -- as a reminder, the segment did benefit from roughly 300 basis point tailwind related to the additional days in the quarter. But even after normalizing for that, we saw some acceleration in the segment, reflecting the strength in consumable services and software. In terms of capital equipment, to your point, we have seen modest sequential improvement since Q2 of 2025. As you might recall, that was the toughest quarter with the impact of health care reimbursement and related policies on hospital kind of procurement of capital equipment. But Q1 continued to show that improvement. For us, hospitals remain cautious about capital spending when the exact timing is discretionary. But we feel really good about especially lapping that year-over-year dynamic as we go into Q2 here because Q2 last year is when it started.

And the underlying capital funnel we have is really strong. And as we lap this dynamic in Q2, we like the setup for the rest of the year for our team. The U.S. continues to be the main pressure point on hospital budgets, but it's getting better. And with some of the made-in-country initiatives we have in China and India for ASP, that's adding some tailwind for us in those particular markets as they want locally made products. So we feel quite good as we look at the rest of the year and things are getting better on the equipment side, even though there's still some caution.

Very helpful. And then I want to follow up on FAL also. I mean you mentioned the strength in ServiceChannel and that FAL is stronger than core growth in IOS in Q1. But maybe you could talk about the outlook for Facility, Asset Lifecycle for the year. Would you say that ServiceChannel, Gordian, could all continue to be higher than that 3% core growth you're guiding? I think any more color would be helpful.

Yes. No, thanks for that. So I mean, I think the leading indicators are the things we're seeing on order growth and ARR and GDR and MDR in those businesses and also the -- just exciting actions our teams are taking with respect to the innovation funnel and commercial initiatives to invest in areas where we have momentum across the range of options and also just to drive improved customer experience. And all of those things pointing north for us in those businesses. So we feel good about the setup for the rest of the year for FAL and the role it continues to play in our mix.

Our next question comes from the line of Andrew Buscaglia with BNP Paribas.

So I just want to reiterate that, yes, the -- you're guiding to a similar level for Q2. You're talking about some incremental things you're working on to drive some margin expansion. But guidance really at the midpoint does imply earnings moderating or even potentially declining in one of the quarters. So maybe -- yes, is this just conservatism? Or what are you waiting to see in terms of moving that guidance higher?

Yes. Thanks for the question. I think net-net, we feel very good about the momentum that we're seeing in the business, the early results of our execution on the Fortive Accelerated strategy really across all 3 pillars, but I think particularly the efforts we're making on commercial acceleration and innovation acceleration. I think what I would say is that it's early in the year. We've got a quarter under our belt. We've got a lot of exciting things going on, and we like what we see. But it's just a little bit too early to get out ahead of our skis.

I think take the fact that we gave some color that we are expecting growth near the higher end of our range and adjusted EPS on the full year near the higher end of the range or the upper half is an expression of our confidence in what we see. And we look forward to updating you on the next call in terms of how it's going.

Yes, fair enough. Yes, I wanted to check on the M&A front with -- you guys have been doing a good job managing on the cash flow side. But yes, what's the outlook like you got your footing post separation at this point, you have probably a better idea of where you want to go with your capital allocation priorities. So what do you see in terms of M&A as it plays out this year?

Yes. Thanks for the question. Well, again, capital allocation is a critical pillar to the Fortive Accelerated strategy. And we've been pleased to deploy capital with discipline retiring just north of 10% of our share count since the time of the spin. And we're really looking to deploy capital across organic growth initiatives, M&A, share repurchase and a modest growing dividend based upon best relative returns. As it relates to M&A specifically, we've really revamped everything. We've revamped our approach with more of a focus to bolt-ons. We've put in place rigorous strategic and financial criteria. We have essentially rebuilt the team. We've executed a couple of bolt-on acquisitions in the back half of the year, and those are going very well, and the value creation plans are tracking, and we think the teams are performing really well.

We're also super excited that on Monday, Corbin Walburger will be joining us to run corporate development for us globally and run M&A And Corbin is well known in circles around this industry. We think he's going to be a fantastic fit. And we're excited to have him join what has already proven to be a really excellent team. And I think we'll see what happens. Obviously, if multiples start to expand on a relative basis, M&A becomes more attractive. And we're putting ourselves in a position where we're building pipeline. The team is strong and getting stronger. And when the time comes where that becomes the best use of capital, we'll be there. We'll be proactive and are ready to go.

Our next question comes from Quinn Fredrickson with Baird.

Question on Gordian. I think June is typically a more sizable month for that business with year-end government spending. You obviously didn't see that last year. Just any visibility to whether that normalized year-end spend materialize this year or what's baked into the 2Q guide?

Yes. Thanks for the question. So yes, you're right. A lot of the state and local agencies, June is the year-end. And our team is doing a phenomenal job of being very close to customers and being there to serve them on any budget that's left. We feel really good about the funnel that we have and expect to have a strong outcome. We haven't presumed anything kind of extra normal in terms of the Q2 guidance. And if we get more there than we got last year, we'll get the upside. So we feel quite good about the setup and the work our team is doing to be close to customers as we go through Q2.

Okay. And then second one just would be on the detection business. Any color you can share on what you're seeing in the Middle East? Any disruption tied to that? And then any discussions with customers about potential rebuild-related orders?

Yes. So I'll take that. So I think with respect to the gas detection business overall, we're very pleased with how that did in the quarter. It was accretive to IOS segment growth overall. Demand was strong globally, frankly, with solid performance in North America, Europe and the Middle East. And I think with respect to the Middle East, we really are seeing, to your point, increased demand. And we don't think the rebuild is at the peak yet. So we're excited about the opportunity to show up for customers as that picks up in the region. Overall, just keep in mind that sales in the Middle East is a small part of Fortive overall. It's low single-digit percentage of our total revenues. But that team, based on the order book is feeling quite excited. Thankfully, our teams in the regions are all safe and staying close to customers. So we're feeling good about being able to help in a challenging context.

Our next question comes from the line of Chigusa Katoku with JPMorgan.

I just have a quick follow-up on FAL. You commented that it grew faster than IOS, growth of 5% during the quarter. But can you just clarify if that's what it was adjusting for the selling day impact and how that compares to last quarter?

Yes. So the FAL business did very well even if you adjust for the selling days. And so I think that statement holds even adjusting for selling days. And that's an indication of just the great job our team is doing on building the order book over the last several quarters here that's now beginning to show up in revenues as rev rec kicks in for those new orders. So it feels quite good. And like I mentioned, the leading indicators looking ahead are also quite strong, excluding extra selling days.

Okay. Great. And how does that compare to last quarter? Do you have any color there?

Overall, I think I see as we're seeing steady acceleration in the platform, which, again, one of the things we liked about Q1 is the broad-based nature of acceleration we saw and FAL was no exception to that compared to last quarter.

Okay. Great. And then a follow-up, but -- so sorry to follow up on this point. So last -- compared to last quarter, it accelerated, correct, not decelerate?

I think without getting into the specifics, I think we're really pleased with the progress we're seeing in the quarter, including adjusted for days. And I think we'll just stay away from getting into too much specifics. But again, continued strength in FAL and across the board. And as Olumide said, really no exception across all of the components of the business and all the components of Fortive.

Okay. Great. And just my last question, but so were this trend similar for the AHS Software business?

Yes. AHS as well, again, continued very strong performance even adjusting for days. And again, as I said in my prepared remarks, our software revenue in totality is growing nicely ahead of the overall business. And we really don't, as we look across the whole portfolio see an exception to that. Those businesses with the renewed focus on innovation acceleration and commercial efforts, we're seeing good early signs.

Our next question comes from the line of Scott Graham with Seaport Research Partners.

So the old Fortive talked a lot about OMX and how FBS poured productivity into that. I was wondering if you might be able to give us some type of data point on this. I know you've enhanced those programs. Just wondering, is this 30 to 50 basis point goal here for productivity? Is there a sustainability to whatever your goal is? Any kind of data point KPI you can give us would be helpful.

Yes. Thanks for the question. So maybe let me start from the foundation of our culture. So the foundation of our culture around the Fortive Business System and the relentless pursuit of better, including productivity and now increasingly growth is stronger than ever. And we've got our President's Kaizen week next week. We've got 40 teams around the world that are going to be focused on driving growth and productivity. So the fundamentals of how we operate is only getting stronger. And so you should expect good things from that. Secondly, I would say we've intentionally framed this 50 to 100 basis points of adjusted EBITDA margin expansion a year in our financial framework as the governing framework for productivity and the fall-through on high-margin incremental revenues that we drive.

And that's intentional because we do want to give ourselves the space to invest productivity gains in growth that is going to sustain and be accelerating our performance across both segments. But within that framework, productivity is as big a piece as ever and deliberate investment in growth is a bigger piece than it's ever been because that's how if you look at the performance this quarter and 5.3% core growth across the company, we would like to keep investing to make outcomes like that more than norm. So productivity remains as strong as ever. It's baked into that 50 to 100 basis points of adjusted EBITDA margin expansion a year, and we feel really good about the setup.

Okay. My follow-up is simple. It looks like FAL is kind of getting back to that sort of mid-single-digit growth that I think you talked about at the Analyst Day. Is there an opportunity this year for Fluke to catch up? You've got the new data center product. You're anticipating some pull-through. I don't know if that's maybe later this year or next year. You have Fluke connectivity going. You're adding products to the tool belt as usual. It's a terrific business. I'm wondering if it's going to potentially catch up to FAL this year in your view.

Yes. It's when Mark was talking about a 2% to 3% kind of modeling consideration guide on core growth for the year and the fact that we're tracking towards the higher end, the top half of that range. I think all of that reflects the conviction we have about potential across the platform. And of course, given that Fluke is almost 40% of what we do, you should translate that. To me we feel really good about the setup at Fluke and the chance to -- just given the work our team there is doing, continue to make a really great business even more extraordinary from a growth and margin performance and brand and customer loyalty point of view. So I think short answer to your question is we see Fluke as a really exciting platform. We will continue to make that great business even better from a profitable growth point of view. And from a multiyear basis, we see no ceiling ahead of us.

And we have reached the end of the question-and-answer session. I would now like to turn the floor back over to CEO, Olumide Soroye for closing remarks.

Great. Thank you, and thank you all for your interest in Fortive. Just incredibly excited about the job our team did in the first quarter to deliver really strong results and adjusted EPS growth of over 25%, which is again our third quarter of double-digit growth in EPS. And more importantly, just really excited about the momentum and excitement across our teams as we look ahead and feel really good about the setup we have for the year and for the multiyear extraordinary value creation opportunity we believe we have here for our long-term shareholders. So thank you all for your interest, and we will see you next time.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.

All right. We're moving along with Mark Okerstrom from CFO of Fortive. Thank you so much for joining us here in lovely Washington, D.C.

Yes, thanks. Great to be here.

Yes. Just wanted to start off with a basic kind of background on what's happening out in the world today, I kind of have to ask the question about exposures and anything that's going on in the world that is a concern or impact for Fortive. Middle East wise?

Yes. Listen, I'd say we're on track on the Fortive accelerated strategy, on track in terms of our strategic initiatives. The Middle East for us is a small portion of our revenue. It's low single digits percentage of our revenue. We are seeing strong demand for products into the Middle East.

So Fluke Industrial Scientific that does gas sensors, again, seen strong demand, some challenges getting shipments into the Middle East. But again, generally, it's a pretty small portion, and it's -- for better, for worse, it seems like it's an opportunity as opposed to a risk for us.

And how are you guys putting the Middle East and what's happening over there aside. How are things kind of trending over the course of the quarter, kind of quarter-to-date, point-of-sale trends, software sales, anything like that?

Well, I would just reiterate again, we're on track. I think we -- if you looked at the cadence of 2025, we delivered acceleration in the back half, we were growing 2.6% core growth. We continue to see strength through January. And the teams continue to execute well.

So again, I think overall, we're on track.

As far as the Investor Day is concerned, the longer-term growth algorithm, how do you guys think about the building blocks there? Any changes so far? I mean I know it was recent, but any changes in how you think about maybe what's better, what's worse kind of how all nets out on the long-term organic?

Yes. We feel good about it. Again, the framework was 3% to 4% core growth 50 to 100 basis points of adjusted EBITDA margin expansion and high single digit, high single-digit plus adjusted EPS growth, and we're on track. The core drivers to organic acceleration were commercial acceleration. So think about more boots on the ground, more specialized sales teams. That has been put in place more salespeople in India, for example, for ASP and Fluke, more specialized salespeople in Fluke to address data center and defense, for example, the second lever was product innovation. We're seeing the faster pace of innovation across the portfolio.

Another Fluke example, the CertiFiber Max, which is now the fastest and highest bandwidth data center fiber testing device and then driving more recurring revenue and our ARR continues to grow faster than the overall business. So the levers are in place, the framework is set, and we feel good about our ability to deliver on it and our aspirations are to do much better.

Can you talk about the recurring revenue in your portfolio? Just remind us how big that is? And then by the businesses, what you're seeing in each of those?

So recurring revenue is about 50% of revenue right now. Generally, it is growing faster than the overall business has been for some time. The biggest piece of recurring revenue is probably subscription businesses. We've got a software business in the FAL division we talk about as well as a couple of software businesses in health care. Those are roughly 20% or so of revenue, excluding transactional revenue.

They continue to grow very nicely. We've also got consumable businesses in ASP, which is essentially the razor blade model, the razor blades. And then at Fluke, we've also got a number of other businesses, service plan subscriptions kind of like Apple Care as well as some hardware as a service business. And all of those recurring revenue streams are areas of investment for us, and we continue to like the trends we're seeing.

So probably under the one that we recognized mostly software wise would be FAL. Maybe just walk through those businesses and what you're seeing there and touch on perhaps why this software is more defensive than some of their software may be against any kind of disruption from AI. But first of all, just what kind of the various business there and then what drives those? And what are you seeing in those markets?

Yes. So there's 3 main businesses within the FAL group facilities and asset life cycle management. The first is Accruent, they do property maintenance and asset management software. In many cases, for higher education, some retail, other end markets. The second one is Gordian. Gordian does and actually invented something called job order contracting. It's legislated in, in many states and jurisdictions that government buildings need to be maintained or repaired. They have to use the Gordian software and this job order contracting model. And then the third is service channel. Service channel is the leader in building maintenance software for multi-site retail.

So I think Walmart, all the way up to Louis Vuitton, those stores run the software that service channel provides, and they create a marketplace. So contractors are checking service channel every day for work, and it creates this great sort of marketplace effects. So if you run through those businesses and you think about kind of their competitive moats, I would start with -- Fortive is a child of Danaher and the whole thesis was buy high-quality businesses that are in attractive markets where they have competitive moats.

So the byproduct of the sort of Danaher, Fortive legacy is that these are going to be businesses with those moats. And they do have those moats. So each of these businesses are deeply integrated into daily workflow. Technicians are using the applications of Accruent, for example, is the walk around higher education systems and entering data and taking pictures. Same thing with Gordian, same thing with service channel. And these are really niche custom workflows that they run that have been built essentially over time.

Secondly is they've got proprietary data, not just the data of any particular customer, but importantly, horizontal data. So the data set for public building maintenance and an infrastructure for costing as RS means, and that's owned by Gordian. It is sort of the standard. And if you look across service channel and Accruent again, they've got these horizontal data sets that are hugely, hugely valuable. In the case of a few of the software businesses like Gordian, they've got regulatory moats. And then as I mentioned, there's also these network effects, these marketplace effects that we see at both Gordian and service channels.

So we feel really good about these businesses. And I wouldn't just take my word for it. I mean, ARR growth continues to grow faster than the fleet. Net dollar retention is around 100%. We feel great about the trends that we see there. We think AI is really an accelerant for these businesses, both in terms of new feature development, but also efficiency. And we feel pretty good about the positioning of these businesses. And we were just down in Austin with the teams. And I think we came away, Olumide and I are feeling really good about where we are and really good about these businesses' ability to contribute to the acceleration story over time.

And when you look at the actual revenue growth rate here of FAL, I know -- back in the day, we were talking about it as kind of a, I don't know, a rule of 50 or a rule of 60 type business. Where are we now on that in that calculation in that, whatever the rule out is now how fast we're growing and where can the margins go?

I think it's -- rule of X is getting better across the board. I think service channel has just been an incredible business for us, growing incredibly strongly, both top and bottom line. And we see that continuing for a long way. I mean, those -- that business is expanding verticals, they're expanding geographies, all signs go. Gordian has been a little bit more up and down. Because it's been exposed to state and local government spending. It seems like the deferred maintenance backlog and at some point, they have to do it. There was a bunch of ripples in 2025. Things seem to have normalized. So we feel pretty good about Gordian's prospects going forward.

And then Accruent has been a story of kind of revamping the product portfolio and then up-leveling the commercial efforts and 2026, portfolio has been largely done and commercial efforts are underway. So we feel pretty good across all 3 of those platforms that acceleration and profitable acceleration is possible and in most cases, likely.

Just remind us of what's the long-term growth algo for the FAL kind of portfolio? Is that a mid-single digit, like 5%-ish or..

I think it depends dramatically on which business we're talking about. I think overall, you're in the zone. I think there are end markets that are growing significantly faster. Service channel is growing significantly faster than that. And our aspiration is to continue to take share in those markets. But I think you're in the zone, and we hope to do better.

Okay. And if you look at any of those businesses, which is the one that you're kind of most bullish about? And is there an opportunity to add to any of those businesses with recent valuations coming down on software.

I'm probably most bullish on service channel because of their track record. They're not as susceptible to ups and downs in end market spending. Gordian is an incredible business, but they can be ups and downs. In terms of add-ons, I think we're open-minded, but we don't need to do any deals to actually deliver on our framework and hopefully more, we'll be opportunistic.

But again, they've got to be great businesses that can be integrated and that we can buy at a fair price and ultimately be accretive to growth and hit our financial and strategic hurdles. And those are pretty high hurdles. And particularly when we've got such great organic growth prospects, we probably skew a little bit more to the hardware side of things right now in terms of where our M&A pipeline is focused.

How do you look at price in these businesses, the FAL businesses? How much of an annual benefit is priced for the software businesses?

Well, it's been mixed. Overall, price for Fortive has been in around 200 basis points. FAL has been a contributor to that. And what we're really having the FAL teams focus on is as opposed to pushing price, pushing recurring revenue.

So transitioning businesses that may be license and maintenance over to SaaS-based continue to find new features and functionality that create more stickiness for the business. So that's mostly the focus. And I think as we do that, we launch new features, we move to SaaS. There is some opportunities for price. But price isn't the primary driver for those businesses, it's going to be volume.

If you look at the total pie, how much of that now is that SaaS and how much more conversion do you have to go? I mean some of the revenues, obviously, may not convert but how we already have to go on that?

The majority of it is SaaS at this point. We're going to continue to push it higher and higher.

And then in the other businesses, from a software perspective, the AHS, the Provation business, what's -- how is that trending? And what are you guys seeing there?

Provation is doing really well. And Provation again, does workflow tools and AI assistant soon, voice translation for GI docs. I think the ambulatory surgery center blowout or expansion has been helpful for them. Physician burnout has been super helpful for them. They've got a lot of tailwinds. The team is innovating well. They're expanding outside of GI into other verticals like anesthesia. So not only like service channel, it's a team that's executing well. It's a market leader, and they've got multiple vectors for growth that they're executing against.

And is that a mid-single digit or high single digit? Or how do we think about that growth rate?

It's been growing well ahead of that.

Well ahead of that.

Yes.

Okay. And then lastly, on the Fluke side, talk about the connected offerings there and how fast that's been growing and just the profile of that. Is that also -- it's recurring? Is it SaaS? Do you look at it that way because it's kind of an add-on, obviously, to the hardware?

Yes. So Fluke's recurring revenue is about 15% of the total and has been growing nicely. There's a few pieces to that. eMaint, which is software, and then they've got essentially service plans they're selling. And then they've got Fluke Connect, which is the sort of one of the connected solutions to help connect all of these devices together, investing in all of those pieces business is core to the Fortive accelerated strategy. And as Fluke goes, so does Fortive because it's our biggest business, and I think they're very much going to be a driver of the acceleration as opposed to a laggard. So we're optimistic.

The growth Fluke has been a phenomenal growth story over time, really solidly mid-single digit. Even though you guys kind of define the market as a low single-digit grower. What do you think you guys are doing there that's differentiated and maybe explain why this moat on growth is just perpetually so strong?

Yes. Well, Fluke is just a great business. It's got great brand recognition. It's got a track record for the best of the best in terms of instrument precision, incredible customer loyalty. People get Fluke tattooed on their arms. It's -- you can't really walk through an airport wearing a Fluke vest without some electrician stopping you and telling you about his latest Fluke device. It is the highest end of product that is out there.

So if you think about all the trends that are happening around the world, whether it's data center, whether it's electrification, defense spending, Fluke is positioned across each of these end markets very well. And the Fluke device generally sits in the hand of a technician. And there is a shortage of technicians. So when there's a short of technicians, that means that, ultimately, the demand for technicians is higher. They're going to get paid more. There's going to be more of them coming when more of them come, that drives volume. And when they get paid more, they're going to upgrade their $100 device from Home Depot to the $400 or $600 device for Fluke. And I think that just creates tailwinds for the business. And I think when you add on the velocity with which we are starting now to develop new products and the commercial efforts we put in place for more boots on the ground and more specialized selling, we feel really good about Fluke's prospects going forward.

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Maybe what's one of the most exciting applications I know in data centers? Like what exactly are they doing in data centers that's new or differentiated? I know a couple of years ago, there was a solar product that was like really, really good and grew a lot. What's kind of their main new product in data center?

Yes. Well, the latest is something called the CertiFiber Max and what the CertiFiber Max does is allow data center technicians to test dramatically more strands of fiber at once faster, we're getting readings faster than once. We launched it really in the back half of Q4 and really started rolling it out. The order book is well in excess of what we expected. We're not able to meet demand at this point. And I think it's just a good sign of what's possible because given the Fluke reputation, these technicians already have Fluke devices in their belt when you launch a product into a market that is growing, that is best in class, the demand is going to be there, and that's what we're seeing.

And that's kind of a -- that's not a handheld. That's probably something a little bit more of like a yet portable machine that would plug into the rack or like...

Yes, these data center technicians will basically have a tool belt and on that tool belt there's basically a console that has a bunch of readings and the CertiFiber Max is a new attachment for this console. So...

And it's a Fluke console.

Yes. So it's really cool. And it just gives you an example of kind of the breadth of different devices that we can build. It's almost like I think about a gaming console and you can buy all the different steering wheels and guns and all these things, the CertiFiber Max is like that.

That's pretty cool. Every convention we go to, there's no matter what convention it is, there's always a Fluke booth. It just shows you how kind of ubiquitous they are across industrial and commercial landscape. Anything on a point-of-sale or inventory basis quarter-to-date that you want to call out on Fluke, I mean, the economy is -- industrial economy is getting a little bit better, I guess, before all this happened in the Middle East, but anything on point-of-sale or Fluke growth that's of interest?

Nothing since our last earnings call. And the message there was things are really looking solid across the board. North America our strongest market continues to go really well. We did see some pretty significant improvement in Latin America, which was nice. Pockets of Asia, India have been a real bright spot for us. In Europe, which had been challenged for a while, looked like it was starting to moderate and starting to show some signs of acceleration. So we feel pretty good about the geo trends we're seeing so far.

Okay. On ASP or AHS, anything on the core business, just talk about the trends there on whether it's instrument placements, the consumable stream, what's the outlook there?

Well, we feel good about the macro and sort of secular backdrops that face ASP. You did see some impact from health care spending, particularly in the U.S., federal pullbacks which caused people to really delay capital purchases.

Again, these are large machines that cost over $100,000 each that go into the sterilization processing departments of large hospital systems and ambulatory surgery centers. And so in 2025, we saw some of that pause. It's early, but we think some of that is normalized and surgical volumes continue to be pretty healthy. So we're optimistic that the base backdrop for ASP is, I think, in a better spot at 2026 than it was in 2025. But we got to execute and ASP has got the same 3 levers they're executing against accelerate commercial. They're putting more boots on the ground, in emerging markets, for example, and in other verticals continue to increase the pace of new product innovation and then continue to push recurring revenue, and they're executing on all three.

And as far as pricing that business, if software is maybe just above Fluke is on a price basis in and around that 2%?

Yes. 100%.

And then -- so ASP with the instrument shipments, it's a little bit probably tougher, not negative, but tougher to get price, but the consumables you can get price on it's a good way to think about it?

I think it's a good way to think about it. The consumables are often governed on multiyear contracts through GPOs. And so you don't always get the annual price increases as consistently. But I think are thinking about it the right way.

And is there anything technology-wise that's coming into that area of the world that we need to keep an eye on, whether it's different ways to sterilize or regulations or anything like that, that we should keep an eye on?

I think the biggest move is really to automation. The da Vinci machines, for example, these cannot go into steam sterilizers, it will erect them. So they go into the low-temperature sterilization machines, which we have and we're the industry leader on. So I think this trend toward automation, I think, plays into ASP. ASP has been working with a lot of the scope manufacturers who do endoscopes and other high-end scopes to make sure that they're certified and the coding of those scopes does not get eroded by sterilization and have done a number of partnership deals to open the waste that you don't reck your scope when you actually sterilize it. So yes, there's a number of new innovations and trends. And I think again, they all lend to be more tailwinds than anything.

Okay. So that business is -- all these businesses seem like they're pretty much on track. Is there any part of that portfolio maybe to ASP? I mean I know you guys are really focused on buyback right now. But are there any parts of these segments that you would look to do bolt-ons? You mentioned software, probably a bit of a higher hurdle there. Fluke, there's probably not too many assets you really want to plug in there because it's just got a great brand, and it's an organic story. But maybe an ASP, anything you want to plug into that the AHS portfolio?

Yes, potentially. I would say 2 things. I mean, across the board, we do not need to do M&A to create a very exciting equity story here. The Fortive accelerated strategy of accelerated organic growth, be disciplined stewards of capital, build and maintain investor trust, I think, can deliver great returns over time. But M&A could be an accelerant to it. We have rigorous financial and strategic criteria.

As I said, software businesses may have a harder time right now meeting those criteria. I think in ASP as well as in the iOS segments, I think there might be opportunities, but they got to make sense for us. And price is absolutely part of the strategy and you got to beat the buyback. Right now, the buyback looks really good.

Yes. And your buyback trend and activity that kind of goes through the course of this year? What are you guys exhausted on what you've currently put out there?

Well, we've got flexibility. We've got flexibility. Our Board is incredibly supportive of our capital allocation strategy. And so when we have an authorization when we exhausted, it's not a big issue to get it replenished. We bought back about 8% of our share capital since the spin-off as of the end of last year at under $50 a share free cash flow yield at 6%. So we're going to continue to be opportunistic and allocate capital to the best relative returns. And that so far has really been to the buyback.

You guys have talked -- you talked about at Investor Day this NPI funnel being up 3x. You mentioned some of the Fluke new products. Maybe what certain products have hit out of that funnel? And how would you describe the NPI funnel today?

Yes. I'd say the NPI funnel across the whole portfolio is stronger than it's ever been. We mentioned the Fluke CertiFiber Max. I mean they've got a long list of product innovations that they're going to launch this year. And I think they'd probably tell you that if they get them all done, it's going to be a record breaker in terms of new product innovation. CertiFiber Max was one, they launched a ground fault detector is another. They're just going to continue to roll things out.

Industrial Scientific, our gas detection business doing really well, again launching 3 or 4 new products here over the course of the next several months. Our software businesses are really leveraging AI, not in terms -- not only in terms of launching new features and functionality, but just increasing the pace of innovation. Gordian, for example, is in the middle of launching called something called flash. And flash will take tens or hundreds of pages of architectural drawings and actually translate them into the list of all of the quantities and materials that you need to actually construct the project, something that would take people 10, 20 days to do. They're now doing it in 15 minutes. So there's just a host of new innovations across the board. ASP is no exception. They're launching new products to help them be better able to handle the large da Vinci scopes to make them more attractive to ambulatory surgery centers, and we're putting the commercial might behind all of these innovations as well.

So how do you look at NPI as maybe a percentage of revenues or percentage of growth going forward?

I mean, it must be a pretty significant percentage of the growth going forward is from these new products.

We hope so. We hope so. Again, the framework was 3% to 4% core growth over '26 and '27. Our ambitions are to do much higher. There were 3 big levers to organic growth, innovation acceleration, commercial acceleration and recurring customer value. Based on what we see right now, we think the commercial lever is a pretty quick lever to flip and we're investing behind that. The innovation acceleration can take a little bit longer, but we've been super pleased with what we've seen from the teams and we think it can be a meaningful contributor to growth going forward.

Okay. On that -- also a bit on that front, you mentioned AI and for one of the businesses. Any other ways AI is making its way into the new products.

Yes. I mean it's -- honestly, it's everywhere. And as you know, Fortive has been doing AI for a long time. They set up the 4 to 6 or 7 years ago with machine learning and AI folks that were really helping to sort of get things going in terms of having that capability internally.

Last year, we digested the FORT into the Fortive Business System and the operating companies themselves are not only building AI talent within them, particularly the software companies, but are also leveraging the innovation studio that we put -- we opened up last year to help accelerate their growth.

So anywhere from our marketing efforts, these are aided by AI. The generative AI search engine optimization is sort of key to everyone. Customer service helped by AI engineering efficiency helped by AI. Finance, investor relations, all helped by AI. And then the new products, I mentioned a few of them. I mean those just keep on coming. And in most cases, the customers for our products, if you think about FAL, for example, these are real estate facilities managers. Their bosses are saying, what are you doing in AI, I hear it's important. And so when we launch new features like work AI features that actually examine all of your work orders and make sure you're not missing anything, you've got a mistake. The demand is insatiable, because people like, wow, this is better, and I can tell my boss, I'm leveraging AI.

Right, right. And on -- internally, are there any use cases you're seeing where the productivity is notable and where are you when it comes to that journey?

I'll give you an anecdote. So the Head of Product and Technology for Accruent, which is one of the FAL businesses, used to be one of the top engineering leaders at VRBO HomeAway, which was part of Expedia when I was there. And he said, Mark, the AI applications we were doing in 2019, we'd run 30 or 40 models in AWS. They cost us a ton of money. He's like 90% of that now is off the shelf. It just comes out of these foundational models. We don't need to do it ourselves. And he said, "Where is before we may have had a ratio of 1 engineering manager to 6 or 8 software development engineers. Because we're going to move to 1 to 2. pretty quickly. One manager, 2 software engineers, a bunch of agents to do a lot of the groundwork, it's really remarkable.

So I think for us, I think you'll just see that show up in the pace of innovation and hopefully having revenue go like this and costs flat to down.

And anywhere where you're able to take cost out in a big way from a structural cost perspective?

Yes. We -- yes, and we have. I mean if -- I mean you know this, but in the back half of 2025, we took a lot of cost out, particularly corporate costs. Our IR team is half the size it was. A lot of the work, sorry, Christina. A lot of the work that we're doing right now used to be done by analysts is now being done by AI, just summarization of all of the notes, key messages, spreading financials is just so much easier.

Our M&A team is probably 1/3 the size it was. We see it across the board, and we've definitely taken out costs as a result of it.

Any other structural changes or the way you're doing business under Olumide versus under Jim?

I'd say that the top word spoken around Fortive now is growth. And I'd say the top words spoken before were probably operating margin expansion. And both of those things are great, and we plan to do both of them. But the mindset of the leaders of all of the operating companies and at corporate is -- it's all about Fortive accelerated. It's all about our 3-pillar growth strategy. We say it to investors, we say it to the board, we say it too internally to the teams internally. And I think it's just a much, much more growth-oriented culture and business now. And we talk internally that we've actually just breathed growth oxygen into the room, and these operating companies are they're breathing it in and they're investing, and we're seeing early signs that's paying off.

And as far as the margin algorithm is concerned, the 50 to 100 basis points, just remind us of what the building blocks of that are -- is it coming from SG&A leverage, gross margin, price cost, all the above, mix? What are some of the moving parts there?

I'd say over a multiyear period, probably all of the above. We're we're really focused, though, on using that 50 to 100 basis points as a framework. It's not something that we have to go get. Operating leverage in these businesses are really good. So the question is like how much can you invest to drive growth acceleration that then starts spinning the flywheel? And again, we're in the early days of it, but we really think we can have our cake and eat it too, particularly doing what we have been doing, which is taking cost out of G&A. The fourth quarter G&A was down, I think, 10% and reinvesting it in sales and marketing and R&D, those were both up. And that formula, we think we can continue to push maybe not to that degree, but I think just reallocating capital to the things that are going to drive growth is a great formula. I think it's a repeated formula. And I think, again, we can deliver accelerated growth and the margin expansion that we've laid out and maybe even a bit more.

What's the right R&D as a percentage of sales for you guys going forward?

I think where it's at right now, which is mid-single digits, I think, is probably a decent zone. I mean, some businesses are higher, some are...

Software is going to be a bit higher than the other stuff, the hardware stuff. Any questions out there? No. Anything that's not being discussed out there that you wanted to address or any questions you heard that people are asking you that you thought were interesting.

Well, I think people are quite rightly asking questions about Fluke and the tailwinds that business could be seen. We feel really good about Fluke. I think in prior conferences, there was a lot of talk about software and AI I think I won't reiterate what everyone on CNBC iterates all the time, but you really got to look at each of these businesses independently and assess them on their merits. I mean -- not all manufacturing businesses are made the same and not all software businesses are made the same. But I think the biggest message is that 7 months ago, we -- 8 months ago now, we spun off Reliant and we embarked on a new strategy, the Fortive accelerated strategy. And it's early days, but we're on track, and we feel really good about the prospects going ahead.

We've got a question here.

[indiscernible]

Yes. So it's a great question. So I would think about it as broad categories of investment in the sales and marketing. One would just be increasing the number of feet on the ground. So across our health care businesses as well as a lot of our hardware businesses, we've really made a push into India and increased our presence there as well as certain places in Latin America. That's just more coverage essentially. And when we do that, we can track what are we paying this new salesperson?

How long does it take them to ramp up once they're fully productive, what do they produce and what are the returns on that head count that we hired. The second bucket is sort of more deep technical expertise. So Fluke, for example, has got a team that is solution selling into the data centers. They go into the data centers, they talk to the hyperscalers, they speak the same language. And when they're doing that, they're much able -- much more able to think about the existing Fluke portfolio, which has brought applications into the data center and also sell some of the new products like CertiFiber Max. So those are the 2 places and again, we can track the investment and we can track the incremental revenue we get from it.

Yes. Go ahead.

[indiscernible]

Well, I would say the launch of the CertiFiber Max that Fluke just launched, which again is high bandwidth, many fibers at once, instant testing. That's probably the closest thing to a drive up that we've seen. The demand was there. The order book is way larger than we thought. We can't keep up with the demand.

So I think as we have increased the pace of new product innovation, given the strength of the Fluke business, particularly, I think we may be surprised again at just how much demand is there for the taking with just a little bit of turning the dials.

Thank you very much. Thanks for coming, appreciate it.

Pleasure to be here.

Great. Thanks, everyone, for being here. It's my pleasure to have up next Fortive Corporation. We have Olumide Soroye, President and Chief Executive; Mark Okerstrom, CFO. And obviously, this is the first time you're here sort of post the Ralliant separation. So thanks very much for attending.

Maybe, I guess, first question would be organic sales growth, there's been a lot of questions around any industrial upturn happening. You're obviously a more stable business than a lot of the other companies here. So just sort of set out how you feel about the demand environment right now starting 2026?

Great. Well, thanks for having us. It's always great to be here. So we feel really good about how we exited 2025. Q4 went beyond our expectations from a core growth point of view across both of our segments and every piece of our 2 segments contributed to the performance. So generally felt good about the exit conditions from 2025.

And as we've said in our earnings call just less than 2 weeks ago, January played out really solidly and consistent with our expectations, and the way we have the year set up. I think we've all seen from a short cycle point of view, the PMI data from ISM, but I'm always cautious to call a trend out of January data, especially because there's so much noise in it. But everything we've seen looks promising and consistent with our setup for the year.

And the Q4 growth was, yes, better than I think everyone expected. Any kind of one-timers or pull forward helping that? Or is it pretty kind of normal underlying performance?

We saw strong performance across both segments and every single engine of both segments contributed to that performance. So we like that broad-based strength that we saw. So I wouldn't call out any onetime thing in Q4.

As we look at 2026, we're presuming that the conditions we saw in '25, which were pretty noisy from a tariff impact point of view, health care funding point of view, government spending point of view. So we're not assuming that gets dramatically better in '26. But we like the setup that we're left in '25.

Perfect. And the IOS segment, particularly Fluke and some other pieces, that's where you have some of that shorter cycle industrial exposed activity. How has that trended the last several months? Have you seen that PMI and kind of animal spirits improvement in any of the bottom-up numbers? Or it's too early to tell?

Well, we see strength across the short-cycle business we have. And even if you look at that platform, North America from a regional point of view, continues to be our strongest region. And increasingly, we can see traces of tailwind from data center spending, distributed energy spending contributing to that. But it's more broad-based than any couple of end markets. And we like that breadth of the strength that we see.

And for EMEA, we saw sequential improvement in Q4. Too early to call a trend from that, but we like seeing some improvement from an EMEA point of view. And APAC was very steady. So we like the setup from a macro point of view. Our bigger focus really is on our Fortive Accelerated strategy and our teams executing that to outperform the markets.

Great. And I think for Fluke, it's been a gem inside Fortive for some time, Danaher prior to that. Do you think it's possible to kind of keep taking market share in that business? Is there any kind of natural ceiling to that, that you worry about when thinking about the long-term growth of Fluke?

Yes. No, we don't see a ceiling at all. Fluke is just a terrific business. It has this incredible brand strength that's very global and very respected. I think you'd be hard-pressed to find a stronger brand in professional instrumentation. And that's built on deep customer loyalty, premium product offering and quality set that's proven.

The reason, though, that I think the ceiling keeps getting higher for us in Fluke is our team's execution on those same 3 growth accelerators that we talked about at Fortive. So if you think about the innovation pace at Fluke, it's never been faster than what we have right now. We talked about our CertiFiber Max product that we launched in Q4 in that data center, high-density fiber certification. That's just one example of many things Fluke is doing to solve new problems that weren't solved in the world before in really important markets. And I think as long as that pace of innovation continues, we're serving new needs and expanding the market.

Second one is from a commercial point of view. As successful as we are with Fluke, there's still many geographic and end market pockets where we literally just could do with more sales and marketing capacity. And as we plant those seeds, we're seeing the results. We talked about India, for example, where we've seen double-digit growth just from pretty modest investment at Fluke and a couple of our other brands, on just sales capacity and some more local presence.

And then from a recurring revenue point of view, another great story at Fluke. And now we have 15% of Fluke that's recurring, and that's subscription services that customers are buying on top of the higher-priced professional instruments to make sure they have the care plan over the life cycle. And that piece of Fluke continues to grow double digits. So I think as we drive innovation, drive those surgical commercial investments and keep driving recurring value for customers, it's just that the sky is very much the limit.

One of the softer areas, I think, last year for Fortive overall was, sort of, in many companies as government-related activity, obviously, leave aside defense on that front. How have you seen that playing out more recently? Do you think you get much of a rebound this year? Or you're not really factoring that in?

Yes. So government-oriented business for Fortive overall in 2025 was just about 8% of our total Fortive revenue. So it's fairly contained. And most of that is really state and local government businesses in our Gordian business, a little bit of government business in Fluke and our AHS segment as well, but mostly in Gordian. And the way I describe this is it's essentially stable. So after a period post-COVID of really strong spending in that sector, the fiscal constraints on the state and local agencies over the last 24 months has been pretty strong.

But it's really stabilized as we exit 2025, and our team has just gotten really good at making sure that when that $1 trillion of deferred maintenance spend comes on board, we are able to capture those opportunities. So for '26, we're not assuming any dramatic improvement in the conditions around government spending, and we feel good about the setup.

Fantastic. And if we look at FAL within the IOS segment, so the growth there post the acquisitions that were done 6, 7 years ago, it was kind of underwhelming versus those initial deal assumptions.

So maybe help us understand how much of that was just the TAM growth was slower than expected, versus kind of market share? Maybe wasn't as high as Fortive had hoped? And kind of what are you doing right now to get FAL's growth higher?

Yes. I mean, so first of all, we really like the FAL platform and the business is in there. It's continued to be a really strong accretive piece from a core growth point of view for iOS and for Fortive overall. It was in 2025 as a whole, it was in Q4. And if you think about the stages we've gone through, post-COVID, we had elements of that business growing double digits. A lot of our business is there. And that was really driven by this period of extra funding powered, extra spending in government agencies. And so that set up a really tough comp coming out of that period.

And the last 24 months, really on that state and local government part of FAL has been more subdued spending. So that's really what we saw in 2025. And even then, again, we're still accretive as a platform to Fortive overall and to the IOS segment.

I think going forward, we are excited about the impact of what our teams are doing with our Fortive Accelerated strategy in FAL. And it again goes through innovation. So if you think about every one of our brands there, they have the most exciting slate of new solutions that they're launching. We talked about ServiceChannel having 3 major product releases in 2025, including a lot of AI-powered use cases that customers are really loving right now.

And second is commercial investment. So for those businesses, we continue to expand both geographically and into new verticals that help us expand the addressable market for the FAL group as a whole. And then recurring customer value, our customer experience and health score continues to get better and NPI continues to get better. So as we drive those 3 vectors, innovation, commercial expansion and recurring customer value.

And at some point, we know that this government spending, and especially this $1 trillion of deferred maintenance is going to come back on [indiscernible], and we'll be ready to catch that tailwind. So we feel really good about the evolution [indiscernible] and FAL.

And when you think about how FAL is operated, different brands, there's different acquisitions 6-odd years ago. How is it kind of run today in terms of the centralization within FAL versus those original brands each doing their own sort of approach?

Yes. So for the most part, Julian, we've kept those brands really specialized in terms of what they do and the customer segments that they serve. Whether it's construction planning and procurement, in the case of Gordian, or it is enterprise asset management for Accruent, or facilities management and maintenance repair for ServiceChannel. So each of the brands have unique strengths, mostly unique customer segments. So we let them run and delight their customers.

In the cases where it makes sense, and customers benefit from cross-sell across the brands, we do that, but in a very targeted way. And that's really been a good way to keep the customer centricity. With the Fortive Business System, we're able to transfer capabilities across the brands, so enterprise selling, things that we're doing with AI use cases, all the 3 brands are sharing. So that helps us balance this, keep the customer focus for each brand, but leverage synergies operationally where it makes sense.

Got it. And I think everyone is trying to figure out which industrial software businesses are sort of resilient to AI, have a moat, that type of thing. How would you describe, I suppose, the software assets inside Fortive from that perspective? You've got FAL and then you have, of course, some software within AHS as well.

Yes, that's a very popular question right now, I can imagine. And again, I think for me, having been around software for a long time, we've obviously done this analysis about our businesses. And I guess -- just to maybe distill it down, for any question about a software business, you really have to understand the details of what the business is because they're not all created equal. And we've, sort of, arrived at a number of attributes that you can look at.

You can look at, does the software business have truly unique proprietary data assets? And everyone talks about data assets, we have to look at do they have it for an entire industry that's really hard to replicate? Do they have it over a long period of time so the longitudinal value is quite powerful? Do they have the usage rights for the data that really makes it a unique asset? So that's one question.

The second question is do they have network effects built into the software business. I'll give you an example. We have businesses where beyond the workflow, you have 100,000 participants on one side of the transaction, e.g., maintenance service providers. And on the other side, you have tens of thousands of facility owners. So beyond the software, this is a meeting place where the matching happens between those two counterparties to the transaction. So anyway you have those types of networks integrated into your software solution, that matters for what AI means for it.

It also really matters if you have regulatory, legal and compliance hurdles that new solutions have to pass through before they can get used. So if you're trying to get into a hospital environment with a solution like Provation, there's hurdles you got to go through. If you're trying to do a business like job order contracting in Gordian, where you have to be written into the law in multiple state and local jurisdictions across the country, that adds to the time to actually get into the market.

And it also matters how deeply embedded you are into the customers' systems and operations. And as we look at our software businesses, and again, keep in mind that most of what we do at Fortive are differentiated hardware products like Fluke and Industrial Scientific and so on. For our software assets, they happen to have really strong scores on those modes that I just described.

So think about ServiceChannel like Gordian, these are businesses that have networks. They have deep proprietary data. They have legal and compliance and regulatory hurdles that you have to pass through to partake in those markets. And you think about some of our businesses like Censis, that are really deeply embedded into systems of record and systems of action. What that means is customers have, in some cases, tens of thousands of employees who learn to do their job on the system. So for you to replace that system, you have to retrain all of your people.

So we like the stature we have around software businesses. And what we found is customers coming to us saying we want to get value out of AI with real use cases in production. And we are the best partners to work with them on that. That's why you see every single one of our software company road maps has AI use cases. We've launched many of them. And it's been actually part of what's driving the momentum and the growth that we talked about.

Got it. And so when you think about the KPIs there that you look at, I suppose what -- where would be kind of the early warnings right? What are the things you're looking for as managers to say, okay, there's something popping up here that we didn't expect. Does it reflect something of AI starting to intrude? Like what's the sort of, again, early warning signs you might look for evidence?

Yes. No. So first is personally, I spend a lot of time with customers because I think ultimately, before the signs show up, you can hear, you can see it. So that's one. And everything I see right now just suggests our customers are asking for help from us.

The second thing is we have customer health scores, and you can tell from that what the sentiment of customers are about your software solution because they are looking at the cost benefit. They're saying, how much value do you create for me? How much am I paying? And if you have that scale off, that's a lead indicator to what's coming.

Then we look at adoption, like if customers are really heavily using our solutions, especially the AI use cases that we're launching, then we feel, you know what, we actually are helping them get the most out of AI, so the need for them to go to look at someone else isn't there because they're getting the value they need from us. So we look at that really closely.

And then we look at the business metrics, which I always think about as more lagging. So are we -- what's our new logo win rate like? What's our MDR like? What are we find in terms of renewal rates and upsell and cross-sell? So that's the -- those are the sequence of things that we look at, frankly, in that order, I get the kind of intangible from direct customer interaction. We look at customer health scores. We look at what happened in terms of adoption, including AI use cases. And then we look at the more kind of conventional metrics on, is the business growing? Do we have momentum, and we feel good about what we're seeing.

And in terms of kind of the deployment of AI, maybe to help Gordian or Accruent, Provation with their own selling process to customers and win more business. Is that kind of decentralized? Or are you trying to push them from the center to all deploy AI at a similar rate in terms of their proposition to customers? How should we think about that?

Yes. It's a little bit of both. And it's interesting because as you know, Julian, we started our AI journey a long time before it was fashionable. We set up our AI center of excellence actually first time in 2017. And so we've been on this journey of building this capability for a while. And so what that meant is Gen AI and Agentic AI is just an evolution. It hasn't been a big transformation for us in terms of building a capability.

And what we've done, to your point, is when we set up New Fortive last year, we took that AI center of excellence and we integrated it with our Fortive Business System office. And what that's meant is not just for our software businesses, but all of our businesses, and even our corporate functions now have access to all these AI capabilities for everything we do. Not just customer operations and how we do sales, and how we do demand gen, and how we manage, kind of, AI powered to have disability in digital marketing now, which is very different than SEO. But also how we do product development and every G&A function and Investor Relations, right?

So we've really democratized the AI capabilities using our Fortive Business System as a platform, which has been really terrific. And our FAL businesses have benefited from that across the board.

Great. And then switching maybe to AHS for a minute. I think there's often a view out there that the ASP business within it around sterilization, has it lost share? Was it underinvested in? Kind of where do you think we are on the ASP, kind of, market share and growth entitlement?

Yes. Well, I think what we know for a fact is 2025 was not the best year for us in that business. And we know we're going to do much better than that. Now we also know that 2024 showed what's possible because that if you think about AHS and ASP in 2024, it was a great year from a growth point of view. And the '25 really was distorted from a capital equipment purchase point of view. Because if you look at what happened with software, you look at what happened with consumables and services, it was a solid year. Really, really solid year. It was the capital equipment purchase part of the business that was subdued.

And so as we go into '26, first, the team is laser-focused on self-help growth. So the innovation pace has never been better in the history of ASP, and the segment in health overall. The commercial agility that we're showing and investing in the right places with sales capacity and local manufacturing in some international markets, and getting into some new segments like ambulatory surgical centers at more scale, that team has never been more agile at planting seeds commercially.

And then the work that we're doing on making sure that the recurring customer value, which has always been a strength, the depth of customer loyalty in ASP is just incredible. And the teams continue to build on top of that with our customer relationships. All of those things, combined with the fact that the capital equipment subdued environment will ease at some point as the hospital systems continue to get less cautious. And now we saw that improvement in Q3 and Q4. Those things combined, we feel set us up really well for getting the segment growing faster.

And again, we know what we saw in 2024 and really '25 is a unique story on this capital part of the business.

Have you seen those orders, or customer conversations, or book-to-bill for the equipment side picking up yet? Or you think it will be very gradual through the year?

I think yes to both. So the peak of the, sort of, tightness was in Q2 of 2025. And we literally had the book of business that customers held up and just said we're not going to place the order now. And then in Q3 and Q4, we saw that tightness a little bit. So things got better, some of them started flowing. And we expect that, that will continue gradually over the course of this year.

We're not assuming in our setup for the year that things are going to dramatically get better or worse. But we expect there will be a gradual release of that pent-up order book over time, which provides a tailwind.

Great. And then I think the operating margin ambition sort of Fortive in aggregate, it's up in that kind of 50 to 100 bps of expansion annually. So what's the confidence level in that 6 months on from the big spinout of Ralliant? Any surprises on the, sort of, RemainCo cost structure? And any differences in -- between the two segments on margin expansion in title?

Good one for Mark.

Thank you. We feel good about it, Julian. I think we feel good about it from a number of perspectives. I think, first of all, we deeply understand our cost structure, and we've torn it apart. We understand all of the drivers sitting at corporate, sitting in the operating companies. So there's no real surprises.

I think secondly, as part of our work to actually really deconstruct the cost structure, we went through and took out not only the stranded costs, but we also went beyond that, and you saw better margin expansion in the second half of of 2025 as well. And importantly, we've used that to be able to fund the organic growth initiatives as part of the Fortive Accelerated strategy. So we feel good about it.

And the underlying businesses, if you look at the IOS businesses, Fluke being the largest. If you look at the AHS businesses, not only ASP, but the software businesses, the operating leverage in those businesses is very strong. And so when you put that operating leverage together with our ambition, which is to accelerate growth and to invest, it gives us a lot of control over where we're going to land in that 50 to 100 basis point margin zone. And we can do it from a position of strength where we're investing in growth, and not doing it to kind of offset lack of growth, if you will, and still deliver earnings growth.

And how much is left on the kind of stranded cost takeout? Is there much benefit this year or a lot of it was done...

It's done. So at the time of the spin, shortly after the spin, we got about half of it out. And if you recall, it was about $50 million in total. And then we went after it through the back half of the year and got that and some more.

Great. And lastly, I suppose on kind of capital deployment. There's been a lot of buybacks the last couple of years. When do you start to move towards acquisitions again? How should we expect the first kind of acquisitions of new Fortive? What are kind of the main signposts and gating factors there?

Well, I would say that a key pillar of the Fortive Accelerated strategy is disciplined capital allocation. And the approach that I think we have taken is one of just incredible discipline. And we've got clear priorities. Invest in organic growth. M&A and share repurchase are interchangeable. And then we've got a modest and growing dividend.

And what you saw in the back half of 2025, where we bought $1.3 billion of stock, retired about 8% of our share count, give or take, was us viewing that as the best relative returns available. And so I think you're just going to continue to see that going forward. We did do a couple of small tuck-in acquisitions in the fourth quarter. Those happen to be ones that when we did all of our analysis, nicely outperformed, the returns we would get from the share repurchases. And I think you're just going to continue to see more of the same, which is always disciplined, always looking at relative returns, and a clear view on what our true goal is, which is benchmark beating returns over the next 3 to 5 years.

And when you are looking at acquisitions with that software derating, does that make the software acquisition pool kind of more attractive or not necessarily? Like we should expect a mix of hardware and software M&A from here?

Yes. Look, we try to make this really clear every chance we get. So I think where this starts from is at new Fortive, we have a portfolio that we feel highly confident, is going to deliver the financial framework that we laid out. And we believe that's going to create benchmark beating shareholder returns over the next 3 to 5 years. So we don't need to do dramatic transformational M&A, and we're just not interested in that.

So that's the starting point, which means the M&A we're doing is really looking for bolt-ons, smaller bolt-ons that could help our existing brands grow faster and more profitably going forward. And I think what that means is the bar is really high. And if you think about the surface area of the company, majority of what we do at this highly differentiated hardware-centric technology products. Fluke, Industrial Scientific, ASP. So if you're looking at bolt-ons to help your existing brands, you're going to do more deals that help the businesses you have.

And the software surface area we have is much smaller than the hardware surface area. And to your point, the bar is just really high on software M&A right now. Because not only do you have to make sure it's a great software asset, you have to make sure that strategically, the kind of attributes I talked about that make us like the advantage of our software businesses today in an AI world, that you have that in anything you're buying. So you got to ask that question. And for us, price is part of the strategy for M&A. So you have to make sure you've got a great asset that can withstand the scrutiny of AI, and then you can get at a price point that fits our criteria. So not that we wouldn't look at bolt-on software assets, but it's just the logic leads you down a very narrow path.

That's very clear. And with that, we'll switch to the audience response survey questions, please. So the first one is around sort of current ownership of Fortive. So a lot of room there for oppurtunity.

Second one is general sort of appetite or perspective aside from ownership.

More opportunity. It's great.

Neutral. Third, it's around EPS growth profile, and that's really as compared with the sort of multi-industry average. It's about in line with the group.

Fourth is around usage of excess cash. We just talked about that a little bit. So a bit of a mishmash, sort of bolt-on M&A, the biggest one.

Next question is around valuation. What year 1 PE should Fortive trade at? So I guess you end up about 20x on the whole.

And last question is, what's the main kind of anchor on that valuation multiple today? So organic growth would be our concern.

Great. Well, with that, thanks so much, Olumide and Mark, for being with us today.

Great to be with you. Thank you.

Thank you.

We are very excited to have Fortive Corporation with us today. We have Olumide Soroye, who is the President and CEO of Fortive; and we have Mark Okerstrom, who is SVP and CFO of Fortive. And guys, you've been through a lot over the last couple of quarters, now a public company that's more focused. And so Olumide, maybe to start off with, I think you've highlighted sort of three pillars to the new Fortive story, accelerate profitable organic growth, allocate capital with discipline, build and maintain investor trust. So I think you've reported two quarters as new Fortive. Maybe kick off with how do you ensure these pillars are sort of in the DNA of your employees and your team is ready to execute on the new strategy? And then you know the Fortive business as well but is a relatively new CEO, maybe talk about the learnings or challenges as you've gone through the portfolio changes of new Fortive strategy.

Great. Thank you, and thanks for having us. So I mean I think for us at Fortive, we have a really straightforward value creation plan that we believe is going to deliver benchmark in shareholder returns in the next several years.

And because we started with a terrific foundation we have this company that has industry-leading gross margins always consistently delivered strong EBITDA performance and very strong free cash flow generation. So we knew we needed to keep those fundamentals in place I just added three things: very surgically determined there were three things that would unlock value. One is a company that grows its top line a little bit faster organically. Second is to be beyond reproach in how disciplined we are with capital allocation. And third is to build and maintain investor trust by simplifying our story and making sure we do what we say we'll do.

So we went about the business of really getting the company focused on this fleet pillars that we're going to unlock value. And I would tell you for our teams, they're just 100% dialed in because the case is really clear on why this is a path for us building on our foundation. We had our top 250 leaders together last week and the level of excitement and energy and alignment around the strategy is just incredible. So it really hasn't taken very much to get our team focused on this and the DNA of the company focus and execution. And we're pleased to see the momentum in our first 2 quarters based on our results and showed progress on all three of the pillars. So it's been a great start.

From your question about the CEO experience, in many ways, it doesn't feel that new anymore. I think partly because I had a good fortune of having been around the company for a few years before stepping into the role, first, leading our IOS segment for about 3, 4 years before the spin. And even the AHS segment for 9 months or so, before we create a new Fortive. So that really give me the benefit of coming in with really good clarity about what's amazing about Fortive that we needed to keep. And then did a few things that we needed to dial in to unlock the full value of the place.

And now we've gone about the business of doing just that, fine tuning the team in a few areas that we needed to enable that strategy, including getting Mark on board as a partner for me on this journey. And so it's been terrific, and we're excited about what's ahead.

Olumide. So maybe we can dig into your Fortive Accelerated strategy. I think on your earnings call, you mentioned new product intros aimed at your high-growth vehicles, you're increasing your focus on higher growth end markets in general. I think it looks like it's starting to get some traction. So you're guiding to 2% to 3% organic growth in '26. That's slightly below your 3% to 4% growth. But maybe why shouldn't we be more bullish on the top line growth in '26 given your ramping growth initiatives?

Yes. No, we like that question a lot because it shows that you believe in what we're doing. Now we do as well. And I would say we were certainly pleased with the momentum we saw in our first 2 quarters from a top line growth point of view. .

And the Fortive Accelerated strategy, as you laid out, is designed to make the company grow faster. So we have the pace of new product innovation faster than it's ever been. We're making bets in the right commercial capacity, spots of sales and marketing capacity to drive more growth and expanding the lifetime value of our customers by making sure we deliver good experiences. So we're certainly doing all the right things.

The financial framework we laid out on the 3% to 4% core growth in '26 and '27 we deliberately design knowing that, that was going to ramp. That's why we made it a 2-year period at 3% to 4%. So we mean '26 will be faster than '25 and '27 will be faster than '26, and that's exactly where we are.

And the 2% to 3% that we laid out for 2026 as our guide for the year and sort of the considerations behind adjusted EPS guide for the year. That was very intentional in the sense that it reflected what we saw this early in the year. And a big pillar in our strategy is building and maintaining trust. So we really want to make sure whatever we say we're going to do. We deliver it or we do better. And so we feel good about that 2% to 3% number as a place to start this early in the year, and we'll see how the year goes.

Say-do ratio will be very high. We like that. And so maybe just talk about -- like I know we're going to talk about software a little bit, but you're infusing AI with Fortive Business System and you've talked about AI being a meaningful accelerator to your software businesses. So I think it would be helpful just to sort of talk about that. What level of investment does that entail? How receptive customers been to your advanced offerings how meaningful can AI-enable offerings be at the top and bottom line for Fortive?

Yes. That's certainly a hot topic these days. And the interesting thing is we maybe not very common for a lot of our peers. We came into this journey with some advantages in the sense that we actually created our AI center of excellence in 2017 at the time, it was more machine learning and data and analytics. But we started building a team that really could be the center to drive AI potency across the business. And what we've done since then is -- that team is now an incredibly talented team, both based in the U.S. and then extensions in India.

And what that's meant for us is as exciting as Gen AI and Agentic AI has been, especially the last several months here, it wasn't a new initiative for us. We're already on that journey. And we are seeing AI really as an accelerant for us, both in terms of our internal operations, but also the innovation that we're delivering to our customers. And maybe just a few examples on that.

From an internal point of view, we really just took that AI center of excellence we had and we infused it into our Fortive Business System. We combine the teams. And what that's meant for us is all of these AI capabilities are now democratized across all of our operations. Our customer operations team from customer sales to customer support are using all of these Agentic AI tools to deliver better experience for customers and drive productivity.

Our product development teams, they are all using this set of tools. we're seeing a significant increase in the output with the same resource base in product development. All of our G&A functions using this capability. And so it's just been tremendous to see the benefit of that proliferate across operations.

And from a customer-facing innovation point of view, and I think about our company really there's two fronts on this question, majority of what we do are differentiated hardware technology products and solutions and with brands like Fluke and Industrial Scientific and ASP that are quite spectacular.

And we've been able to deploy AI-enabled use cases to improve experience of those products from just simple copilots that can help an early in carrier technician to better use a product to things that are more advanced, that can actually be guidance system for unique applications like data center certification as an example. So we're deploying in our hardware solutions to improve experience and extend the advantage we already have with brands like Fluke and Industrial Scientific.

And then for our software solutions, it's even more exciting because it turns out that the handful of software brands we have, have a number of incredible moats around them, either really deeply differentiated proprietary data across the industry that enable us to provide benchmark for each customer on our network or really deeply powerful 2-sided networks where you have hundreds of thousands of participants in a transaction on one side, certified on our platform and then equivalent number on the other side of the transaction. So it's a meeting place more than it is a workflow software platform or deep kind of entanglement with customer operations that make it really more a system of action. It's where they get the job done more than the workflow that tells them what to do.

And in some cases, regulatory and legal requirements that make our products what the customer needs to use because there's some OSHA regulation or in the case of Gordian, it's written into the law in some state and local jurisdiction that you have to use the data.

So we have this set of advantages and what that's meant is customers coming to us and say, you are the best partner for us to actually deploy AI use cases at scale. And so every single one of our software companies right now has launched something and has a road map of additional AI use cases to come, but are actually making a real difference for customers at scale. So we feel good about that. It's a big part of why all the metrics leading and lagging in our software businesses are really strong and they're getting better. And again, the law of averages is very dangerous with software, you really have to kind of dissect what it is.

And a big part of why where we are is we didn't go into software as kind of an end in itself. We went into software as a way to strengthen our domain expertise in particular workflows. And that meant the things that we picked are software assets, things so that deeply rooted. They were in horizontal applications that just happen to have great financial profiles.

So Olumide, you answered a lot of my next question, and I'm sure you get a kick as eye do everybody loves hardware these days. So let me ask you a little bit more about the software moat, right, because I'm sure you get the question as I do for Fortive. .

First of all, you're seeing any evidence that like of AI-focused start-ups, the competitive landscape. And I think the point you brought up are really, really important, sort of entrenched in the hardware regulatory is super important and just creating a sort of a marketplace with customers versus you like that deep customer relationship. So maybe you can talk about that because it's hard for me to sort of explain versus you and I'm sure in sort of saying, "Hey, this is why Fortive Gordian are [ crewing ]" or when the things are still going to have very high market share 10 years from now. What's your confidence level in that?

Yes. No. First is absolutely, it's the right question to be asked, and I think we should all be asking that question. And -- but we should be getting the answer specific to each context. And again, for us, the nature -- the conversation really needs to be about customer value because the point is if you don't have a unique customer value that cannot be replaced, and you should and will be replaced.

And I think what we found with every single one of the software assets we have is because you can literally list them and check for each of those small types. Do they have -- not just you have proprietary data, but you have data that no single customer can get because you have it across 10,000 customers, and you have it over 30 years. And nobody else has the usage rights to have to that data. So like not just do you have data, but something truly proprietary and distinctive, right? Can you check that box.

Second, do you have network effects built into it. That means you are not just a workflow software, you're actually a transaction enabler. And that transaction cannot happen with that quality without what you offer. That's important to know.

Third, do you have some regulatory and compliance or legal moats around the business that make it really difficult for someone new to come in and do what we do, and it takes years to build the credibility to get in that position. And are you deeply entangled and embedded in that [indiscernible] operating workflow. So you're not just a system of record, but a system of action. It's how they actually get worked done. It's how they train tens of thousands of technicians or clinicians to do their job every day. So even if you change it out, you have to go retrain 10,000 people for months for them to do their job. Those are the types of questions that you have to be able to answer with real clarity in the context.

And again, we have a set of businesses. We don't have a lot of software businesses within what we do, but the software businesses, we do have happen to score high on all of those things. And we will continue to ask that question of what else can we add as a moat to strengthen our position. And we will continue to be for our customers, the trust that partner for AI use cases. So we're the answer to the question they're trying to answer, which is how do I get value from all this sensational discussion about AI. And right now, we really just like the work our team are doing to deliver on that.

Yes, that's very helpful, Olumide. Mark, I want to get you involved. So maybe just focusing a little more on margin. You drove 110 basis points of adjusted EBITDA margin in '25. That was despite somewhat muted growth of 1.7%. And now expect margin expansion in '26 to be in line with the 50 to 100 basis points, which is long-term algorithm. So you mentioned you do have better control of your cost structure, your software is doing well. So why shouldn't we be more encouraging and potential to drive margin expansion at least at the higher end of your 50 to 100 basis points?

Well, I think it's certainly within our control to drive margin expansion higher than or at the high end of the 50 to 100 basis points of EBITDA margin expansion that we guided to over a 2-year basis. But I think it's important to understand how we're allocating capital. It's really not just about versus CapEx, M&A, share repurchase dividend, but it's also capital and the P&L. And we've taken a very close look at our cost base across the entire corporate cost structure. We've collapsed structures in the segments really with the view to freeing up capital and resources to invest in organic growth.

And we've got a number of initiatives that each of the operating companies have developed as part of our strategic planning process and through annual plan, operationalized through FBS that are fully funded in accordance with pillar acceleration levers that Olumide has set out of the Fortive Accelerated strategy.

And we're going to continue to invest in those, but really all to drive faster organic growth and all with the goal of staying within that framework. So it's possible for us to exceed it, but I think we're going to just continue to try to find ways to actually reinvest the capital to higher organic growth.

Yes, that makes sense. Olumide, I want to dig into the segments a little bit more. I think you had 4% growth at IOS in Q4 '25, outperformed our expectations. So we know we just talked about you're ramping your growth initiatives inside IOS. So maybe you can help us understand how much the incremental growth you saw in Q4 came from the initiatives versus short cycle recovery. Maybe just ask that question up front, would you say?

Yes. A lot of what we saw in Q4, and we're quite pleased with the performance for IOS in Q4 especially. And a lot of that was the actions that our teams are taking across the business on product innovation and new releases that we had that did really well in the quarter. Commercial acceleration and replaced some targeted bets in expanding capacity in some markets that we knew we had the right product, and we needed more presence to capture more share.

So we did that and that paid dividends. And we continue to see strong growth in our recurring customer value offerings at Fluke, again, the 15% of that business is now subscription services and software and other things that are recurring and that continue to well. So majority of it was really team's execution in the quarter. I think the short cycle upside, we're watching that closely. We like what we've seen in terms of lead indicators, but most of Q4 was really our team's execution.

That's helpful. And then I think on the earnings call, you mentioned that you expect all the businesses with IOS contributed into '26 segment growth. Maybe if you can comment on what is supporting that visibility with those businesses? And then I know it's only been a few weeks since you reported Q4, but any update or change in demand trends this quarter across your short-cycle businesses, particularly in IOS.

Yes. So let me just start from the last piece of it there. I think it's been less than 2 weeks since earnings. But everything we've seen January came out really solid for us, and we continue to see the trend makes feel really good about our setup for the year, not just in short cycle, but really across the board. So that's the news on that.

I think from the point of view of each of the elements of the segment. We really saw contribution from -- if you think about IOS, whether it's Fluke or the Environmental Health and Safety or FAL. We saw strong contribution from all 3 of those engines within IOS in our Q4 delivery. So we feel good about that going into '26, knowing that, again, the benefit of all of these initiatives around commercial products and recurring customer value is still unfolding and still has upside ahead of us.

So I want to open it up to the audience in a second, but maybe I just want to double-click on -- because again, we're all struggling with trying to figure out what short-cycle industrial is really doing as maybe you are to some extent. But you guys do have good visibility in the point of sales in short cycle, I think. And so it's important to sort of try to understand what's exactly going on at point of sales at Fluke, for example, it tends to be a canary over the long term, right?

So I think you've said it's pretty healthy, but has it actually been improving in North America I know that's -- you said it's your strongest region, so maybe that's the case. And then what about in EMEA and Latin America, is it improving? And maybe the rate of improvement hasn't gotten better over the last couple of quarters or anything more to help us think about where we are.

Yes. So let me just go through by region like you laid it out. I think from a North America point of view, the point-of-sale data state, really strong, actually was for all of '25 and it's continued, frankly. And I think what we're seeing is the driver of that strength is evolving.

So I think the data center component is increasing over time. But we're seeing really broad-based strength in point of sale for North America. And so that feels really good.

From an EMEA point of view, we saw sequential improvement in Q4. It was generally most of the year really soft, say overall, and we've been clear about that. But sequentially improvement in Q4, not enough to call it a trend. We see customers getting a little bit less tentative about placing orders, but still cautious in EMEA because they're trying to figure out what the macro means and especially when it comes to big orders and long-term commitments still quite cautious. But we like what we saw to end the year in the EMEA arena.

And then for APAC, I mean it's a mix, as you can imagine. But it really -- it was stable through most of the year and again, slight improvement to end the year. A lot of strength in India, for example, China stayed fairly stable from what we saw. So those data points that we saw late in the year. I think for this year, we've all seen the PMI data from ISM for January. I always caution people that it's a lot going on in January, in general, with restocking and everything else. So we're trying to not call it trend from 1 month of an expansion after 11 months of contraction. But we're certainly seeing good strength in our order book, which is a good indicator as well.

That's helpful. Any questions from the audience? Anyone want to ask a question?

I should just wait until someone actually ask a question, but I won't do that. So maybe just double-clicking on Fluke again. I think at the Investor Day, you mentioned 20-plus new product intros over an 18-month period. So like you're really ramping up the level of innovation at Fluke. Does that continue? And is that contributing to the growth of Fluke, would you say?

Yes and yes. I mean Fluke, we're incredibly excited about the brand. It's our single biggest company. We've got a terrific team. It's a 78-year-old brand, but you couldn't tell just the intensity of innovation. And I think what's really -- since Investor Day, we've kept off that innovation pace. And Mark and team have just done a great job of helping direct more resources to the smartest innovation ideas. So we're going even faster at those.

But the thing that's been really striking for me is how much better our teams have gotten about pointing the innovation towards the best growth opportunities for the years ahead. You saw us talk at Fluke about the launch of a product that we call CertiFiber Max in Q4, which is this terrific testing professional instrumentation for high-density fiber in data centers. And the beauty of that solution is, it really is a natural extension of a testing platform we already have at Fluke. So this is a platform already in their hands of tens of thousands of technicians that now just get this new module that all of a sudden gives them the super power to certify this high-density fiber networks in these hyperscale data centers, and as you can imagine, this is a workforce that we can't get enough of right now.

So this is helping them get their job done faster, higher fidelity. And the throughput is under 1 second at this point. That's incredible productivity boost at this critical moment in time when everyone is trying to find more and more of this limited resource. And so the work at Fluke our team is doing not just in driving innovation at a higher scale, not just in improving the funding of that with kind of help from Mark and his team, but also directing it at the very best kind of needs in the market. It's exciting to see that there's more ahead for us.

Got it. And then in IOS, the other sort of bigger piece of the business is facility and asset life cycle software. You talked about it being pretty strong, solid ARR growth. I think, as you mentioned in your earnings call, government demand for procurement and [ SMA ] solutions begin to stabilize, but maybe give us some more color on that. I don't know, do we still have that partial government shutdown. I don't know. What are you seeing in that world?

Yes. So I mean, we -- most of what we do in that business at Gordian is really state and local government agencies. And the way I describe it is we had after COVID a couple of years of just extraordinary years where the business was growing 20% plus because the spending levels was just tremendous, with government stimulus behind a lot of the spending.

And what we saw in 2025 was really a slowdown in that spending level based on like the fiscal pressures on these agencies some of the trickle down a mix of what's going on in the federal government. Where we now are it stayed stable at that level. It's not getting worse. Our teams are doing a great job of now operating and execution within that new normal, if you will. And we're not -- we haven't planned for things to get better, the way we've set up the year. So we feel really good about the way we're executing.

If and when things recover from a spend level that will be a great tailwind for us. But it's not getting any worse. I think at this point, the $1 trillion of deferred maintenance on a lot of these critical infrastructure projects in a lot of our communities. Those have to be done at some point. It's only so long you can defer them. So we know that goodness is ahead of us. Right now, we're not banking on it for '26.

That's helpful. Let's go to AHS, like so you've seen some sequential improvement over the last few quarters, but you didn't highlight some deferral and hospital capital expenditure budget. So as you look forward, would you say your visibility is still murky as it's getting a little bit better. And you did say that your software products and the same delivered solid growth, so maybe you can unpack software, like Provation, Censis how they're doing versus the hardware.

Yes. So I think the AHS segment overall, we feel quite good about the visibility on what we've set up for the year. If you kind of think about it as roughly buckets within the segment. To your point, the software businesses, which are really probably our highest customer loyalty, highest value software assets in Provation and Censis are doing really well. We've talked about that repeatedly, just great growth, great innovation, velocity. We're putting more there with AI use cases. So those are really doing very well.

The second category, consumables and services, which are generally more stable because it's really kind of the flow of procedural volume that drives that and you can't shut that down if you need to run your OR, which is your profit center in a hospital, you need consumables flowing through. So that's been very stable as you would expect.

And the third category are capital equipment purchases, where customers are writing a big check for a big piece of equipment, which then drive future consumables, so they're really important. That's the piece that saw the pressure in 2025. because a lot of these hospital systems were going through the changes in health care reimbursement and policy. And I just got them feeling cautious about big capital purchases and long-term commitments. Again, we have great visibility into the funnel of opportunities. We know which customers are waiting to place the order. We're talking to them, and we're really close to them. And we know those deals are still with them and they're looking to also supply them. It's a timing question.

So we're seeing progressively Q2 '25 was kind of the tightest quarter because they were all waiting for the One Beautiful Bill to pass in early July, and it's increasingly gotten better every quarter since then, and we expect that to keep getting better.

So overall, if you think about the AHS segment, software piece, high visibility doing really well. Consumable service is really stable. We expect that will continue. And this capital piece of the business we feel like the tightest period is behind us, and it's continued to ease on.

On top of all that, I would say, ultimately, the Fortive strategy is being played out exactly as planned in that segment with innovation velocity picking up. We're making bets in particular commercial opportunities, that will secure growth acceleration for years to come. We're building recurring customer value. That means every customer we bring in, the lifetime value is way higher than we used to have before. So all of that sets the stage for pretty high visibility going forward.

Yes, that's very clear Olumide. So maybe I just want to shift to AHS margin for a second. You talked about some targeted growth investments in the segment that impacted the margin in Q4. Can you give us some more color on what those investments are and your expectation for how fast we can see these investments translate to higher growth. And how are you thinking about AHS margin expansion in '26, like margin in '25? Is a bit under pressure, but could you accelerate faster in that construct of 50 to 100 basis points of margin expansion based on your demand visibility?

Yes. So I'll start from the last part of your question. I think the overall frame of the 50 to 100 basis points of adjusted EBITDA margin expansion on a year-end '26, '27 financial framework, very high confidence in that. And we designed it that way because we know there are many ways to get there. There will be times when we have more margin expansion in one segment and the other. There may be times when we see opportunistic growth acceleration initiatives in one area that's going to secure growth for the next 3 years. We can do that and still get our margin expansion.

So complete confidence in that overall framework. The specifics on what happens with each segment in each quarter, we're deliberately leaving that fluid because we really think to drive a company that grows faster going forward, we need that flexibility to invest when we need to invest. And so -- and that's what you saw in 2025 and especially in Q4 with the AHS segment, where we just saw some real opportunities to place some bets and it's sales and marketing capacity, it's R&D investments, it's doing the right things with integrated solutions for particular customers that we know is going to set us up for growth for years to come. We made that call to do it in Q4, all still within delivering a terrific overall slate of numbers.

So looking forward, you should expect the long arc of improvement in margins to continue in each of our segments because it's just -- that's the way we run the company is we just keep getting better. But the specifics of what happens 1 quarter versus another in segment may have some color to it.

Yes, that's fair. I want to get Mark involved again. I do have a couple of other little questions for you, Olumide. But Mark, I just want to ask you about Fortive strong cash flow because I think as a new company, you've leaned into buybacks for sure. You did complete two small transactions, I think, pretty recently. So as you think about '26, should we expect a more aggressive M&A playbook from you guys? I mean you did highlight refining your M&A funnel. But as your portfolio sits today, what specific verticals or regions you potentially target software is on the cheap now? Do you focus on that? Like what are you doing with your cash?

Yes. Well, I mean, first of all, you're right to point out incredible free cash flow generation in this business, spits out $1 billion of free cash flow a year. And if we execute well, that's going to grow and compound over time.

We have absolutely leaned into the buyback and we really did that in accordance with our capital allocation strategy and guideline, which is all about just seeking best relative returns. So we're going to continue to approach the world in that way. We obviously look at free cash flow per share and EPS accretion is sort of one of our guides as we're putting things through the funnel.

As it relates to M&A, I wouldn't expect aggression, if that was the word that you used, I think, transformational deals. Yes, we'll continue to be off the table. But as you point out, we have rebuilt the way that we look at M&A. We've rebuilt the funnels, and we're going to continue to be on the hunt for great businesses in great industries where those businesses have got market-leading positions, where we can buy them at great prices and make them worth a lot more under our ownership than they would be under their prior owners.

And that is, to some extent, it's vertical or geo agnostic. So we don't really have a geo or agnostic bias to share with you. The only thing we have is really our North Star, which is to deploy capital, really seeking best risk-adjusted returns across the board, and ultimately, all of that in accordance with the Fortive Accelerated strategy to deliver benchmark beating returns for Fortive and for all of our shareholders in the years to come.

It's helpful. And then Olumide we often talk about Fluke and FAL but I'd say ISC has been making a little bit more waves lately. So maybe I wanted to ask about Industrial Scientific on the hardware side. Intelex on the software side kind of is interesting to me because it focuses on environmental health safety. So maybe just those kind of businesses, do they grow at average rates, higher than average rates for IOS? Like how do you think about those businesses over the next couple of years?

Yes. So the great businesses and they're certainly growing at the fleet average better sometimes. It's a great story because in the end, it's actually not that complicated.

There's a few things that have to be true for businesses should do well like that. One is you have to be in a good market. And those businesses are right now in a market that's benefiting from a tailwind of just regulatory requirements around worker safety, the increasing scale of high risk and hazardous operating environments with mining and metals and oil and gas and all these markets growing. So you've got a growing demand both by regulatory drive and the volume of activity. So you're in a good market.

Second is you have to have a superior offering. And both of these brands really innovate aggressively. Industrial Scientific came up with this hardware as a service model that's just a unique experience for customers. that's had a lot of success over the last several years here and continues to add more innovation to that. The fastest pace of innovation we've ever had in that business is going now.

And then you have them been really aggressive from a commercial point of view and recurring customer point of view. So you've got a strong market, you've got a differentiated product, and you are executing ferociously -- and that just leads to great things. So as we look ahead for that piece of IOS, it's really -- it's a promising outlook for us.

So Olumide, we talked a lot about the regions already. So North America, just that's probably your biggest concentration of high-growth verticals, right, led by data centers? Is that fair, and that's why it should continue to grow the fastest? Like is that what you would you agree with that or not really?

Yes. Well, I think in general, I think at the kind of macro region level, certainly, North America has some of this -- the strength of the data center tailwind it's much higher in North America than in other markets. Not that the other markets don't have it, too. So that certainly benefits the market in North America.

I would say across the world, beyond the macro regions, there are pockets that we're seeing a lot of strength in. We talked about India a few times. That's a market where both of our segments grew double digits in the last quarter. And that's the that's a seed planting of just small commercial capacity in the market, more local production capacity, a little bit of product and product-market fit adaptation that we're doing for some of our big brands that is just driving a lot of success for relatively low effort in those markets.

So we will continue to find pockets like that. But it is fair to say that North America has some of those enduring overall market tailwinds that should continue to show up well.

And when I look at emerging markets, is China steady now? Is that what you'd call it? Or is it still kind of iffy, would you say?

I think steady would be a good term to describe China over the second half of '25 and what we're seeing going into this year. I really believe that it is steady both because the market is sort of leveled off a little bit from what we see and also because, frankly, our teams have built the endurance and capabilities needed to thrive in the market the way the is. So both from a market point of view and a self-help point of view, it's really got to that point of what I describe as steady.

Okay. Last question. What are the top 2 or 3 innovations and structural changes affecting your company over the next 5 years? And are there any emerging industry trends that are perhaps being overlooked in the current discourse?

Yes. Well, since we have a minute, I'll actually just pick one. I think the one I'd pick is this idea that there's a lot of focus on the initial build-out stage of industrial capacity, including data center, rightfully so because it's $700 billion getting invested in data centers this year, for example.

But the more exciting part of this from our point of view, is really the lifetime of operations I mentioned and spend that needs to follow this initial build-out. So think about all the data centers getting built. Someone's got to worry about how do I actually get the uptime and returns and performance from all of this capacity. And there's not enough technicians to manage them. There's not enough innovation in the professional instrumentation to drive them. So that's where we really forecast. If you think about our business at Fluke, it's a lot about that operations and maintenance life cycle. That's where we have real strength. So we're just really excited about once the dust settles on the initial build-out, the innovation we're powering across Fluke to really lead in that operation in mentioned.

That's great Olumide. Olumide and, Mark, thank you very much. Appreciate the time.

Thank you.

Thank you.

My name is Shamali, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call.

[Operator Instructions] I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference.

Thank you, and thank you, everyone, for joining us on today's call. I am joined today by Olumide Soroye, Fortive's President and CEO; and Mark Okerstrom, Fortive's CFO. During today's call, we present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortive.com.

We will also 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 risk factors is available in our SEC filings, including our annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q. 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.

Our statements on period-to-period increases or decreases refer to year-over-year comparisons unless otherwise specified, and our results and outlook discussed today are on a continuing operations basis.

With that, I'll turn the call over to Olumide.

Thank you, Christina. Let me begin on Slide 3. Q4 was another quarter of solid execution by our new Fortive team. With the first 2 quarters of performance now behind us and our 2026 strategic and financial plans firmly in place, our strong conviction in the road ahead continues to build.

In July, we began our journey as New Fortive, united by one mission, aligned around 2 segments serving attractive end markets with strong secular tailwinds and guided by a clear strategy with 3 pillars: accelerate profitable organic growth, allocate capital with discipline and build and maintain investor trust, all with the goal of delivering benchmark beating shareholder returns in the years ahead.

Our Q3 and Q4 results reinforce our conviction in this path. While we are still early in the journey, we are diligently executing the Fortive Accelerated strategy and sustaining the operational rigor that Fortive is known for. We enter 2026 with optimism, enthusiasm and an unrelenting focus on execution.

I have 5 key messages to cover today. First, our teams continue to execute well with the power of our Fortive Business System, driving solid Q4 results ahead of our expectations. In Q4, we delivered core growth of just over 3%, adjusted EBITDA growth of 8% and adjusted EPS growth of about 13%. We were pleased to see another quarter of growth acceleration in the business, knowing that we have even more growth upside ahead of us.

Second, our strong Q4 earnings performance resulted in full year adjusted EPS of $2.71, exceeding the high end of our guidance range of $2.63 to $2.67. Third, we continue to deploy capital in accordance with our disciplined approach, anchored in optimizing shareholder returns over the medium to long term.

In the fourth quarter, we executed an additional $265 million of share repurchases, bringing total second half repurchases to $1.3 billion. Fourth, we are diligently progressing our Fortive Accelerated strategy to deliver benchmark beating shareholder returns. I'll spend a few minutes on this in the next slide. Finally, as we turn our focus to 2026, we are initiating full year 2026 adjusted EPS guidance of $2.90 to $3, representing approximately 9% year-over-year growth at the midpoint.

Moving to Slide 4. Before we turn to our Q4 results, I'd like to highlight the progress we've made on each of the 3 Fortive Accelerated pillars, beginning with our focus on driving faster profitable organic growth. In terms of innovation acceleration, this quarter, we continue to accelerate new product introduction velocity, including offerings aimed at high-growth verticals.

At Fluke, we launched a new data center testing solution, CertiFiber Max, with the fastest throughput in the industry, helping customers test and validate complex fiber systems quickly and accurately. At ServiceChannel, our third major product release of the year went live in Q4. This release enhances maintenance professional onboarding, work order visibility, compliance and payment efficiency.

On the commercial front, we continue to intensify our focus on faster-growing end markets and regions, where we have been making deliberate targeted investments. This quarter, we saw early signs that our targeted actions are resonating in the areas we've prioritized. Fluke delivered another strong quarter in data center. Industrial Scientific's expanded commercial coverage drove acceleration in EMEA and our investment in a broader sales team for Fluke and ASP in India directly contributed to strong growth in the region.

We also made progress in advancing the recurring elements of our portfolio, enhancing customer engagement and strengthening the durability of our revenue streams. In Q4, recurring revenue again grew faster than consolidated revenue, driven by continued strength in Fluke's maintenance software and deeply embedded data as well as AI-enhanced software capabilities across iOS and AHS segments.

Moving to the second pillar. Disciplined capital allocation is an integral component of our Fortive Accelerated strategy. Consistent with our priorities, in the second half of 2025, we repurchased about 26 million shares or roughly 8% of our diluted shares outstanding. We also continue to refine our M&A funnel and processes to reflect our go-forward strategy, prioritizing accretive bolt-on deals that meet our rigorous strategic and financial criteria.

In the second half of the year, we closed 2 small transactions that met this high bar, enabling us to actively strengthen our M&A muscle. As we look to 2026 and beyond, our capital deployment priorities for New Fortive remain crystal clear: invest in organic growth, pursue bolt-on M&A where the risk-adjusted returns exceed other uses of capital, return capital through share repurchases and maintain a modest growing dividend, all with a focus on best relative returns and maximizing medium- to long-term shareholder value.

Moving to our final pillar, building and maintaining investor trust. We were pleased to deliver performance ahead of expectations in Q3 and Q4, including adjusted EPS that surpassed the high end of our guidance range. We recognize there is more work to do here, and we remain confident and focused on delivering the 2026-2027 financial framework and further acceleration that we committed to at our Investor Day in June 2025.

With that, I'll turn it over to Mark to walk through our financial results for the fourth quarter.

Thanks, Olumide. I'll begin with Slide 5. In the fourth quarter, we delivered total revenue of $1.1 billion, up just over 4.5% year-over-year on a reported basis and up just over 3% on a core basis. We are pleased to see volume growth return and solid performance across all regions. We again delivered core growth in both IOS and AHS with IOS outperforming our expectations and AHS performing broadly in line.

In IOS, solid customer demand and strong commercial and operational execution drove acceleration from Q3 with better-than-expected results in Professional Instrumentation and in gas detection. In AHS, overall results were broadly similar to Q3, including continued strength in health care software. From a geographic perspective, all regions grew nicely with North America delivering another quarter of solid growth.

APAC growth remained steady and Europe accelerated from Q3, an encouraging data point, but not yet a sustained trend. Latin American sales also picked up the pace of growth sequentially, driven by strong performance in Professional Instrumentation. Adjusted gross margin in the quarter was about 63%, down about 150 basis points from prior year, driven largely by product mix, the net effect of tariffs and countermeasures and targeted growth investments in our AHS segment.

Q4 adjusted EBITDA was $358 million, up about 8% year-over-year. Adjusted EBITDA margin expanded approximately 100 basis points to nearly 32%. This strong operational performance was driven by operating leverage alongside continued progress on deliberate organizational streamlining across the portfolio and a sharpened focus on corporate cost discipline.

We delivered adjusted EPS of $0.90 in Q4, up about 13% year-over-year, marking our second quarter of double-digit EPS growth. Strong adjusted EPS performance was driven by growth in adjusted EBITDA and the positive year-over-year impact of share repurchases, partially offset by modestly higher tax expense. Our full year adjusted EPS of $2.71 represented year-over-year growth of just over 12%. We generated about $315 million of free cash flow in the fourth quarter and about $930 million of free cash flow for the full year.

Our full year 2025 free cash flow conversion on adjusted net income remains nicely north of 100%. Moving to our segment results, starting with Intelligent Operating Solutions on Slide 6. Revenue for the segment grew just over 5% on a reported basis with core revenue growth of about 4%, nicely ahead of our expectations. Growth was driven by both price and volume and reflected solid performance across professional instrumentation, facility and asset life cycle software and gas detection products.

At Fluke, we saw strong FBS-driven commercial and operational execution and resilient customer demand, resulting in another quarter of modest sequential acceleration despite the challenging comp from prior year. North America continues to be the strongest growth driver, and we were encouraged by early signs of improvement in Europe and green shoots from commercial efforts in Latin America and Asia Pacific.

Our Facilities and Asset Lifecycle software businesses continue to deliver solid results, driven by strong demand for multisite facility maintenance and marketplace software in North America. Government demand for procurement and estimating solutions is beginning to stabilize, but remains pressured compared to the strong growth we saw for several years post-COVID. Our gas detection business is growing nicely, buoyed by strong demand and share gains.

We saw particular strength in our Hardware-as-a-Service product line and broad strength in North America. Adjusted gross margin in the segment was just under 67%, down about 130 basis points, primarily due to product mix and the net effect of tariffs and related countermeasures. Q4 adjusted EBITDA in the segment grew 8% to $288 million, driven by operating leverage and reduced costs associated with flattening and rationalizing segment-level organizational structures, partially offset by targeted growth investments to support innovation and commercial initiatives.

Adjusted EBITDA margin expanded to just over 37% in IOS, which is up about 100 basis points from prior year. Moving to our Advanced Healthcare Solutions segment on Slide 7. We delivered total revenue of $353 million. Revenue grew approximately 3% year-over-year and 1.6% on a core basis. As we noted throughout the year, we continue to see reimbursement and funding policy changes impact the AHS segment, specifically the deferral of U.S.-based hospital capital expenditures.

However, demand trends improved again in Q4, and we are encouraged by the health of the commercial pipeline and positive customer feedback regarding the superior technical performance of our low-temperature sterilization offerings. Our software products in the segment continued to deliver solid growth, fueled by strong execution and structural advantages from resilient SaaS-based revenue models.

Adjusted gross margin in this segment was 56% in Q4 versus roughly 58% in the prior year period, driven by strategic investments to drive growth. Q4 adjusted EBITDA in the segment was $92 million and adjusted EBITDA margin was 26%, with year-over-year variance driven by our growth investments as we position ourselves for acceleration in the years ahead.

Turning to Slide 8. As noted earlier, we deployed an incremental $265 million to share repurchases in the fourth quarter, reflecting continued confidence in our ability to deliver on our value creation plan. Additionally, we repurchased another roughly 2.5 million shares, since the end of the quarter, bringing total fully diluted shares outstanding to approximately 315 million as of the date of this call.

Our balance sheet remains strong. We finished the year at 2.6x gross debt to adjusted EBITDA, and we have ample capacity to execute on our capital deployment priorities in 2026. As previously highlighted, our full year 2025 free cash flow was about $930 million, with free cash flow conversion on adjusted net income nicely over 100%. We remain steadfast in our commitment to our capital allocation priorities and an overall approach that seeks best relative returns.

Moving to Slide 9. We are initiating our full year adjusted EPS guidance of $2.90 to $3 per share. This outlook assumes a continuation of the market dynamics we experienced in Q4. It also reflects current tariff rates with tariffs net of countermeasures not currently expected to be meaningful to the bottom line in 2026.

Let me provide a few additional considerations to assist with modeling. Based on current foreign exchange rates, we are assuming reported revenue of nearly $4.3 billion and core revenue growth in the range of 2% to 3%. We are planning for a mid-teens adjusted effective tax rate on a full year basis with Q1 through Q3 in the high teens and Q4 in the high single digits to low double digits.

We are currently modeling a full year net interest expense of just over $120 million. Our current diluted share count is roughly 315 million shares, taking into account the incremental share repurchases done since the end of the fourth quarter. In terms of the shape of the year, on a reported basis, we would expect top and bottom line to broadly follow recent historical patterns.

At current rates, we would expect FX to be an approximately 300 basis point tailwind in the first quarter, a tailwind that should ease as we move through the year. As the year unfolds and we continue to execute on our Fortive Accelerated strategy, quarterly phasing may evolve.

As a final note, before turning it back to Olumide for closing remarks and Q&A, we're off to a strong start at New Fortive, and we remain committed to unrelenting execution on the Fortive Accelerated 3-pillar value creation strategy and financial framework that we outlined at our June 2025 Investor Day. We recognize there is much more to do, but momentum is building, and we're excited about what lies ahead.

I'll now turn it back over to Olumide.

Thanks, Mark. I'll wrap up with a few reflections on where we are and where we are headed. We are now a stronger, more focused Fortive. Over the last 6 months, we've simplified our operating model, sharpened our strategic and capital allocation priorities, evolved our Fortive Business System into an even more powerful engine for sustained growth and elevated our team's focus on the source of all growth, our customers.

That clarity is translating into stronger internal alignment and real excitement across our teams. Importantly, we are seeing signals that our Fortive Accelerated strategy is working. First, in the second half of 2025, we delivered accelerating growth, expanding margins and double-digit EPS growth, while investing deliberately in the initiatives that position us to deliver on the multiyear financial framework we outlined at Investor Day.

Second, we are allocating capital with discipline to deliver the best rate of returns over the medium to long term and executed $1.3 billion of share repurchases in the last 2 quarters. Finally, we are committed to building and maintaining investor trust, and we are pleased to have delivered results ahead of expectations in our first 2 quarters as New Fortive. We are encouraged with the progress we've made in these early innings. However, we have significant unfinished business and untapped potential, and we are driving with urgency, intensity and accountability to unlock it.

As we look ahead to 2026 and beyond, we are confident in the path we're on, energized by our momentum and committed to delivering strong performance for our shareholders. I want to thank every one of our Fortive employees around the world, who do extraordinary work every day and dedicate themselves to our shared purpose of innovating essential technologies to keep our world safe and productive. And every one of our 100,000 customers, who entrust us with their mission-critical safety and productivity needs.

Thank you all for your continued interest in Fortive. With that, I'll turn it to Christina for Q&A.

Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions.

[Operator Instructions] Our first question comes from the line of Deane Dray with RBC Capital Markets.

Maybe we can start with getting some color on Fluke. It's always helpful to get a sense of the sell-in and sellout in terms of the short-cycle demand there, but it looks like you're also getting good traction with the new products. But if we could start there, please.

Thanks for the question, Deane. So I mean, we were very pleased with Fluke's performance and the durability of demand in that business. Just to give you a few data points, our POS trends were broadly consistent with what we've been seeing in recent quarters with North America remaining the strongest region. But we also saw encouraging improvements in EMEA and LatAm and APAC was holding steady. So in terms of end demand, just solid and strong signals overall.

And then the other growth at Fluke continued in the fourth quarter. We're quite pleased to see that. Like we expected, the book-to-bill for the entire year finished above 1. And kind of the channel inventory outside the U.S. continue to improve, and we expect that to continue through 2026. So everything you look at in terms of market signals is very strong.

Fluke is also just a great example of the impact of our Fortive Accelerated strategy and how we're executing that. So the pace of new product innovation in Fluke is faster than ever, targeted commercial investments in markets like data center and defense. The recurring revenue in Fluke, which we've talked about now a few times, that continued to grow double-digit ARR within Fluke, and it's just an exciting piece of the resiliency of that business.

So really feel good about the momentum there. I was with the Fluke team last week and the excitement level that they feel about the growth opportunities has never been higher. And for me, that's an important signal of what's to come.

Great. And just as a follow-up, can you talk about price? What was price? How much of a contribution in the quarter? What are you assuming in your guidance? And any color on price cost or a couple of references on tariffs?

Sure, Deane. I'll take that. So in the quarter, price was about 2%, volume about 1% roughly. I would say 2026 is roughly in line. We got a bit of a price tailwinds in 2025 due to the tariff countermeasures we did, but I would think about it as broadly in line.

Great. And price cost?

Yes, we're not going to provide that level of detail. I would just say that generally, we feel good about the gross margin scenarios going forward. And again, we're really committed to the 50 to 100 basis points of EBITDA margin expansion that we provided in our financial framework, and we're going to use all the levers down the P&L to drive growth.

Our next question comes from the line of Julian Mitchell with Barclays.

Maybe -- I realize you don't give sort of explicit quarterly guidance, but maybe if you could help us a little bit more with how the first quarter is starting out the year. I think the last couple of years with New Fortive, it's about 20% of the year's EPS. I just wondered if there was anything this quarter that would make it a huge outlier versus that? And sort of allied to that, are we expecting organic sales growth each quarter is in that 2% to 3% full year range roughly?

Thanks, Julian. I think I would just turn to our prepared remarks in terms of the quarterly phasing, and we do expect reported revenue as well as adjusted EBITDA to broadly follow the trends that we've seen in terms of distribution across each of the quarters. And that takes into account all factors. As always, there's a few things with days here and there. We've got a little bit of favorability in Q1 and a little bit of a negative in Q4, but that's all accounted for in the shaping color that we've given.

And then just as a reminder, we did call out that we thought there would be about 300 basis points of tailwind from FX in the first quarter, particularly, I would say that we feel good about how the year started. January has come in very solid. And so all of the shaping guidance we've given has really taken that strength into consideration.

And then just my second one, maybe on margins. AHS, you had some margin pressures in the fourth quarter and you called out reinvestments, I think, maybe give us some more color on, is that something that's, I don't know, multiyear reinvestment need? Or it was just something very localized in late 2025 and we should see AHS margins pick up again in the year ahead?

Yes. Thanks, Julian. A short answer is it's very localized in Q4. I mean that segment overall, as you know, has relatively strong gross margins. That's a result of the strength of our brands. And we'll keep getting better, frankly, with the innovation pace that we're driving that are generally margin accretive products, and the fact that our software and consumables component of that segment also raised the fleet average.

And the Fortive Business System value analysis, value engineering journey continues. So the path of margin improvement in the segment remains firmly intact. And for Q4, specifically, we deliberately made some strategic investments that really set us up well for top line growth acceleration. And that's the investment with customers, it sales and marketing and R&D. But they're very localized in the quarter versus a long multiyear journey type of thing. The general trend should be margin improvement.

Our next question comes from the line of Nigel Coe with Wolfe Research.

Maybe just a quick same question, different flavor. Based on your comments, Mark, about "normal seasonality", it feels like you should be within the range in pretty much every quarter, 2%, 3%, including the first quarter with 2Q probably your best quarter given easy comp. Just want to make sure we're not too far off base there.

And then maybe on the framework. I think you said 50 basis points of margin expansion. I wasn't sure, if that was the right number. And then the share count of 315 million, that's what's in the plan for the full year as well.

Yes, I'll take those in reverse order. 315 million is, in fact, what we're modeling as well. 50 to 100 basis points is the financial framework for the 2-year '26-'27 period. And I think I would model that for 2026 as well. And then in terms of core growth, I think you're in the ballpark, and I think you've got the comp right. I mean Q2 is a particularly easy comp.

Okay. It seems like you've been very conservative with your framework of the EPS, but understandably as well. And then my follow-on is really on the software side. You're aware of all the concerns around AI with the kind of software model. So just maybe just take that head on and kind of what are you seeing in the software businesses in a bit more detail. Are there any areas of pressure? And then given the sort of the pullback we've seen in software asset valuations, is this a good time to be buying software assets?

Yes. Thanks, I'll take that. So as it relates to kind of software and AI, we really see that as a meaningful acceleration for what we do in software because keep in mind, not all software is the same. What we do are mission-critical enterprise software kind of provisions for customers.

And they have a number of characteristics, including deep workflow integration, proprietary data assets, higher regulatory requirements. A lot of them have large 2-sided networks with tens of thousands of participants. All of them make them really sticky and really substantial record for our customers.

And so what we're seeing is a strong pull from customers for us to deploy Agentic and GenAI powered enhancements, which drives even better customer experience and deepen integration into our customer workflows. And frankly, that's out of what's contributing to the growth momentum we're seeing. So net-net for us, really, AI is an opportunity, and we're actively seizing that across the portfolio, where it makes sense.

To your question about is it a good time to buy software assets, it hasn't escaped our attention that the buy is really high right now, if you're looking at any software assets to make sure it can withstand the appropriate questioning on what AI means for it. So I think it just raised the huddle, Nigel, in terms of the scrutiny that goes into any software asset. And like we've mentioned, our focus now is on really targeted bolt-on deals that are small, and we're not specifically hunting for software assets at this point.

Our next question comes from the line of Scott Davis with Melius Research.

And Christina, congrats on the timing of that buyback seemed pretty beneficial to you guys.

So look, we're trying to get used to kind of a new management team here and kind of how you guys guide. The $2.90 to $3 is a pretty tight range versus what we're used to in industrial. There's a lot of -- there's a lot of variables in any given year. But is the $2.90 to $3 more a function of, you feel like you've got that kind of visibility and the puts and takes are kind of all coming together, particularly given your share count and such? Or is this, again, just trying to get a sense of how you guys are planning on guiding going forward? And maybe just give a little color there would be helpful.

Yes. Thanks for the question, Scott. I think it's a byproduct of, I think, the durability of the business. I think the improvements we've made in forecasting the business. And then I think some of the decisions we made in 2025, I think the share repurchases in total give us about a 600 basis point tailwind to EPS net of the interest expense on it. So that gives us a fair bit of comfort. We've got a good command on the cost structure of the business. We've taken costs out of the business in 2025. We started reinvesting that in the fourth quarter.

And I think when the K comes out, you'll see G&A down, sales and marketing up, R&D up, consistent with the investment priorities we've made. And we've got really clear views on how we're translating our strategic plans through PD into our operating plans, and we feel good about execution. So I think all of that combined again with the recurring revenue profile of the business gives us comfort in the range that we've provided.

Okay. That's good color. And I know the term bolt-on is all in the eyes of the beholder, but what does -- when you think about a 5-year plan and imagine I think when order was spun out, there was actually a 10-year plan that Jim talked about. But when you guys think about a -- just talk about a 5-year plan, what kind of a tailwind do you think bolt-ons are? Is it 1% on the top line? Is it 2%? Is it -- or is it just too hard to say given just really the opportunistic nature.

Yes. I think the last piece of your question there embeds the answer. I think it's hard to call a number based on the opportunities to make sure of it.

The thing we do know for a fact, Scott, is that the value creation thesis that we've laid out here, which we are quite pleased with how this is shaping up in our first couple of quarters here. It's really compelling and does not require us to do anything dramatic from an M&A point of view. We're really focused on this idea that we are going to get this set of businesses to grow much faster organically by deploying the power of Fortive Business System with the enhancements we're making to it and investing smartly from an organic point of view. So that's the primary channel in our strategy. And we're going to we're going to go full steam on that.

And bolt-ons, again, these are smaller deals. I just kind of enhancements to the value creation story, but we're not going to call a number on what it has to have because it is very opportunistic and not required for our success.

Yes, makes sense. Okay. Thank you. Best of luck. I appreciate it. Thank you.

Our next question comes from the line of Joseph O'Dea with Wells Fargo.

Can you just unpack the IOS 4% organic a little bit more, the degree to which that surprised internally the sources of that surprise. And I think there's some consideration right now to weather things in, say, the middle of '25, just broadly, general industrial demand kind of pushed and the degree to which that could have benefited Q4.

Your January comments make it sound like not so much, but just trying to understand that strength a little bit more and the equipment side versus the software side. Any color there would be helpful as well.

Yes. Thanks for the question. I mean, the short answer is this was really about our teams executing Fortive Accelerated strategy much faster and much more in an impactful way than we anticipated. So if you just look at the key components of IOS, we've talked about Fluke quite a bit. That team just did a terrific job with the kind of end-of-year execution. And we saw stronger demand in some areas like our data center applications and defense.

And the team just sees all of those opportunities. I know I just got the orders in, but also got the shipments out and we ended up with very healthy backlog levels. So I would call it a story of just excellent execution. And if you think about the kind of software business is the same thing, a terrific job across the board by that team to execute on the strategy and get some things done faster than we anticipated.

And the gas detection and Environmental Health and Safety part of IOS, again, just strong execution to end the year and just the energy that our teams are feeling. And as we go into -- into the new year, again, the outlook we've laid out here is not what you mean a change, that's significant either way on from a macro point of view, what we're really backing on here is that we have confidence in our team's ability to execute the strategy and continue driving growth.

And then just circling back to your answer to Nigel's question, kind of the AI debate, and I think you made a comment about how your customers are looking for Agentic AI enhancements and maybe just a little bit of detail or color there on the types of enhancements that you're currently working on or that are in the market to expand on the offerings that you have?

Yes. And we've mentioned a couple of examples of those in the prepared remarks for today. We talked about service channel and the third main release they had in 2025 was launched in Q4. That included some AI-enabled enhancements. That's a business, where we have a 2-sided network and really the system of record for customers' repair and maintenance. So it's just a natural place for customers to activate a feature that's AI-enabled. And we rolled that out in Q4.

We talked about some probation on our call in Q3. So it's a very kind of targeted enhancements that deliver real business value to customers. And these AI tools are really just -- they're just an instrumental help unlock value that's AI-enabled but software delivered, and that's the key because you have to land these things in the workflow software that customers can actually use. And these are enterprise customers we're talking about. So those are just a couple of examples.

Our next question comes from the line of Scott Graham with Seaport Research Partners.

Very nice quarter. Congratulations. Olumide, I asked you a question at Investor Day last, I guess it was June about the FAL business and the business had been constantly kind of lowered the growth outlook had been lowered by the former team and kind of landed in sort of that mid-single-digit area since then we've had the government shutdown.

But as that gets past us, I hope you don't mind if I ask you again, do you see FAL kind of sort of in steadying into sort of a mid-single-digit growth algorithm, let's say, even in beginning in the second half of this year.

Yes, thanks for that question. So short answer is we're really likely the FAL platform and the potential there. And all 3 of our operating brands there have continued to strengthen their performance. And so we feel really good about that outlook.

A little bit like I mentioned at Investor Day, we don't have a selling on what's possible with this business. And the confidence we have is it certainly would deliver and help us attain the financial framework that we've laid out. And how high it can go, we intentionally don't put a cap on it. And we like what we're seeing across all the brands. We think it's going to be a strong year of continued acceleration for that platform.

That's great. And then just quickly turning to ASP. I want to try to understand the dynamic here. I know that there's been consternation around CapEx from hospital customers, but that business is more a consumable business. So can you maybe help us understand a little bit the dynamic there, why that ASP has been weak for a couple of quarters now off of the concerns that the hospitals have.

I understand that, that's a spending thing, not just CapEx probably more broadly. But again, ASP is more of a consumables business. And I guess I thought it would not have been hurt as much by some of the pullbacks in CapEx. Could you walk us through that?

Yes. No. Thanks for that. And it's an important clarification because I think from a consumables point of view, from a services point of view and in the software components of our AHS segment overall. Those continue to grow and really steady contribution in Q4 to our growth. The key is the capital equipment, while it's not a huge percentage, the revenue recognition happens in quarter when the transaction happens, while consumables and services, they're wonderful because they're consistent over the life cycle, but capital is more concentrated revenue impact.

So that's where -- that remains the place, where we had the pressure in really in Q2, Q3 and Q4. The important thing is it got progressively better. Q2 was sort of the worst and it got better in Q3 and better in Q4. And our client and our customers continue to be a little bit cautious given what's going on with health care policy. But it's getting better literally by the week. And we like that trend. We're staying close to our customers. I was with some of them just a couple of days ago, earlier this week, and they love our team, they love our products and we're with them as they try to sort through the spending challenges they have.

Our next question comes from the line of Andy Kaplowitz with Citigroup.

You mentioned some green shoot scenarios such as Europe and Asia within IOS, but you didn't want to get too excited about those areas, which I get. But can you give more color into what is inflecting in those areas, within Fluke, for instance. And what do you assess is the durability of the turn as you see it?

Yes. So I mean, as you kind of get to read the approach we're trying to take. We're trying to be really clear eyed and prudent before we call a single quarter, a new trend. What I would say is for both EMEA and APAC, and frankly, LatAm. It was a story of our teams really settling into what the macro conditions was and executing much better and that's really the primary thing that we saw in Q4.

And So I wouldn't call it a market inflection. We want to see a few more quarters of that before we make a call on that. But at this point, I would describe it as we got better outcomes based on our team's execution and we expect, at some point, the market will get better, but that will be upside for us.

That's helpful. And maybe we could focus on gas detection a little. I mean what's going on in Industrial Scientific, I think you mentioned growing market share, your teams are doing really well. What kind of growth are you dialing in for '26 sort of in that kind of business?

Yes. So in terms of what's going on there, I think it's a great story. It's a great story of we've got a great market that delivers mission-critical safety solutions. We've got a great product that really leads the market in this hardware as a service offering, which is kind of the exciting and fast-growing piece of that business for us. And we've got a great team that's excited about what they're doing. And executing on innovation, better than they've ever done and we're investing in targeted markets. We mentioned the work they did in EMEA with investing in capacity, commercial capacity, our sales capacity there and that yielded results.

And they're also really just a new level of customer engagement in that business across the leadership team and they have the support of our entire leadership team as to do that. So that's really what's going on. And as we look at '26, we've -- we're counting on that continued execution and -- we baked that into the outlook we laid out here. So we expect it to be a really strong year for that business.

Our next question comes from the line of Chris Snyder with Morgan Stanley.

I wanted to ask about IOS organic growth in Q4. I mean, I think you guys mentioned that Fluke was the growth leader in that segment for the quarter. But I was wondering, if you could provide any more color or numbers just on the respective growth rates for Fluke versus the software businesses within IOS.

And then as we look into next year, I'm assuming the 2% to 3% organic growth guide underwrite something below 4% for IOS. So just kind of wondering, which of the categories is expected to decelerate from that Q4 number?

Yes. Thanks for the question. Overall, I'd say all the elements of IOS contributed to our performance in Q4. I'd say they all did frankly, better than we expected. So I wouldn't call it a Fluke only story in that sense. And then as we look into what we're expecting for 2026, and your question on is anyone decelerating to get us from Fortive what we've effectively included in a guide here.

Look, the way I'd describe it is we expect all the businesses to contribute to the growth story here. And we're really, really confident that our teams are set up to execute effectively the strategy we've laid out. So I wouldn't call anyone with the expectation to decelerate. What we reflected, frankly, in our guide here is we're early in the year, and we want to make sure that we set up a guide that gives us a chance to actually rely on our execution without counting on macros.

And if things improve macro, you saw some of the PMI data that came out if that plays out as a sustained expansion. That will be upside. If things get better and government spend, that will be upside for us, but we've tried to be prudent and opened eyed in our guide here, not expecting that we're lowering our aspiration for faster growth in any way.

I really appreciate that. And then obviously, there's been a good amount of conversation already around what could AI mean for the software businesses, there's market concerns and competition from that. I guess, is there anything metrics you could provide, whether it's around recontracting rates, new customer wins. I mean let's just give you confidence that these solutions are -- still have really strong traction in the market and are winning with customers.

Yes. No, thanks for that. And look, I realize the curiosity on this question is at an all-time high right now. The thing I would say on that is I described the substance of why we're winning and why we see this accelerate up. But I'll just say all of these businesses for us, continue to contribute a growth rate that's higher than our fleet. ARR growth is really strong. Gross dollar retention, which is the renewal rates remain really strong across all these businesses.

Our net dollar retention continues to get better, which means some of these AI enhancements we're adding on are actually driving expansion of what customers attain us. And the customer use rate of these products are actually getting better for us because of the innovation pace that our teams are driving.

So everything we see in substance and not every software business is the same have been around software now for decades. And you have to be deciding on what the actual business is. And for this enterprise system of record type of things that we do. It's really -- all the metrics are encouraging for us.

Thank you. And we have reached the end of the question-and-answer session. I would like to turn the floor back to Olumide Soroye for closing remarks.

Well, thank you very much for joining us. Thanks for your interest in Fortive. We are really excited about how the equity value creation story we're building is shaping up. First 2 two quarters as New Fortive. We've accelerated top line performance, reduced cost, repurchased 26 million shares. And we're pleased with how that set us up for 2026.

But importantly, our focus here is really on accelerating our execution on the strategy we've laid out here. Our teams are excited. Our customers are engaging, and we're just grateful for your interest and look forward to a terrific journey of value creation ahead of us. Thank you all.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation.

[Audio Gap] senior analyst at Baird that covers advanced industrial technology. Next up is Fortive. I've often said Fortive checks all the boxes of the types of companies we seek out in our coverage in terms of delivering productivity, quality, safety to its customers.

We try to seek all of those drivers, if possible. Very happy to have Olumide Soroye, Fortive's President and CEO, with us today. Olumide is going to start off by a few opening remarks, then we'll go to Q&A and can take your questions at that point. So if you do have any, again, remember to send those up on the iPad, we'll work those in the conversation. So Olumide?

Excellent. Thanks, Rob. It's great to be here, and thank you all for your interest in Fortive. Just to set the stage for our conversation, I thought I'll provide reminders on 3 key points.

The first is following our spin-off of Ralliant at the end of June, Fortive is now a simplified focused company with a terrific financial profile. And that's enabled by our leading operating brands in a number of attractive markets. The second key point is that we are poised for acceleration. We are in full execution mode with our Fortive Accelerated Strategy, which we were pleased in our first full quarter as Fortive in Q3 to show some tangible evidence of progress.

And then the last key message is that our value creation thesis is on track. The financial framework that we laid out at our Investor Day last June remains firmly intact.

Let me just provide a bit of color on those 3 points, and customary forward-looking statement and non-GAAP financial measure caution applies to this conversation.

So if you think about Fortive today and what it is, the financial framework really stands for a great revenue profile. So we're just over $4 billion in revenues, we've grown revenues on a core basis, about 4% in the last 5 years compound annual growth rate, with growth -- organic growth every single year since the pandemic, that's partly enabled by a 50% recurring revenues.

It also stands for a terrific profitability profile. Adjusted gross margins of 65%, adjusted EBITDA margins of almost 30%. It also stands for great free cash flow generation. We generate almost $1 billion of free cash flow a year, adjusted net income to free cash flow conversion of over 100% and a very strong balance sheet.

And that financial profile is enabled by the leading brands that we have in these attractive markets that benefit from a range of favorable circular trends from electrification to industrial reshoring, to the expansion in data center capacity that's installed and operating that will continue to grow, to aging demographics, to the shortage of providers in the health care space and the $1 trillion of deferred maintenance and infrastructure in the U.S. alone. So just a range of markets that will benefit from this trend for years to come.

I tell you, as we sit here as a new management team at Fortive, we feel like we're at the beginning of an exciting chapter in the history of the company, one that's defined by growth and exceptional shareholder value creation.

And the reason we believe that is our Fortive Accelerated Strategy. And let me just remind you of the 3 key pillars of that in the next slide. And I'm also going to provide a few examples from Q3 to make the progress we're making intangible.

The first pillar is faster profitable organic growth. Putting it simply, we believe we can grow this portfolio much faster than it's done before. And we're going to do that in 3 ways: accelerate innovation, more new products for customers; commercial acceleration, we're going in very surgical ways invest in sales capacity, both for high-growth markets, geographic wise and end market-wise; and recurring customer value, we've got 100,000 customers and we're going to do a lot more for those customers to deliver impact to them.

In Q3, which was our first quarter as new Fortive, we continue to see acceleration in our new product innovation, some success in North America and Southeast Asia on the commercial seeds that we're planting and great growth in our recurring revenues, which continues to outgrow the overall company. So great progress on that first pillar. Early days, a lot more to come, but we're incredibly excited about that.

The second key pillar in our Fortive Accelerated Strategy is a disciplined capture allocation approach. That's very new. And we've been very clear. We don't need M&A to deliver the value creation thesis that we have for the company in the next few years. And we've also been clear, we are not interested in large transformational M&A. Our priorities are very clear for capital allocation: We invest in organic growth ideas that are high quality, we will look at M&A that are small, bolt-ons and accretive and meet our criteria and are able to accelerate the go-forward organic growth rate of the company.

So that's a very tight filter for the bolt-on M&A that we do. They're smaller, they help growth going forward and they meet our strategic criteria. And we will continue to do share repurchases at scale where it provides a compelling return for shareholders and maintain a modest growing dividend. All of that is going to really be around this frame of the best relative returns and maximizing medium-term and long-term shareholder value creation. Q3 was a great manifestation of what we mean by this new approach.

In Q3 we did $1 billion of share repurchase. That's the biggest single quarter of share repurchase in the history of Fortive. And with that, by the way, in that process, kind of bought back 21 million shares, which is about 6% of our fully diluted outstanding shares. We did that because we had a high conviction that given the equity valuation of Fortive in the quarter, this was a remarkable return proposition for our medium- and long-term shareholders. Now where that condition exists, we will continue to take that approach.

And the third main pillar in our Fortive Accelerated Strategy is maintaining and building investor trust. And this is an important one for us. It means we want to set clear expectations and meet and deliver those expectations consistently. It means we want to be clear in our communication, simple, including with guidance and disclosures and make sure that we really translate the company with the excitement that we feel to our investors and prospective investors.

And we do what we say we'll do. Again, Q3 was a great example of that. I think our share repurchase program, hopefully, was a clear manifestation of what we've been talking about on the difference in our capital allocation strategy going forward. We also outperformed on all the expectations that we set, with 2% revenue growth in the quarter and also 10% adjusted EBITDA growth and 15% adjusted EPS growth.

So that was a good stat and a lot more to come ahead of us. We also raised our guidance for the rest of the year. So that was, for our first quarter, I felt really good in terms of doing what we said we would do. So that's the frame for new Fortive. You've got this great company with a great financial profile, great leading brands in key markets with favorable trends.

We have a clear strategy to go even faster than we've ever gone, and the value creation thesis we laid out is intact. Q3 is just the beginning, and we feel good about that stack and a lot more to come.

So with that, Rob, well, turning to you for questions.

Perfect. Yes, absolutely. Again, if you have any questions, send those up or just raise your hand, we'll work you into the conversation.

Olumide, maybe just to start, I mean, again, it's kind of like we're starting anew year post-spin with reframing the strategy, you're stepping into this role as CEO, you're not new to the company necessarily. But as you do step into the role and maybe investors taking a fresh look at a different-looking Fortive, what should they know about your background and the way your leadership style and how that meshes with the strategy that you've just laid out there?

Yes. Thanks. So I mean over the last 3 decades, I've had the privilege of being involved in a lot of terrific growth and shareholder value creation story in technology and industrial space. And my last 4 years at Fortive has been a terrific way to actually get to know this company and understand where the levers are to create a remarkable story ahead. And I think those set of experiences and the purpose-built team that we've put together is really what gives me excitement about the fit with our strategy.

And just to give you a few examples of how those -- that intersection works. We talk about accelerating profitable organic growth. My orientation in general is just deeply customer-centric. So a lot of how I spend my time as CEO is time with our teams, engaging with customers directly because that's where you find growth ideas.

And we're driving that mindset across Fortive now over the last 120 days, we have a business leaders spending more time with customers than they ever have before. And so I really do believe that when we talk about innovation acceleration, commercial acceleration and recurring customer value, the underlying driver of that is you have to have really deep insights about customers. And that's just fundamental to how I view business, I've had a lot of success with that approach and that customer intimacy. So that's something you should expect and connects really well.

With respect to disciplined capital allocation, I'm really -- I'm a real fanatic about being judicious with every dollar of free cash flow and getting the best returns for it and deploying it in a way that generates the best return with the lowest risk. And so you will see that translate into how we approach capital allocation. We're not going to do anything dramatic, we're going to do simple things and do them really well.

And if that share repurchases, we're going to do them big and bold and really well. And I couldn't be more excited to have, as part of our team, Mark Okerstrom, as my CFO partner for this, who shares the same mindset around capital allocation. So you're going to see that intersection of my experience and what we're doing.

And building trust is with every one of our stakeholders, customers or investors or competitors or our employees and teams, trust is the currency that I believe is fundamental to success. And so you're going to see that intersection as well, we'll be simple, we'll be clear about what we're going to do and we're going to do what we say.

Yes. I appreciate that. You mentioned, again, first quarter out of the gate, nice results, better -- a little bit better than expected. Maybe talk about what drove some of that upside, why you were able to carry that through into the outlook for the year? There's also some, as you noted, just right at the spin-out, few challenges midyear with all the tariff dynamics and government policy changes and how you're managing through those challenges as well?

Yes. I mean we were quite pleased with our first quarter and the ability to, despite the dynamic macro environment, have both of our segments perform better from a core growth point of view, have the kind of margin expansion that we delivered and 15% adjusted EPS growth and also the fact that the $1 billion of share repurchase.

So we felt really good about that. We also are pleased but not satisfied because in many ways, we really do believe that each of this segments have a lot more growth acceleration runway ahead of them. And we look at the macro and it's interesting, but we're really focused on the things we're doing on innovation, commercial and recurring customer value to unlock that growth acceleration.

The macro factors that we talked about mostly in Q2 are all receding like we expected. The tariff environment is getting settled. It's less about the tariff, it's more the certainty that we really find conducive for normal demand conditions. So that's settling. The health care space is settling now that the OBBBA Act is passed, that legislative certainty is helping the market sort of move on with it.

And federal spending and still local spending it's kind of set at what it is. We're not counting on it getting better. So we really feel excited about the first quarter, but we are not satisfied because we know there's a lot more from this business is to be had.

Yes. If we look at your largest business, that being the Fluke business inside of IOS, I mean certainly, a history as a great business, really strong brands, culture of innovation as well around products there. As you, again, take the new strategy and apply it to the Fluke business, what were some of the key areas that are going to receive some of this investment around accelerating organic growth? What are some pockets there that you've identified that you think you can raise the growth rate?

Yes. No, and Fluke is a great way to test out the strategy for sure. And it's -- Fluke is just an incredible business, a great brand like you said, just a very profitable business. It's just really customer loyalty -- when I talk about customer centricity, there's no better example of that than our Fluke business. And the way we're going to drive faster growth at Fluke is those same 3 things.

So product innovation wise, we've been dramatically increasing the funnel of new products at Fluke over the last 4 years that I've been part of the company, and we've picked that up even more. So you're going to see the Fluke team unleash a set of innovation that transcends a really impressive history of 76 years of being a leading innovator and the best is still ahead of us.

And the set of new products that the Fluke team is working on are things aimed at operating and maintaining data centers, managing the EV charging station infrastructure that's out there, managing solar installations that are out there, aiming at really attractive geographic markets. North America is a really strong one right now, so is India and some markets in Southeast Asia.

So you're going to see the Fluke team innovating in a very surgical way to get after some of these high-growth teams. And we have that fun of working. And then you're going to see the Fluke team from a commercial point of view really expand our capacity in some of these high-growth markets. So I'll use data center as an example again.

That's an area where a lot of focus right now on the build-out, but the fact is, once the build-out is done, you got to maintain and operate this data centers for decades ahead and that's where the Fluke team really kicks into high gear with the instruments that we provide. So you could really expand our sales team that's focused on that.

You could expand our sales team that's focused on these attractive geos. So we're doing those surgical sales capacity expansion to help Fluke capture more of this incredible opportunity, and that will show up in volume growth for that business. We've done really well from a pricing point of view. And recurring customer value, Fluke is now 15% recurring revenues.

We continue to see that piece of Fluke, which is service plans on the high-priced professional instruments, these software components that we bolted on to some of our instruments as well. We're going to continue to invest in those and drive faster growth there. So those 3 vectors provide just a really exciting outlook for that business for years to come.

Yes. Just on the data center effort itself. Is that required new product innovation or is that more a commercial exercise? I'll blend the question a little bit. You look forward, there's maybe high voltage starts to enter the equation on the data center side. Does that change the insertion points for Fluke, if that's the case?

Yes. I mean that's an exciting one for us because -- and I'll just expand your question a little bit. So the passion around data centers is obviously at a peak right now. And I think a lot of times, we focus the conversation on the build-out phase, the CapEx phase because it's just so much money going into it.

And for us at Fluke, we participate in that because for each of these hyperscale data centers, you have thousands of technicians that are involved sometimes for multiple years to actually build it out. And a lot of them in the installation and certification toolkit, there's a lot of Fluke tools in there.

So we're seeing some demand from that. You can't always trace what's exclusively data center, but we can see the demand from that. The more exciting thing for us is once the data centers are built and this incredible capacity out there, you actually have to drive uptime and performance from data centers, and the set of tools that Fluke offers fit really well with that.

To your point, it starts from things like just power quality analysis and monitoring to high-voltage diagnostics, to high-density fiber testing, to electric ground fall detection, to power calibration, and it goes on and on. But there's this unique set of instruments needed to actually run and maintain a data center that fit really well.

And we're working with some of the hyperscalers already to say, can we just help you define your standard tool set for operations and maintenance for your data centers? And I'll give you an example from one that we worked with recently. They came up with a list of instruments for running their data centers, and this is one of the biggest ones in the world.

And 1/3 of the instruments on the list are referenced as Fluke tools. So that means Fluke tools that is standard for that. And so for us, the data center tailwind is not just this onetime surge, it's the next 10 years of really getting value from these incredible investments that have been made.

Yes. Excellent. Your the software business is the FAL businesses within the IOS portfolio, I mean those were inserted into the portfolio over several years via acquisition to bolster that recurring value that you talk about. And I know that you've spent a lot of time being intimate with those businesses. Where do you think they are on their maturity curve in terms of being able to deliver to the objective? I know they have some macro events just -- but on a go-forward basis, where do you think those are today kind of 3 businesses in there on that curve in that journey?

Yes. So I mean if you think about what the facilities and asset life cycle businesses have done for us, they've continued to grow faster than our fleet average. So we've been pleased this -- even this year with all the dynamic macros, it continues to grow above our fleet average. So we like that performance. But to your point, I think we're still very much in the early innings of the full potential of that platform.

And it's the same drivers that I talked about for Fluke. So I'll give you an example in that business is one of our really just impressive data reach, network-enhanced software businesses in service channel that really takes this idea of you have 100,000 service providers and facility owners that are meeting on our platform to match the right job to the right service provider.

So this is not just a workflow software, it's actually -- it's a marketplace as well, and it's enriched with data. And so we're doing things like deploying AI use cases on top of that data to help customers make decisions that get work orders coming in to benefit from the intelligence of the last 10 years of work orders and what they've experienced. So that's just one example, but there's a whole range of innovation that we will deploy on that facilities as a life cycle platform to drive even faster growth than we've seen.

The same thing on the commercial side. It is a business that it's really very much U.S.-centric right now. Some of those assets transfer beyond the U.S. And so from a commercial expansion point of view, we have a chance to build capacity in some markets outside of the U.S. and drive growth.

And from the recurring customer value point of view, that's classic net dollar retention drive in the software businesses. We like where we are right now, but we still have a lot of room to go across the board in your NDR waterfall. So it's a great business, it's doing well, but we're still in the early innings of it.

Yes. As you think about taking some of these capabilities to other countries, which regions would be higher priorities for that?

Yes. It varies quite a bit depending on which asset. I think the places we typically look at first for the software assets are targeted markets in Western Europe, sometimes Australia and New Zealand, Canada is an obvious one. And what do you know well is when you're trying to do that, you have to be really surgical because you really want to build scale in one market instead of fan out too much. So that's how we've been. We've been really selective in picking a few markets at a time and really getting that right.

Yes. Shifting over just to the health care side of the portfolio, AHS, ASP being the larger business within that. Just kind of update us on where you think demand is right now, some puts and takes in there around -- some around the equipment decision-making, you think that started to playing out a little bit? But just what are you seeing inside of that business, both domestically as well as on the international side because that does have an international footprint already.

Yes. No, absolutely. And the way I will kind of framed that is keeping in mind that this time last year, that business was growing high single digits. This year, it feels unusual in that sense, it's been much tighter. And June was sort of the epicenter of that tightness, where especially in the U.S., some of the uncertainty around the OBBBA Act and reimbursement and in shifting policies around health care, really caused these big hospitals to slow down their capital equipment purchase.

And since June, especially the last several weeks of June, when they were waiting for OBBBA to get signed on July 4, since then, it's just kept getting better. We have a funnel of those capital equipment. And every month, we're seeing more of those. The orders get placed and it's getting shipped, and we continue to see that improvement play out.

So we feel good about the trend line on that. Hospitals are under a lot of pressure financially from a range of sources. And we're working closely with them. We actually like the seeds we're planting to be strategic partners with them for the long term. So it's getting better, will keep getting better. The federal government sort of shutdown and the hospitals that are driven by the federal government, that's another factor that the hospitals are dealing with.

But all of those will fade. The underlying drivers of success there is aging demographics, almost over 20% of the U.S. going to be over 65 in 5 years from now. Think about that. A lot of the over 65 have multiple chronic conditions, they need medical intervention. And you have the middle class expanding, you have a shortage in provider workforce in health care.

And those are the things that we solve. So the underlying tailwinds are there, they're going to [indiscernible] quarter-to-quarter, there may be ups and down, but we like what we're doing with customers, we like what we're doing with innovation from a commercial point of view, and we like the business. And again, it was high single-digit grower this time last year. So we know what it can do.

Yes. Any update on some of the new product -- newer products, some were introduced last year in terms of how they're gaining traction as well as you kind of expanded the catalog, I guess, inside of the ASP business, in particular?

Yes. No, they're doing really well. I mean we talked a lot last year about all those things we launched, and they've continued to gain really good traction. So we like that. And more importantly, just like I talked about for Fluke, the funnel of new things coming soon that, that team has is the biggest funnel they've ever had. So as I look ahead, that's really what I'm looking at to build confidence for the future.

Very good. Just step back and speak about the margin objectives of new Fortive, if we'll call it that, and kind of steps that you're taking to make sure that you can protect the investments that you want to make and accelerate the strategy and also deliver the kind of margin and leverage opportunity that investors are somewhat accustomed to with the Fortive portfolio?

Yes. So I mean the financial framework we laid out at our Investor Day had over '26-'27 50 to 100 basis points of adjusted EBITDA margin expansion every year. Complete confidence that we will deliver that. As you saw in Q3, we way outperformed that in the quarter. And the reason for that is we've got operating leverage built into the business. When you have a business that's 65% adjusted gross margin, so that's a good place to start. And what we've been able to do as we grow, especially on the recurring revenue side, is we're growing with our higher-margin revenue streams.

So that just provides a tailwind. At the same time, we have this deeply rooted cost discipline, that's just part of who we are, and we will continue to drive that. You saw some of that in Q3. We streamlined the organization, taking a hard look at corporate cost structure and getting that tighter.

So we'll continue to free up space. And the way we look at it is we have more than enough space in our $1.5 billion of operating expenditure to create the space we need to invest and still deliver very, very attractive margin expansion. So we feel quite good about that. We will continue to examine that. As we mentioned, in Q3, the margin expansion in the quarter for Q3 was outsized, and we may put some of that in growth, that's why we're not banking it all in, looking out into Q4.

So we'll make those choices. But in the grand scheme, we feel completely confident that we can invest what we need for growth and still solidly deliver that framework that we laid out.

Yes. Anything that you would want to call out at this point in terms of where you are going to direct some growth investments that we would want to be aware of? You made mention, I think, maybe of India. And obviously, just -- there seems like there's a number of areas on the commercial side that you can pull some levers in and start to expand, but anything that we should be watching in particular?

Yes. And I mean, first of all, I'd say it's all within our envelope. So there's nothing we're trying to do that's a dramatic level of investments that will get outside the envelope that we've laid out. And it's those areas I've talked about. It's -- there's some targeted new product development that we want to go faster; eg, data center operations and maintenance is going to be big, and we're working with these big hyperscalers. They may have things that we've got to go build faster. So you see us do some of that.

The surgical investment in capacity in a few markets, India, we mentioned, we're doing that already. That the India market for us in both segments grew double digits in Q3. So we have momentum there, and we're going to continue to kind of build on that momentum. And it's sales teams, it's local product teams that can really help us win more there. So it's really seeds like that. It's nothing dramatic.

Yes. I think you've been pretty clear on the capital allocation side, where M&A fits within the range of opportunities for free cash flow redeployment. How should we look at how you've retooled that organization to suit that newer strategy, refined strategy around M&A? And what maybe the current pipelines look like? Were they already well populated, do they need to get repopulated? Kind of recast through different filters, I'm not sure, but maybe just comment on where you think that status is right now?

Yes. No, I think the headline is we've done what we said we'd do, which is we're not trying to do the big M&A anymore. So we've changed the process. We've changed that funnel. A lot of things we use to have in our funnel, we've flushed it out. The funnel is now much smaller and much leaner. It's smaller deals that meet our criteria that help us grow faster going forward.

We're not going to be doing a lot of deals because we don't need to do deals for our value-creation algorithm. And so we've scaled that team accordingly, we've changed our processes accordingly. I'm delighted to have Mark Okerstrom as a partner on this. He's been really crucial to help with that new pair of eyes to really reshape and rethink things based on what we're trying to do, which is different than what we did before.

Yes. Very good. We're getting flashed here. We're at time, so we'll break. There is a breakout session in Salon A out to your left afterward, if you have any follow-up questions for the team. Thank you.

Great. Thanks, Rob.

Thanks, Olumide.

My name is Brock, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference.

Thank you, and thank you, everyone, for joining us on today's call. I'm joined today by Olumide Soroye, Fortive's President and CEO; and Mark Okerstrom, Fortive's CFO.

As a reminder, we successfully completed the separation of our Precision Technology segment, now operating independently as Ralliant on June 28, 2025. Today's call marks Fortive's first quarterly results under our new structure.

During today's call, we present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortive.com.

We will also 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 risk factors is available in our SEC filings, including our annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q. 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.

Our statements on period-to-period increases or decreases refer to year-over-year comparisons unless otherwise specified. Our results and outlook discussed today are on a continuing operations basis, unless otherwise specified.

With that, I'll turn the call over to Olumide.

Thank you, Christina. Let me begin on Slide 3 with a few key messages. Q3 was our first quarter as new Fortive following our successful spin-off of Ralliant. We are now a simpler, more focused company with a clear strategy, poised to create meaningful shareholder value. Our Q3 results offer a waypoint along our path towards creating exceptional returns for shareholders in the years ahead.

Four highlights I would like to call out. First, our teams are executing very well with laser focus on driving profitable organic growth with the power of our Fortive Business System. This drove solid results ahead of our expectations, including core growth of roughly 2%, adjusted EBITDA growth of 10% and adjusted EPS growth of 15%. Though we aspire for much better, as we continue executing our growth strategy, we're pleased to see acceleration in the business.

Second, we are raising our full-year adjusted EPS guidance. We now expect to deliver between $2.63 and $2.67 per share, reflecting our adjusted EPS overperformance in the third quarter, the impact of incremental Q3 buybacks and our, otherwise, unchanged view on Q4.

Third, we deployed capital in the quarter in accordance with our new approach, anchored in delivering the strongest relative returns for shareholders. During the third quarter, we deployed $1 billion to share repurchases, retiring approximately 21 million shares or 6% of our fully diluted share count. Finally, the financial framework we outlined at our June Investor Day remains fully intact. And our Fortive Accelerated strategy is now in execution mode.

We are focused on delivering benchmark beating shareholder returns by leveraging FBS to accelerate profitable organic growth allocating capital intelligently to optimize shareholder returns over the medium to long term and rebuilding investor trust. It is early days, but we couldn't be more excited for the road ahead.

Before we dive into our Q3 results, let me highlight some examples of the progress we are making in executing our Fortive Accelerated strategy on Slide 4. Our strategy to drive faster organic growth is built around 3 core levers, Innovation Acceleration, Commercial Acceleration and Recurring Customer Value, all powered by our amplified Fortive Business System and enhanced by our disciplined capital allocation approach. We made meaningful progress in advancing our strategy in Q3.

Starting with Innovation Acceleration. Our new product introduction velocity continues to accelerate as a result of our renewed focus on customer-centric innovation. During the quarter, we had several notable product launches, including ServiceChannel's SaaS R2 release, which introduces AI-powered work order insights and streamlined payment solutions.

Additionally, Fluke continued its innovation momentum with the GFL 1500 Solar Ground Fault Locator. This marks a further foray into the high-growth solar operations vertical and increases customer productivity by reducing troubleshooting time and decrease in hazard exposures. In the quarter, we also launched a new innovation studio in Nashville, Tennessee, and opened a new customer experience center at ASP's headquarters in Irvine, California. Both products built to foster collaboration, accelerate innovation and deepen customer relationships.

Turning to Commercial Acceleration. We further intensified our commercial focus on faster-growing end markets and regions. And though it is early, we are starting to see green shoots in several areas. In our IOS segment, for example, we have begun to put in place a series of commercial initiatives in North America to enhance our focus and deploy more resources towards high-growth verticals like solar operations, distributed energy, data centers and defense. We are seeing the early signs of impact in North America Q3 performance.

We also recently stepped up our efforts in South Asia, including India, as that region continues to see exceptional economic growth. We saw significant acceleration in the region across both segments, and we are confident that our enhanced regional presence will drive strong momentum in this high-growth region in the years to come.

Moving on to Recurring Customer Value. We remain focused on increasing recurring revenues. Here again, we are early in our journey and have meaningful runway ahead of us. In the quarter, Fluke continued to make great progress on increasing its percentage of recurring revenue, through enhancements to our maintenance software and further expansion of our service plan offerings. And in general, we saw recurring revenue growth continue to outpace our consolidated growth.

Finally, disciplined capital allocation is an integral component of our Fortive Accelerated strategy. Our capital deployment priorities for new Fortive are clear, invest in organic growth, pursue accretive bolt-on M&A, return capital through share repurchases and maintain a modest growing dividend, all with a focus on best relative returns and maximizing medium- to long-term shareholder value. Consistent with these priorities, we repurchased about 21 million shares in the third quarter, reflecting our belief in the attractive relative return of share buybacks at the valuations we saw in the quarter. We have also revamped our M&A funnel and process to reflect our different M&A strategy going forward, focused on accretive, smaller bolt-on M&A, which meet our stringent strategic and financial criteria.

With that, I'll turn it over to Mark to walk through our financial results for the third quarter.

Thanks, Olumide. I'll begin with Slide 5. In the third quarter, we delivered total revenue of just over $1 billion, up roughly 2% year-over-year on both a reported and a core basis. While market conditions remain dynamic, we were encouraged to see growth at both IOS and AHS and modest outperformance versus our expectations in both segments. In IOS, resilient customer demand drove better-than-expected results at both Fluke and our Facility and Asset Lifecycle software businesses. In AHS, healthcare customers continue to exhibit caution as they navigate recent changes to healthcare reimbursement and funding policy. However, we saw sequential improvement in demand for healthcare equipment and consumables and continued strength in healthcare software.

From a geographic perspective, North America showed solid growth, improving sequentially from Q2, driven by strengthening demand trends for professional instrumentation and healthcare equipment. Europe was down year-over-year and worsened modestly from Q2, driven by weakening macro conditions in the region. Rest of the world was mixed.

Adjusted gross margin in the quarter was down about 60 basis points, driven by tariff-related costs, partially offset by pricing actions and supply chain countermeasures. Adjusted EBITDA was $309 million, up 10% year-over-year, with growth accelerating from Q2 levels. Adjusted EBITDA margin expanded approximately 200 basis points to 30%. This strong operational performance was driven by operating leverage alongside deliberate organizational streamlining and an overall sharpened focus on corporate cost discipline.

We delivered adjusted EPS of $0.68, up 15% year-over-year, a meaningful acceleration from Q2, driven by growth in adjusted EBITDA, favorable interest expense on lower debt balances and the positive year-over-year impact of share repurchases. We estimate direct tariff costs, net of countermeasures, created a roughly $0.01 headwind to adjusted EPS in the quarter. We generated $266 million of free cash flow in the third quarter, and our Q3 trailing 12-month free cash flow grew to $922 million. Our Q3 trailing 12-month free cash flow conversion on adjusted net income remains comfortably north of 100%.

Moving to our segment results, starting with Intelligent Operating Solutions on Slide 6. Revenue for the segment grew just over 2.5% on a reported basis with core revenue growth of 2%, slightly ahead of our expectations. Growth was driven by demand for Facility and Asset Lifecycle software, resilient demand for professional instrumentation despite tariff volatility and strong growth in gas detection products.

At Fluke, we saw an improvement in customer purchasing patterns drive modest growth with particular strength in North America, partially offset by continued softness in Europe related to macro conditions. While the acceleration is encouraging, ongoing volatility in global trade policy remains a source of uncertainty. Our Facility and Asset Lifecycle software businesses performed modestly ahead of expectations, supported by strong demand for multisite facility maintenance and marketplace software in North America. However, tighter fiscal policy and constrained funding continued to pressure government demand for our procurement and estimating solutions.

Our Gas Detection business is growing nicely with strong demand for our hardware as a service model to ensure worker safety with particular strength in North America and Latin America. Adjusted gross margin in the segment declined by just over 90 basis points year-over-year to 65.7%, primarily due to tariff cost pressures, partially offset by pricing and supply chain countermeasures. Adjusted EBITDA grew 7% to $242 million, accelerating from the more modest growth we saw in Q2, driven by operating leverage and reduced costs associated with flattening and rationalizing segment level organizational structures. Adjusted EBITDA margin grew to 34.6%, up from 33.3% in the prior year period.

Moving to our Advanced Healthcare Solutions segment on Slide 7. We delivered total revenue of $328 million. Revenue grew approximately 2% year-over-year, just over 1% on a core basis. As we noted last quarter, we continue to see reimbursement and funding policy changes impact the AHS segment, specifically the deferral of U.S.-based hospital capital expenditures on healthcare equipment. However, demand trends in North America improved from Q2 levels, driving sequential improvement in capital performance as some customers executed on deferred orders for sterilization and biomedical test equipment. Consumables demand also improved sequentially across most regions.

Encouragingly, our software products in the segment continued to deliver solid growth, fueled by strong execution and structural advantages from resilient SaaS-based revenue models. Our adjusted gross margin of 58.4% in the AHS segment was similar to last year. Adjusted EBITDA grew approximately 7% year-over-year. Adjusted EBITDA margin expanded from roughly 27% to 28%, driven by operating leverage, flattened organizational structures, partially offset by modest incremental R&D investments.

Turning to Slide 8. As noted earlier, we deployed just over $1 billion of capital to share repurchases in the third quarter, reflecting confidence in our ability to deliver on the core value creation plan, represented by our Fortive Accelerated strategy and the attractive valuations we saw in the quarter. We funded these repurchases with a combination of the remaining proceeds from the Ralliant spin-off dividend, cash on hand and increased commercial paper issuance in anticipation of continued strong free cash flow generation in the quarters ahead. As previously highlighted, our free cash flow on a trailing 12-month basis was $922 million.

Moving to Slide 9. We are raising our full year adjusted EPS guidance to $2.63 to $2.67 per share. Our guidance reflects Q3 results ahead of our expectations, the impact of incremental buybacks in Q3 and otherwise no change to the view we held on Q4 as at our last earnings call. This outlook also assumes a continuation of the market dynamics we experienced as we exited Q3. It also reflects current or known future tariff rates expected to go into effect through the end of the year with tariffs net of countermeasures not expected to be material in the quarter.

Let me provide a few additional modeling considerations. Based on what we see today, we are expecting overall core growth to moderate in Q4 with AHS core growth broadly in line with Q3 levels and very modest core growth at IOS. We continue to expect a full year adjusted effective tax rate in the mid-teens and a Q4 tax rate in the single digits due to discrete tax items in the quarter. We also expect a sequential increase in net interest expense in Q4, reflecting our cash and debt levels at quarter end.

As a final note before turning it back to Olumide for closing remarks and Q&A, in our first quarter post spin-off, we took important first steps to demonstrate our steadfast commitment to unrelenting execution on the Fortive Accelerated 3-pillar value-creation plan that we outlined at our June Investor Day. We have much work left to do, but change is underway, and we are energized by the exciting work ahead of us.

I'll now turn it back over to Olumide.

Thanks, Mark. I'll close out our prepared remarks with a few reflections from my first quarter as CEO and offer a bit more color on the changes we have catalyzed at Fortive in the past 100 days. First, our thesis behind the creation of new Fortive as a simpler, more focused company is showing promising early outcomes. We have seen the benefits of simplification in our day-to-day operations, enabling us to be notably more customer-centric.

With fewer operating brands, we've been able to simplify our organizational model and processes. That is freeing up more time across our team to focus on the source of growth, our customers. Personally, I have really enjoyed spending significantly more time with our customers across both segments, as we deepen relationships and uncover additional opportunities to accelerate growth.

We have also flattened out our executive leadership team to ensure that business leaders in closest proximity to our customers have a stronger voice at the top of our company. With 100,000 customers across our portfolio, I am energized by the impact our enhanced customer-centric approach will have on our growth trajectory.

Second, we are taking deliberate steps to accelerate growth. We have given our 10 operating brands more growth oxygen and encouraging them to freely and frequently surface the next best organic growth opportunity that may have been underexploited in the past. We have transformed our strategic planning process into a more aggressive growth-focused engine, and we are emerging from our recent strategic planning cycle with a robust pipeline of investable growth opportunities. And we are regearing our annual financial planning, forecasting and governance processes to enable in-year reinvestment into growth as overperformance materializes.

Third, our Fortive Business System is powerful, not just for leadership and lean, but as a systematic growth engine. We are making great progress in evolving the mindset, cadence and tools of FBS to better support growth, not just by integrating our AI center of excellence directly into our FBS team, but also by evolving and enhancing existing tool sets and best practices around innovation, commercial acceleration and creating recurring customer value.

Finally, our new approach to capital allocation is very different from what it was in the past. Our dynamic and disciplined capital allocation approach has one singular purpose, maximizing medium- to long-term shareholder returns. And we have demonstrated our commitment to this approach in our first quarter as new Fortive.

We are pleased with our results this quarter, but we are not satisfied. We are driving hard towards our ambitious agenda and look forward to demonstrating continued and accelerated progress in the quarters and years ahead.

Thank you for your continued interest in Fortive. I especially want to thank our shareholders, our 100,000 customers and all our Fortive employees around the world who do a tremendous job every day to deliver strong results and build enduring advantages in our businesses.

With that, I'll turn it to Christina for Q&A.

Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions.

[Operator Instructions] Our first question today comes from Nigel Coe of Wolfe Research.

Obviously, the margin performance was, to my mind, the real highlight. And it seems -- when I look at your sort of implied 4Q guide, it looks like you're not assuming much of a sequential pickup in EBITDA margins. I mean, we're back into something in the range of about 31% EBITDA margin for the fourth quarter. So just as curious, is there any sort of -- was it sort of start aligning kind of quarter on margin, and you're not assuming that repeats? Any kind of details there, especially around some of the tariff offsets you expect in 4Q.

Nigel, so if you think about the overperformance we delivered in Q3, a part of it was revenue outperformance. But as you called out, a big chunk of it was cost discipline. And you can see that show up in the numbers, both in unallocated corporate costs and also in the segments. Most of that was actually discrete actions that we took in the quarter really to start to free up resources for us ahead of annual planning so that we could deploy against some of the initiatives that we're starting to see as part of the Fortive Accelerated strategy to accelerate growth into 2026. So we do expect to redeploy some of the resources we freed up in the fourth quarter. There were a few little one-timers, incentive compensation, some increased capitalization of software development that happened in the quarter. We're going to maintain our cost discipline through the fourth quarter to be sure, but we are going to reinvest some of it as we look forward here.

Okay. That's good color. And then my follow-on is really around the government shutdown. I think we hit the fourth week today. You called out some government funding pressure within Gordian. Just curious how you're -- how that's impacting performance in October.

Yes. Thanks, Nigel. So the government business for us is mostly state and local government agencies. So in that sense, the federal government shutdown is not a big factor. Our direct exposure to federal government is relatively small, just a little bit in our FAL business and Fluke and AHS. So it really just hasn't been a major factor for us right now. It's difficult to predict the duration of the shutdown and second level impacts of a prolonged shutdown, but we feel good about the guidance based on what we know today. And again, given it's not a big, direct exposure to the federal government, for us, we feel good about what we've laid out.

The next question is from Deane Dray of RBC Capital Markets.

I was hoping just to circle up on capital allocation that was a sizable buyback in the quarter. Just kind of give us your thinking about the decision-making on doing buybacks. Is there an intrinsic value calculation you're doing internally? And then just the setup for M&A because you had been through this moratorium on deal-making leading up to the spin, where does that stand in priorities?

Yes. Thanks for the question, Deane. So we were quite pleased to be able to deploy $1 billion towards share repurchase in Q3. And that reflected just a strong free cash flow, the Ralliant dividend proceeds and just the attractive valuation we saw for our shares in the quarter. And like we've mentioned with respect to Fortive going forward, share repurchases will be a big part of our capital allocation option set, so anytime we see conditions like that, we'll continue to do that. .

To the extent that M&A is still part of our formula, we've been quite clear that we are not looking at transformational M&A. We're looking at smaller bolt-on acquisitions that can accelerate the go-forward growth of our existing businesses. So it's a very different playbook on M&A. We are going to be more balanced across share repurchase and this bolt-on M&A acquisitions that we do.

Like we mentioned at our Investor Day, the formula we laid out for shareholder value creation in the next 3 years does not require us to do M&A. So from our point of view, we're going to take the path that offers the lowest risk to create value, and that for us does not include big M&A. So we continue to cultivate our funnel of proprietary bolt-on assets that are smaller and can help our existing businesses. But that's how we think about it. We do the analysis to your point of what gives us the best relative returns between share repurchase and the M&A options that we have, and in the third quarter specifically, the case was very clear just given where the stock price was to deploy that heavy $1 billion to repurchases.

That's really helpful. And just as a second question, I was hoping to get some color on Fluke in the quarter. It's such a good indicator of short-cycle demand. So anything about the sell-in versus sell-through channel inventory would be helpful.

Yes. Thanks, Deane. So we were quite pleased with Fluke in the quarter and having a return to growth in the quarter. All the fundamental metrics that set up the future looked really strong. We had order growth. POS continues to be really strong, especially in North America and stable in the rest of the world. Book-to-bill for the year continues to track north of 1. Channel inventory outside of North America, we've said all year being elevated, but that's been improving over the course of the year. So we're in a much better place than we were at the beginning of the year.

And then, on top of that, our team continues to accelerate product innovation. I talked about a couple of those in the prepared remarks. And also commercial execution. There are some markets, both verticals like data center and defense, that are doing really well right now, and also, geos, like India, that are doing very well. Our team continues to put a lot more horsepower behind those markets.

And then, we're driving more recurring revenues at Fluke with our maintenance software enhancements and additions to our service plans. So both by reason of how we did in Q3 at Fluke, the underlying metrics of the health of the business and then the actions the team is doing to really continue to accelerate growth, we feel quite good about the setup for the next 3 years at Fluke.

The next question is from Scott Davis of Melius Research.

Congrats on the first full quarter. It was pretty clean. I guess, one of your competitors has been getting a lot of attention in the radiation test business that -- and I haven't heard you all talk about Landauer in a while. Can you get us up to speed on the outlook there and what you're seeing?

Yes. Thank you, Scott. So you're right, there's a lot of excitement in the Landauer business for us. As you know, it's one of the highly recurring parts of our AHS segment. So we like that attribute of the business. And we've said the recurring part of the company, Fortive overall, has been growing faster than our fleet average, and Landauer is a great example of that. So it's continued to grow really strongly. And that comes from the fact that our customers really rely on us for this mission-critical radiation monitoring. That's very -- it's a very stable need for customers. They're looking for really the #1 brand that they can trust, and that helps joint commission reviews and other regulatory requirements they have to meet be much easier to meet. So we see a lot of strength in that business.

The thing that I find exciting for us is the work that our team is doing on innovation, and that includes finding add-on services that we can tag on to our existing customer base. We have tens of thousands of customers in that business. And so the idea of thinking about that business like the software business that you can add on to existing customers besides price and expansion to other customers...

I am sorry. You are breaking up. I can't hear you. Are you there, folks?

Yes. Can you hear us?

It's breaking up. It could be our phone, it could be you guys, I don't know. I'll pass it on because I don't want to be disruptive to the call.

Brock, are you hearing us okay?

Yes, you're coming through loud and clear, and we'll move on to the next question. I'll pass it to Julian Mitchell of Barclays.

Maybe just wanted to follow up on the demand trends in AHS. Maybe help us understand sort of what's happening in terms of the equipment demand versus consumables? And you mentioned the policy and funding change headwinds, kind of how have you seen those play out affecting customer demand in the past kind of couple of quarters? Just trying to understand if that headwind is getting worse or it's holding steady. And what does it mean as we're going into next year, please?

Yes. Thanks, Julian, for the question. So the AHS segment overall, just maybe to break it down, the software part of the business, really strong, continues to do really well. So we're quite pleased and excited about that acceleration in that part of the business. With respect to capital equipment in the AHS segment, we talked last quarter about, to your point, the reimbursement and funding policy changes and how that's causing some of these U.S. hospitals to defer capital equipment purchase. What we've seen since then has been encouraging, which is sequential improvement in demand for healthcare capital in North America based on just more certainty around the legislative conditions that they're operating under.

They're still working through the full kind of long-term effects of the OB3 Act, but we certainly see improvement in the demand patterns, significantly in September especially because we have a funnel of deals, and we know what things were deferred. And we began to see more and more of those get funded in September, and we expect that trend to continue through the rest of the year. So the sequential improvement in that capital equipment purchase, we quite like.

And we see the same sequential improvement in consumables as well. And our biggest markets continue to grow in consumables. So overall, I'd say software doing well; the capital equipment piece, we're seeing sequential improvement, and that's quickening in September and into October as well; and then the consumables continues to be solid.

That's great. And maybe one for Mark, just very much a CFO-type question, so apologies for that, that the tax rate outlook, I think this year's sort of overall adjusted P&L tax rate is maybe 14%, something like that. I just wondered, is that sort of a normal run rate in future kind of best view on the next sort of year or 2, any perspectives on that you could provide?

Happy to, always happy to answer your CFO questions. I think it's a good framework to think about right now mid-teens. The pillar 2 proposals that are out there, there is some risk that to the extent that the U.S. is not excluded from that, which is the current thinking, although it's not written into law that we could see something drift higher. But right now, from what we see, I think mid-teens is a good way to model the tax rate through 2026 at least.

The next question is from Steve Tusa of JPMorgan.

Congrats on a solid quarter, good execution. The software business, the FAL business, what are you guys seeing in the other businesses? I mean, I think you mentioned some of the construction, I guess, related to drags. But are you seeing -- how are your customers kind of treating your part of the budgets there from a kind of an IT spending perspective? What are you guys seeing there?

Yes. Thanks, Steve. So FAL, overall, we like -- we continue to see growth in that platform, so we quite like that. And the components of that, the ServiceChannel brand, really great pull through. We talked about some of the AI-powered work order insights we're adding to that platform, which is an expansion for our existing customers. They love that. I think for customers, they view FAL software as a good way to scale the impact of AI because we have real networks built around this businesses. So IT spending around that to the extent that we're helping them capture the value of AI is really, really strong right now. So we quite like that.

And then the Gordian software part, which is really around planning -- facility planning software, also continues to do really well. We talked last quarter about the new products we launched, assessment and capital planning. The order growth in that business has been terrific, separate from the procurement part of Gordian. That's been a terrific story for us from a software point of view.

And then, Accruent continues the act of improvement that we've talked about over several quarters now. So overall, I think just given the nature of what our software does for customer, and the fact that in the grand scheme, it's a small spend with very high return on investment, that helps them on AI monetization and getting real value out of AI use cases. It's been a strong part of our story. And that's why we said the recurring revenue part of the company has been growing much faster than the fleet average.

Got it. So FAL grew what in the quarter? Was FAL above the -- like what was the organic at FAL in the quarter in total?

Yes. So FAL grew in total in the quarter, and you can think about it as helpful to the fleet average.

The next question is from Andy Kaplowitz of Citigroup.

So I think one of the primary goals you have or you had as you split is to simplify your overall business. So obviously, the first quarter out of the gate with good margin is a good signpost for that. But maybe talk about where you are in terms of that self-help. I know it's early, but should we get increasing impact from that simplification as we go into '26?

Yes. Thank you, Andy. I think the short answer is yes. If you think about what we've laid out as our plan here, the plan is we have a simpler company in these 10 brands, which means frankly, we can simplify how we run the company, free up more time to spend with customers and to spend on growth. And like Mark mentioned, we've also created space in our P&L, as you saw with the big margin expansion in Q3, so we can actually put some more investment behind this growth idea. So all of that's in motion right now, we would expect that to keep building momentum for growth as we come out of this year.

And then I would say, secondly, the other thing that's been quite important in this change with the company is the capital allocation strategy. So not only are we going to grow the company faster and the seeds we're planting around products, commercial and recurring value, is playing through on that. But we are also going to significantly shift how we think about capital allocation. And you saw that with the share repurchase that we did in Q3 here. And as we go forward, you're going to see that balance continue to play out. And so we're 1 quarter in or barely 100 days into the journey, and I would expect that the best is still ahead of us here.

Helpful. And then could you give us a little more color on what you're seeing in demand by region? I think you -- U.S., pretty good. I think you mentioned Western Europe, maybe downshifted a little, China. Like what are you seeing across your end markets by geography?

Yes. No, I think you have it generally right. I would say the star of the show continues to be North America, really strong performance in North America. I think part of that is the market, part of that is kind of our team really have pushed hard from an innovation point of view in some of the best end markets, data centers and so on in the U.S., especially. But also just the market conditions have been more favorable for us.

And then, on the other end, I'd say Western Europe, especially has been the softest market for us. And that's been the case most of the year. Q2 got a little bit better in Western Europe, but then that didn't really sustain in Q3. So we're not expecting anything to get dramatically better in Western Europe for the rest of the year. So we've kind of planned that in here, and anything better will be upside for us.

And then the rest of the world was just mixed. And generally stable, I would say, in China and mixed everywhere else. So in North America, really good; western Europe, really soft; everything else in the middle.

The next question is from Jeff Sprague of Vertical Research Partners.

Just wanted to get a little bit better sense of maybe the margin trajectory. First off, can you just elaborate a little bit more. You said there was some one-timers in the quarter, and I don't know if there was a change in capitalization policy or something. Did that all run through corporate? And then essentially you're saying that you're using that "benefit" in Q3 to spend for growth in Q4. Can you just put a little bit more color or detail around that and correct me if I'm wrong there?

Yes, sure. Happy to, Jeff. So there were a few one-timers in the quarter. There were 2 primary drivers. One was just increased capitalization rates at some of our software companies, as they were building a new product that was not yet sort of deployed into live production. So that was one impact. That basically lowers R&D, and then, ultimately will come back in the future as that's amortized in. The second was that we did have some adjustments to incentive compensation, and that was a good guy as well.

Those items hit a combination of the segments and the corporate costs. The expectation, even though we are actually making direct cost reductions to actually fund growth, is that overall OpEx will step back up in the fourth quarter, as we don't repeat some of these one-timers, as we start to pull in some of the investment ideas that we've got as part of the strategic planning exercise and annual planning exercise that Olumide laid out. But we're going to maintain discipline, and we expect to still have a strong margin profile. But overall, OpEx should pop back up a bit in the fourth quarter.

Does it -- I mean, trying to triangulate between what you gave us in making an educated guess on interest expense and everything and the share count, it looks like you're sort of guiding segment level margins, I don't know, kind of flattish in Q4 on a year-over-year basis. Is that correct?

I think you're in the zone. You're going to get year-over-year basis out of the corporate -- or year-on-year expansion out of the corporate cost. But you're broadly in the zone, you'll see some pressure in gross margin, particularly in IOS, but then is largely offset sort of below the gross margin line.

The next question is from Joe O'Dea of Wells Fargo.

Wanted to just get a little bit more color on comments around giving brands more growth oxygen, which sounds like an exciting initiative. We, I guess, saw the Q3 R&D down, but maybe that's a little bit more non-repeat. I'm just curious in terms of what exactly is encompassed in sort of resourcing the growth oxygen for 10 operating brands. And how to think about the time of that sort of flowing through to organic growth kind of impact?

Yes. No, thanks for that. So let me just describe what it is that, that we've done. So what we've done in the first 100 days here is we've gone through our strategic planning process with each of our 10 brands. And the nature of that is really digging deep to find the best ideas for organic growth acceleration. And maybe we've underleveraged so far. And it may be really compelling enhancement products for customers. It could be commercial capacity expansion in attractive markets like data center or India, or it could be expansion to add-on services or software offerings for customers that we just haven't had the space in our P&L to get to. So we went through a process to really assemble all of those ideas across our brands.

And I'm just incredibly impressed by the slate of pragmatic and actionable ideas that came out from that process. So we now have this funnel of terrific ideas that we're getting after very aggressively. And what we've then done is to say, look, we are going to be very disciplined in assessing which of those have the highest confidence and the best return potential. And for those ones, we'll mix based on the P&L. That's what we mean by growth oxygen, to make -- to fund those and to get them done. So some of the margin expansion we got in Q3, that we talked about, we are going to save some of that to invest over the course of Q4 here to really think about it as a surge in getting those great ideas executed faster. So as we go into '26, they're having a lot of impact.

Keeping in mind that some of them are short time to impact, things like commercial, capacity add, some of which are marketing, Demand Gen ads. So we feel quite good about the setup and the space we've created in the P&L to get after this and really give those businesses more, as we call it, growth oxygen than maybe they've had historically when we've been really tight across the board. But we're just really being intentional in planting seeds that will power the growth that the case that we've made is faster growth. And so we're planting the seeds for that.

And then on organic growth composition and sort of thinking about the price and volume piece and volume kind of slightly down in the quarter, is it -- is the setup that you think the volume decline rate is actually a little steeper into the end of the year? Is that primarily comps? And then just any color on where you see the best opportunity for volume to get a little bit better, maybe areas that you're watching most closely.

Yes. I mean, so again, a few ways to think about that. One is we like what we're seeing from pricing this year because I think in many ways, that's a reflection of the value of those brands. And so we -- and some of it is in the benefit of tariffs, and we're covering that. But underneath all of it, it's been an affirmation that we can get price in those businesses. So we expect that to continue.

And the exciting thing for us is a lot of the growth ideas I talked about are really about volume. And I would say, across our businesses, we see real upside from volume. And I think if you think about our biggest brands in Fluke and the AHS segment, those are areas where we have very specific ideas that can help with volume growth over the next year here going into '26. So we certainly expect the price kind of strength to continue to be a big contributor to our growth. And in the volume piece of the math will get better over the course of our journey here in the next year to 3. So that's what we would expect.

The next question comes from Chris Snyder of Morgan Stanley.

I wanted to follow up on some of the Q4 commentary. I mean, I think you guys said you expect organic growth to moderate in Q4 relative to Q3. Is that just a function of a more difficult comp? Or did some of the Q2 disruption get pushed into Q3 revenue? So maybe that was a little bit overstated versus demand? Any color there would be helpful.

Sure. Happy to answer that, Chris. There are a few things that are happening. One is that in Q4 we do have a little bit of a tougher comp. If you look at the script commentary from last year, we talked about some pull forward from Q2 into Q4. I think it's particularly acute in the IOS segment. There was, I think, a little bit of a snapback in Q3 in terms of just some of that $30 million coming back.

I would just say, though, overall, the trends that we're seeing across the IOS segment and the AHS segment are broadly consistent. They're encouraging. I think, as Olumide said, we've got lots of optimism for better volume growth as we step into 2026, but we do have some timing-related impacts that are sort of shifting things from Q2 to Q3 and then out to Q4.

I appreciate that. And then maybe just a follow-up on AHS. From the outside looking in, it's very difficult to kind of have a sense for the performance versus the healthcare policy and funding challenges that could be coming or maybe leaving the market based on the policy. So I guess, it seems like you guys think AHS will have another pretty solid quarter here in Q4. But I guess, what gives you guys confidence that the North America healthcare spend can be supportive or resilient through just a kind of a choppy, hard-to-predict policy backdrop?

Yes. Thanks for that. I mean we -- overall, we like the AHS part that's set up here. So if you think about it, this time last year, AHS segment grew 9% organic growth in Q3 of '24, 6% for the year overall. And so we know what the capacity of this business is. And despite the choppiness of 2025 with all the healthcare-related policy changes, our businesses continue to do the right things for our customers, the depth of customer loyalty, customer support. And I have experiences personally, just being out with a lot of our customers in that segment is incredibly strong. So we like our setup. We like what we're doing with respect to innovation. We like what we're doing with respect to kind of the commercial engagement with customers and recurring value that we're adding to those customers across all our brands. So that piece, we really like.

And then, if you think about the fundamental kind of spend and demand profile of healthcare in the U.S., whatever is going on in the end, it still comes down to the basic fact that we've got aging demographics, we've got increasingly sophisticated healthcare options and intervention options for this aging demographics, a lot of which have 2 or more chronic conditions.

We continue to have shortage in provider capacity, that means the kinds of solutions that we bring to drive productivity and safety are going to be incredibly supported by this tailwind over the next 3 to 5 years. So irrespective of the choppiness of policy decisions in '25, we like what we're doing on innovation, on commercial and recurring value. And we like the underlying sustained circular trends that make this healthcare, and especially the industrial part of healthcare that we focus on, be a good market to be in. So that's kind of where we forecast is play for what's going to create value beyond quarter-to-quarter noisiness in the space. We really like the business, and we think we're well set up.

The next question is from Jamie Cook of Truist Securities.

A couple quick -- 2 quick questions. One, you talk about Fortive Accelerated innovation acceleration, commercial acceleration, like all these opportunities to sort of ignite growth profitably. Just to be clear, I mean, it doesn't sound like you embed any of that in your guidance, so just wondering if there's opportunity for upside on the top line as some of these initiatives go through.

And then just my second follow-up question, the $63.6 million in other -- on the adjusted operating profit, what -- I mean, that usually trends, I guess, in the low 30s. Can you just break apart like what was in that number, and then, what's implied for the fourth quarter?

Thanks for the question. I'll take the first part, and then, I'll have Mark take the second one. The way we think about it is we laid out at our Investor Day in June our financial framework for the 2-year period '26, '27 and that -- the premise of that is the company we now have is going to be 3% to 4% organic growth, and then after '26-'27 gets better than that. And then we'll have, imagine expansion, 50 to 100 basis points, and then, adjusted EPS growth, that's a high single-digit plus growth. So that financial framework benefits from all of these Fortive Accelerated initiatives. That's what gives us confidence that, that financial framework remains intact. And so that's where you're going to see the impact of it.

With respect for the guide for this year, we feel good about the way we've reflected the macro conditions and all the forces at work across the 3 areas we've talked about on tariffs and healthcare spending and state and local government spending. And we -- that's all reflected in the guide for this year. But the way to think about our Fortive Accelerated strategy and the impact of that is it really is what gives us complete confidence in the financial framework that we laid out for '26, '27.

And then, I'll let Mark touch on the second part of the question.

Yes. I think, Jamie, we'll get back to you on that. I think you're referring to that other operating income in the AHS segment. So just give us a bit, and we'll circle back with you on that. Maybe we can go to the next question.

The next question is from Joseph Giordano of TD Cowen.

This is Chris on for Joe. You had called out the growth, the double-digit growth in recurring revenue, and you noted that it was outpacing the overall average. Where do you see recurring revenue potentially ending up as a percent of total in the longer term? And what are some key levers that you have in both segments to sustain that above corporate average trajectory?

Yes. Thanks for the question. So we like the recurring revenue percentage continuing to go up. And we don't -- we've deliberately not set a ceiling on how high dose. So we expect it to continue to grow and with no limits on what's possible over time. The second thing I'd say is if you think about the pieces of our company today that are still not recurring, and then, you think about how quickly those can change, we still do have some incredibly powerful professional instrumentation offerings at Fluke. That's the biggest chunk of our business that's nonrecurring. Now, that business was almost 0% recurring 10 years ago. And if you go back 5 years ago, it was probably 5%, 6% recurring. Today, it's 15% recurring. So the biggest lever for us to keep driving recurring revenue is continuing to attach more recurring things at Fluke.

And we also have some examples from businesses that were mostly transactional, like industrial scientific 10 years ago, and we've shifted those to more Hardware-as-a-Service recurring offerings. And again, that gives us a little bit of a template of some of the things we could do, for some of our offerings at Fluke as well is shift them to more of a Hardware-as-a-Service offering. So that's probably the single biggest bucket of revenues that will move the needle the most as we shift more of the company towards recurring. And we're going to beat -- intentionally, it's one of our 3 pillars for Fortive Accelerated. It's driving recurring customer value.

The next question...

Operator, maybe I'll just circle back on Jamie's question. That incremental expense was predominantly related to separation-related stock compensation matters. So fair market about adjustments as well as the acceleration of certain executive compensation associated with the transition of leadership.

The next question is from Andrew Buscaglia of BNP Paribas Asset Management.

You guys -- there's a lot of noise on the margin side, Q3 to Q4, but I'm looking at high level into '26, how volume dependent on margins? And can we count on some of these savings helping you expand in a low or no volume environment? And then another question is, any update on -- are there incremental stranded costs we'll see fall out in '26? Or where do we stand with that side of the story?

Yes. Thanks for the question. At this point, I would just turn your attention to the financial framework we laid out at Investor Day, which was again 3% to 4% revenue growth, 50 to 100 basis points of adjusted EBITDA margin expansion and high single-digit plus adjusted EPS growth. We're in the middle of annual planning right now, and really, we're just trying to strike the balance between driving the appropriate amount of margin expansion along with accelerating growth, and we'll be able to give you a little bit more color on that, obviously, on our next call.

In terms of stranded costs, we're almost there. We took some other actions, as you saw in the third quarter. There is some stock comp related stranded costs that we'll be sort of working out. A lot of that sits in the segments, but we're almost there. We'll probably -- in 6 to 12 months, we'll have the rest of it out. And as a reminder, I think we said we had $25 million that was out and there was $25 million left to go. There's probably half of that remaining for us to take out over the course of the next 6 to 12 months.

This now concludes our question-and-answer session. I would like to turn the floor back over to Olumide for closing comments.

Thanks, Brock, and thank you all for joining us. We really appreciate your interest in Fortive. We could not be more excited about the journey we're just starting here, and it's still early. We realize that some of you know us and some of you are new to us, but we are incredibly excited. We have a simple playbook here. We've got a great portfolio. We believe we're going to drive faster profitable organic growth from this portfolio. We are going to continue to be very disciplined in terms of leverage down the P&L and our cost discipline with FBS helping us through that.

And our capital allocation approach is going to be intelligently positioned to balance share repurchase and smaller bolt-on M&A. We believe that, that formula and us doing what we said we'd do on that and building trust and maintaining trust will do incredible things for shareholder value creation in the next 3 years. So that's exciting for us. We hope it is for you as well.

Thanks for joining, and we'll see you next time.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Thank you, everybody. Chris Snyder, U.S. multi-industry analyst at Morgan Stanley. Very excited to have Fortive up with me today. We have President and CEO, Olumide Soroye and CFO, Mark Okerstrom. So thank you, guys. Olumide is going to start off with some opening remarks before we get into Q&A.

Thanks, Chris. Thanks for having us, and it's great to be here, as always. And we are right into our first quarter as new Fortive. So I thought I'll provide just a few highlights as context for the Q&A.

And really kind of three main things. The first one is we are diligently executing the Fortive Accelerated strategy that we laid out at our Investor Day. And our team is really excited about the progress we're making. I would say that the goal for that strategy is to accelerate profitable growth. And in that process, we also accelerate shareholder value creation in the next few years.

And we laid out 3 key pillars for driving faster growth, innovation, acceleration, commercial acceleration and recurring customer value. And as we laid out on our last earnings call, we're making really strong progress on those, and it continues.

The second key point is based on what we've seen so far in the second half of the year, we are right on track with the guidance we provided on our Q2 earnings call. And that is really credit to the laser focused execution by our teams. Nothing has been surprising compared to what we said on the call. At the same time, we remain confident in the medium-term financial outlook that we laid out at our Investor Day 13 weeks ago. And that, as you recall, we talked about '26, '27 financial framework.

We remain very confident in that for a few reasons. One, in new Fortive, we now have this portfolio of 10 brands that are market leaders in really attractive segments with great circular trends. They come into 2025 with a demonstrated track record of delivering at or better than the financial framework that we laid out for '26, '27. So we know these businesses have the capacity to deliver that. And again, execution on our growth acceleration strategy gives us a lot of confidence as we come out of '25 to really accelerate. And in many ways, the subdued growth in '25 provides a great comp actually going to '26, '27. So we feel great about that.

And then the final point I'll make is on capital allocation. And we continue to really stay within the exact parameters that we laid out, which is a more-balanced capital allocation strategy. At this point in time, that's all about shareholder returns and maximize shareholder returns. We believe right at this moment, buying back our shares is attractive. We are looking at small attractive bolt-on M&A, but we hold those to a very high strategic and financial criteria but we feel no pressure to do any bolt-on deals at all. We've also been really clear that we are not looking at large transformational deals. We like our portfolio. We like to have a runway to show the value we can create from that. So we're not in the business of large deals at this moment.

We'll maintain the regular dividend. We did a reset on that just consistent with the spin-off that we did. We'll continue to invest in attractive organic growth ideas. So that's really our story. We've got a class strategy we're executing. We're on track with what we talked about on last earnings call. And for '26, '27 on track with the financial framework we laid out. And our capital allocation plays exactly what we've talked about.

Well, I guess it's been 3 months post spin. I guess what does the separation mean for Fortive? And what opportunities can arise by being an expand alone singularly focused company?

Yes. So I mean, I think it starts from simplicity. So by having the 10 brands all about keeping the world safe and productive, that gives us just a singular focus on what we're about. And these 10 brands are also all consistently #1 and #2 in the markets that they play in attractive markets. So that simplicity and our focus on a high-quality portfolio is very attractive, and that's a big opportunity.

The second thing that comes out of that is the chance to be a more consistent grower and a faster grower. And we really do believe that each of these brands have a strong runway ahead of them. And so we're laser-focused on capturing that growth potential in the businesses. And then I would say just finally is capital allocation. In new Fortive, we have a business that really has a portfolio that's been fine-tuned for what we need. So we don't need any dramatic activities from an M&A point of view, which means our capital allocation becomes really about -- we generate about $1 billion of free cash flow a year.

We can really, at every point in time, put that in the best use that uses the best risk-adjusted returns for shareholders. And if that's share buybacks, we'll do that all day long. and we'll keep a high bar on bolt-on M&A. So I think on simplicity, growth and just the ability to focus our capital allocation, that's a very different play than before the spin.

Yes. And maybe you specifically, you've obviously been at Fortive for a while, but first quarter as CEO, are there any changes that you've implemented as you took over that role? And are there any insights or any new perspectives that you've gathered maybe with some fresh eyes?

Yes. We try to keep it consistent with the key value drivers. So my focus really with our team has been three things that probably wouldn't surprise you. First one is customer intimacy and growth. So we really do believe that the 100,000 customers we already have across Fortive provide the best opportunity for us to grow. And there's a great runway ahead of that. So personally, I've been spending a fair amount of my time with customers, which then means our whole team is also doing the same thing.

So this idea of just spending more time with our customers so we can understand what innovation they need, ways to accelerate value for them. And the insight coming out of that is, I'll tell you from the last few months, I am incredibly excited about how much our customers trust our teams, how much they look to us to help them unlock value from a range of things that only Fortive and operating brands can do. So that's been a change for the company. And I think in the end, growth comes from being closer to your customers. And that's a culture shift for us that we've been driving.

The second one is on capital allocation. So with Mark as my partner here, we've revamped our M&A engine completely to be a lot more focused on bolt-on M&A rather than bigger deals, really much higher strategic and financial criteria that we pass them through. I think that means the funnel has become much smaller, but the higher quality prospects and there are things that if we were to do any of those would be incredible returns similar to before we talked about that would be in the second half of '23, which are now double-digit ROIC in the second year.

So it's been a lot of kind of change in the mindset of the company around the role of M&A in our strategy that we have a formula for value creation that does not require heroics from an M&A point of view. So that's been a change for our team. And then the final one is on the Fortive Business System where we've just done a lot to infuse AI into what's a secret weapon as a operating model and also to infuse small growth tools into FBS. And I think the insight coming out of that is our teams are energized by that. Our teams want to grow faster because that's the -- that's where the flywheel stats for everything else. And so it's been a great few months.

Yes. So while maybe M&A is not as big of a piece of the capital allocation profile, it's still a piece. And it feels like it could be a regular piece just that the deals are smaller. So I think on the last conference call, you -- I think the quote was open for business. I guess when could we start seeing bolt-ons come through? Like any sort of like cadence to that? And did the open for business refer to only buying? Or are there maybe small businesses within Fortive that could be thought of to be divested?

Yes. So I think the open for business comment really is about within the frame of our balanced capital allocation. So going forward, again, we will do share buybacks where it offers the best returns. Any M&A thing we do, which would be focused on smaller bolt-on deals, we'll have to compete from a return point of view, risk-adjusted with buying back our shares. And so we're always looking. And the way I'll describe it is, you're right, we have a great focus area of potential bolt-on deals that are attractive. And at this point, there is a really high bar that we just introduced into the system.

So there's going to be a period of time where we're kind of refining the funnel to get it to things that really pass muster under this new higher bar. And then we'll play that through over time. So it is the case that targeted bolt-on M&A that help reinforce our growth capacity in our existing businesses will be a part of our formula over the medium term. But we're just not -- we're not in a rush at all. And when we do those deals, there will be great deals because we're not -- we don't feel the desperation to do a deal if we don't find great ones.

Yes. I wanted to ask about what AI could mean for Fortive because on one hand, I could see that you guys sell productivity solutions. You guys could use AI to sell better workforce productivity solutions. But the other side could be that could AI be a competitor to some of the products that you guys have? How do you think about AI in that context for Fortive?

Yes. I think overall, the AI theme for us is just an exciting opportunity because in the end, if you think about what we do at Fortive, there's 25% of the company that's kind of software type of product, but they're vertical software with the proprietary data. A lot of them have 2-sided networks to them. And a lot of them are deeply embedded in customer workflows. So these are really important connections that we already have with customers.

And so the conversations we're having with customers is -- and we have 100,000 customers. They're saying you're already in our system. We already trust you. Can you help us unlock the true business value from all these AI capabilities by embedding them as use cases within your solutions. And that's what we're doing at scale across all of our operating brands right now. And it's exciting. It's exciting for our teams.

And as you might recall, Chris, we had the foresight of starting our AI center of excellence almost 7 years ago now before GenAI became fashionable. And so we've had a chance to really have a leading position in introducing some of these use cases with our customers across our businesses. And that's what we see the most separate from how we deploy it for internal productivity. We are not -- the productivity work that we do is not something you can abstract and do with AI because it's really about delivering decision insights for customers at the right point. And so the more important thing is the connections than at some level, the insights themselves. So that's why we're excited about it.

I appreciate that. You guys at the '25 Investor Day targeted a 3% to 4% organic growth profile, modestly lower versus the mid-single digit that I think the company targeted at the '23 Investor Day. Is that a function of where we are in the cycle? Is there more prudence? Are some verticals lower growth than we thought previously?

Yes. Well, so I think if you kind of step back and look at the storyline on growth for this portfolio, so this portfolio that's now new Fortive. And if you just kind of take that out of how Fortive has existed before this, it's a portfolio that's delivered 4% compound annual growth rate organic for 5 years coming into 2025 and pretty consistently with a narrow band around it. So we know it has that capacity. We are executing a set of strategies I talked about in the beginning around product innovation, commercial acceleration and customer value that we believe can increase that growth rate over time. So if you step back, we certainly feel like the potential for this portfolio is exciting and the history is very strong.

What we did with the financial framework we laid out is we know we're in 2025 right now that's a little bit noisy and growth is a little bit subdued for a variety of reasons that we've talked about, macro reasons in '25. And so what we really did was based on the history, based on what we're seeing in '25, allow kind of a gradual ramp in that growth as you look at '26, '27, which is what we said was kind of 3% to 4% in our framework. And then we said it gets better after that. So it's really more -- if you think about the time series, nothing changed in a sense of the capacity for growth of the portfolio, but we really were just being balanced in the time series.

Appreciate that. Maybe last one on strategy. You changed the guidance approach and you're only providing full year guidance for adjusted EPS. I think there was a lot of people in the market that wanted more organic growth or kind of some more numbers around that. Has your perspective on this evolved at all since the call? And are you planning to provide more going forward?

That's Mark's favorite.

So listen, I think we feel good about where we are right now. And I think as you called out, we did two things. One was we went to full year updated quarterly as opposed to specific quarterly guidance. And secondly, as we did reduce the number of metrics that we're guiding on. We did that at the same time as providing modeling help so we could make sure that the sell side and the buy side knew the cadence of how the year would unfold and some directional guidance on core revenue. We did it really to align with how we're thinking about the value creation formula of this business, which really is a multiyear story that's punctuated by years, not by quarters. And I think this gives us the ability to have the flexibility to make the investments that we need to make to drive towards our goal, which is benchmark beating returns over the course of the next 3 or 5 years.

I appreciate that. I guess kind of moving more towards the operations a little more near term. You guys called out 3 headwinds in Q2, some fluke channel dynamics, government and health care. Could you provide some color on each of these headwinds and when we could expect to see some of that alleviate?

Yes. So I think the headline on it is it's all playing out exactly as we anticipated on our Q2 earnings call. And just maybe to start with the first one, which is really the tariff uncertainty for some of our short-cycle businesses in the latter part of June, especially, had some customers that had big orders to place saying, you know what, I'm just going to wait a few weeks and see what comes out of that early July, July 9 time period that people were expecting there might be some change.

And like we mentioned on our Q2 earnings call, that the order pattern is normalizing already, and that continues to be the case. So -- and part of what happened is we really just had kind of a backlog build in Q2. So that's -- that's playing through just as we expected, and we'll be fine on that. The tariff overhang and what happens with APAR and what the Supreme Court does with that, that's obviously still out there. But we think at some level, the system has embraced the uncertainty. So we're not finding that to be the headline news at this point.

With respect to, if you want to touch the other two, the second one was on health care with some of the changes in reimbursement policy had hospitals really just -- especially for capital equipment purchase, where they were trying to buy a new piece of sterilizer saying, you know what, I'm just going to wait a little bit and see how this plays out. Again, this was in the context of June, where they were waiting to see what Bill was going to get signed on July 4.

Like we mentioned on our earnings call, we're beginning to see customers emerge from that period of kind of hunkering down and things are beginning to flow. Like we said, all of the deals in our funnel for those capital equipment are still there. So it's just a matter of timing. And that will continue to flow through over the quarters ahead, just exactly like we presumed in the guide that we provided.

And then for government spending, the same thing. It was a June year-end for state and local agency question. They didn't spend as much as they spend the last few years. keeping in mind some of those last few years, we were growing 20% plus in that business, so a pretty tough comp. Those are essential projects that have to be done at some point. It's all of our communities. Those -- the infrastructure maintenance has to happen at some point. So that's beginning to flow through. It will take some time. But again, just exactly the way we presumed in our guide.

On your comment about, I believe it was Fluke effectively just built backlog during the quarter. I guess, any sense of how long or how quickly that excess backlog will be worked through and brought down?

Well, we've been through that a lot, as you can imagine in the last few years. So we certainly know how to run backlog. And I think we're right on cost. It's not exceptional. We've been through periods of bigger backlog build. So I think it's within the normal range from my point of view. to Mark's point, this was more of a quarterly blip thing than anything of note

I appreciate that. I think a lot of the companies that are at this conference, they're driven by industrial production, and we can model that because we can tie it together. Fortive is harder. So one thing I've always felt like I think from the outside looking in, it's sometimes hard to realize like what is making things better or worse. So I guess, is there anything that we should be monitoring to kind of help us understand the status, the health, the trajectory of some of these business lines?

Yes. And that's something we continue to put a lot of thought into to make sure we're as helpful as we can be. Obviously, for us, it feels simple because we see all of it, but we'll keep working on that. And I think while to your point, we have these two segments and they have slightly different drivers. In the end, the industrial part of Fortive, I think the PMI is a good index to look at. Now you've got to translate that because we've been doing much better than PMI for a long period of time. So you have to do some kind of adjustment to PMI. But there's some correlation, maybe separation in time. We may always do a certain number of basis points better than PMI. But -- so that's a good index to watch on the industrial side.

And I think on the health care side, hospital procedure volumes and hospital CapEx are certainly relevant indices because that tells you how much operational activity is happening in hospitals, which drives some of our businesses and how much capacity expansion is happening, which the CapEx would tell you. So again, while those may not be -- if this goes up by 10%, we're going to go up 10% in the same quarter, those are kind of a few metrics that might help.

Another one is kind of construction index, if you look at that for state and local agencies, especially. And I think between -- across those 4 PMI construction index for state and local, hospital procedure volume and hospital CapEx, that's probably a good kind of set of metrics to get a sense of is the underlying kind of market for Fortive is getting better, getting worse.

That's really helpful. Maybe talking about facility asset life cycle specifically. Industry leader there for you guys. Can you talk about -- I guess, what really drives that business who is Fortive competing against to win that? And why does Fortive win there?

So we have three operating brands. What we do is really help organizations and government agencies manage the kind of the life cycle of their built environment. The important thing is we've selected vertical specific plays. So instead of trying to do a horizontal play that manages the built environment across everything for everyone, we've picked areas where we believe we have the #1 businesses, the deep profit pools and the circular trends that suggest it's a good place to be in.

And those few areas that we've picked One, in the case of ServiceChannel is helping organizations with multisite retail manage their billions of dollars of RMO spend. That's attractive because it's a lot of money they spend there. There's a lot of value a customer can get from really being good compared to benchmarks on how they manage their RMO spend. And we happen to have a business that has the deepest 2-sided network, so 100,000 contractors on one side and a whole list of the leading multisite institutions on the other side. They meet on our platform every day to decide what's the best place to execute any particular repair and maintenance activity in their facilities.

That's a very specific thing. It's surrounded by proprietary data that we've had for decades. It's surrounded by AI use cases that we've built on top of that data. It's surrounded by this 2-sided network that nobody else really has. And so that's an example of a very unique play that we've picked. Competitors, it's kind of hard to define because no one does exactly that. There are other companies that do something, but they don't have 2 out of the 5 things that we have. And then if you look at what we do in our Gordian brand, which, again, very focused, and there's a few elements of that, but the biggest one is helping state and local government agencies to execute their community construction projects in a way that complies with some of the regulation on how they need to procure projects in that particular jurisdiction.

So it's written into law that if you want to do job under contracting, this is the way to do it. And we happen to have a platform for them to execute that. And if they spend less, we may make less money. But otherwise, it's a great business. That's why we grew 20% plus for a couple of years. So again, competitors, it's just -- it's a different -- there's other players that do pieces of it, but it's a different bundle that we have.

And then the other one is Accruent, which really has a number of different pieces to it. And that's probably the one that has the most observable kind of universe of other players that do the same thing. So it may be slightly less differentiated than the other two. But the same idea applies, they're deep leaders in the categories they play in. And I think in many ways, the reason we continue to believe that, that file platform has more growth potential is because of the quality of those brands.

And then facility asset life cycle collectively, it's a highly recurring business. Can you talk about how the company gets paid? Maybe throughout the life cycle of a building, obviously, construction, but then beyond that, how does that work?

So if you look across FAL, 65% of it is just software businesses, where the customer signs a multiyear SaaS license and they pay us something each year and it escalates over the years. So that's pretty straightforward. There's another 25% or so that is we call reoccurring, which is really this piece around helping state and local government to execute their construction projects. So the math on that is they spend $1 billion. And if they do it on our platform, using our data, using our software, using our network, we get a percentage of that spend. So that's -- so as long as it keeps spending, we keep getting the percentage of it. And then the rest of it is just professional services that tend to be linked to executing some of the software projects that customers procure from us. So that's a simple way to think about it.

I appreciate that. And then maybe turning over to Fluke. So I guess in Q2, it wasn't a destock headwind. It was more that orders weren't effectively converting to revenue, if I understand that right. I guess kind of two questions on Fluke. I guess how long can those stay disconnected? And then the follow-up is, can you just talk about why Fluke is such a durable business? Because I think from the outside looking in, people say, short cycle sells into distribution, obviously, you guys have a different view. I just like to hear that.

Yes. So I think on the first part of your question, Fluke's continued to, from a point-of-sale point of view, order point of view, really maintained -- we're really happy with how it's continued to perform. And I would really say the Q2 event was a few -- some big orders getting delayed a few weeks. So I think there is really no disconnect in Fluke. I think it's really shown itself to be really durable.

And then on your point on why is it durable and why it's different. I think a number of things. Fluke today is different than it was 6 years ago. 15% of the business is now recurring models. So software, AI use cases, service plans for customers and high-value professional instruments. So that's certainly -- and that's growing double digit a year very quietly. So that provides a bedrock. And then if you think about the Fluke brand, it's -- it's global. We've got a set of solutions. Some of the business is $100,000 price point products that are going into some of the leading institutions.

And then you've got $600 digital multimeters for your local electrician. So it's just a really -- it's a terrific diversity of offerings that all connect because the person that's buying the $600 instrument, they trust your brand because they know you do the $100,000 stuff for the person that sets the standard. And it just has this beautiful aspect of it that we built by cobbling those pieces together over time that makes it more durable. People always say, well, PMI has been in contraction for a lot of time in the last 5 years and Fluke orders keep growing. Is that ever going to stop? And I'm like it hasn't, and I don't hope it does anytime soon.

Yes. I mean it feels like there's a lot of benefits of productivity, particularly with kind of the demographics that we see on labor. So that really resonates. Maybe turning over to health care. So the AHS segment, organic growth turned negative in Q2, down about 2%, 3%. And you talked about second half kind of being similar to that. Obviously, Q3 is a tough comp. But can you just kind of walk us through the dynamics impacting the AHS segment and how you kind of see the rest of the year playing out?

Yes. So again, I think if you step back beyond '25, we like the AHS kind of trends over time. I think we feel good about the things our team is doing to keep the growth up. A few things I would observe in '24, the AHS segment grew about 6.1% organic growth. That's a little bit faster than kind of its normal pace. And to your point, Q3 especially was a particularly high comp. So some of that factors into it. And then like I mentioned on the health care reimbursement environment, there was something that happened in Q2 with respect to these hospitals holding back, especially on capital equipment purchase.

And we just expected that would take some time to unwind. And that's what's playing out. Some hospitals are now like, okay, I have to place this, so let's go. And so we're beginning to see that flow because we have the funnel, we didn't lose a single one of those things. So it's going to flow through over time. What we don't know is how quickly that flows through. But once it all flows through, the medium-term growth capacity hasn't changed. It's just customers getting through this period of uncertainty.

And so we feel good about the financial framework we have for '26, '27 and the role that AHS plays in that. Again, keeping in mind that '24, that segment was actually above our fleet. It was kind of 6.1% growth. So this year is a little bit of that comp factor playing in, and then we expect that normalizes over time.

One thing that's kind of been flagged in the market is that STERIS, a key competitor to ASP, strong Q2, guiding to, I think, even better growth in the back half. So they don't seem to be facing some of these pressures. I guess can you just kind of talk about what could be driving that disconnect?

Yes. Well, I think -- so first of all, we're always curious. And we're the same question I'm asking our team all the time, like what's going on? So it's a question, as you can imagine, we spend time on. I think a few things to keep in mind is these businesses are all very different. So we have a lane that we've picked that we really like, which is low temperature sterilization. And we are the leaders in that lane. And some of these other companies do a lot of other things that may be going well at any point in time. So just keeping that in mind is important.

I think comp is also important. So especially if you look at capital equipment, I think we did really well last year on that. So I think keeping that comp factor in mind is important as well. And then again, the thing we know is what we see with our customers, which is we have a great funnel of opportunities. We're winning even more than we used to win. So from a success point of view, we feel -- we like the trend line, but it's just a list of very specific things that are delayed.

So we have clarity on what we're seeing. I think for some of the kind of other companies, it's just different mix of businesses, different comp, different backlog kind of scenarios that people start the year with. So I think there's other things that just get noisy, but we're always pushing to learn what we can from it.

No, I appreciate that perspective. Obviously, this year, we faced some headwinds. You called them out. As we look into 2026, do you feel like those normal targets are in scope, 3% to 4% organic with a 50-plus bps of margin expansion?

Well, we remain confident in the financial framework that we laid out for '26, '27. And when we get to Q4 earnings, we'll have more guidance on '26. But from a financial framework point of view, for that '26, '27 block of time, we remain really confident that kind of 3% to 4%, call it growth, 50 to 100 basis points of adjusted EBITDA margin expansion. I think we said high single-digit plus EPS growth. That's still well on track for us.

And we also importantly had this plus-plus sign after '26, '27. And our confidence remains that these businesses have a chance to do much better than those numbers for '26, '27. And again, if you look at historically for the 5 years before 2025, the businesses we're talking about all delivered better than that '26, '27 framework that we laid out from a core growth point of view, margin point of view and any way you think about kind of effective EPS growth point of view. So we feel confident about that.

And the reason we feel confident about it is we're doing the right things. We're executing on innovation acceleration, commercial acceleration, trying to add more value to 100,000 customers. We believe these businesses have positions of strength in markets that are attractive. in many ways, the noise and subdued growth in 2025 is good comp as we go into '26, '27. So I think there's a lot of factors that go into giving us that confidence on the framework.

Well, I appreciate that. Well, we're up on time. Thank you, Olumide. Thank you, Mark. Really enjoyed the conversation.

Thank you.

Thank you. Good to see you.

My name is Brock, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Second Quarter 2025 Earnings Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference.

Thank you, and thank you, everyone, for joining us on today's call. I'm joined today by Olumide Soroye, our President and CEO; and Mark Okerstrom, our CFO. Today's call will begin with a brief overview of our consolidated Q2 results which include the results of our Precision Technologies segment. The remainder of our remarks will focus on Fortive's continuing operations following the successful separation of the Precision Technologies business, now Ralliant which was completed on June 28, 2025.

Please note that we will defer any questions related to Precision Technologies to the Ralliant team who will hold their earnings call on August 12. During today's call, we will present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortis.com. Our statements on period-to-period increases or decreases refer to year-over-year comparisons unless otherwise specified.

We will also 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 risk factors is available in our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2024, and quarterly reports on Form 10-Q for the quarters ended March 28, 2025 and June 27, 2025. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update any forward-looking statements.

With that, I'll turn the call over to Olumide.

Thank you, Christina. Let me begin on Slide 3 with a few key messages. First, this was a pivotal quarter for Fortive. We successfully completed the spinoff of Ralliant on June 28, and we've emerged as a simpler, more focused company, well positioned to deliver durable and accelerated financial performance. In our final quarter as a consolidated company, we delivered adjusted EPS of $0.90 at the high end of our guidance range with 8% growth in trailing 12 months adjusted free cash flow. .

For new Fortive, on a continuing operations basis, our Q2 earnings and free cash flow results demonstrated resiliency. We delivered adjusted EPS of $0.58 and 14% growth in trailing 12 months free cash flow, despite customer demand pressures in the second half of June, stemming from tariff uncertainty, constrained government spending and evolving health care policy dynamics.

As previewed in our June 38, Ralliant [ spin ] completion press release. Today, we are also initiating guidance for Fortive continuing operations, reflecting our full year outlook and consistent with our new Fortive approach of providing clear and simplified guidance and disclosure. Finally, we remain focused on executing our Fortive accelerated strategy, introduced at our Investor Day 7 weeks ago and designed to drive faster profitable growth and strong shareholder value creation over the medium term.

We couldn't be more confident and excited for the road ahead. Touching briefly on Slide 4, which covers our final quarter of consolidated results, including the Precision Technologies segment. Now Ralliant. We delivered Q2 adjusted EPS of $0.90 at the high end of our guidance range and generated approximately $300 million in adjusted free cash flow. On a trailing 12-month basis, our free cash flow grew 8% and free cash flow conversion and adjusted net income was 105%.

We deployed approximately $140 million towards share repurchases during the quarter. From the time of the spin announcement in September 2024, through completion in June 2025, we allocated over 75% of our consolidated free cash flow to share repurchases, consistent with our previously communicated guidance about capital deployment during the period.

Finally, we completed the spinoff of Ralliant ahead of our original time line, a testament to the power of Fortive business system-driven execution and the talent and dedication of our teams around the world. From this point on, all figures and comments will refer to Fortive's continuing operations, excluding the results of the Precision Technologies segment.

Let's move to Slide 5. With the completion of the spin, new Fortive begins in Q3 as a simplified and focused company with a track record of strong, durable financial performance fortified by our 50% recurring revenues. As shown on this slide, we begin this next chapter with an attractive financial profile and track record, having delivered 4% compounded annual core revenue growth over the past 5 years, with solid growth every year since the global pandemic in 2020.

Each of our 2 reported segments have been key contributors to this performance and are poised for acceleration powered by a accelerated strategy. Before we dive into the details of Q2 results, let me highlight some examples of exciting progress our team made in the quarter in execution of Fortive accelerate strategy on Slide 6.

Our strategy is built around 3 core levers for profitable organic growth acceleration. Innovation acceleration, commercial acceleration and recurring customer value, all powered by our Amplified Fortive business system.

Our new disciplined capital allocation approach seeks to enhance this organic results with maximizing, medium-term equity returns as our North Star. We made meaningful strides in advancing key elements of this strategy in Q2, starting with innovation acceleration. Fluke continues to execute an exciting market-leading innovation funnel. For example, Fluke's 1670 Series Multifunction Installation Tester with True Test software, Fluke Connect and wireless connectivity was named most valuable product in Control Engineering's 2025 Product of the Year Awards.

At Gordian, we're seeing strong adoption of our new cloud-based assessment and capital planning module, driving double-digit orders growth in that product category. Moving to commercial acceleration. Our Latin America growth strategy continues to ramp, delivering double-digit Q2 growth in the IOS segment in the region.

At Fluke, we saw high single-digit growth in our priority high-growth applications, including distributed energy and data centers with exciting runway ahead of us, closing with recurring customer value. Our journey at Fluke to increase recurring revenue continued with double-digit ARR growth in the quarter, and we are undertaking AI-enabled customer experience improvements across our portfolio, driving better net dollar retention and customer lifetime value.

As an example, Provation launched AI assistance and intelligent automation to drive productivity in key health care workflows. All our organic growth acceleration levers are enabled by our Amplified Fortive business system, which is at the heart of our culture. In May, nearly 1,000 key members around the world participated in our [ President's ] Kaizen Week, tackling growth opportunities with a continuous improvement mindset. It's one of my several weeks of the year, and I was particularly inspired by the progressive deployment of AI capabilities for impacts across our 34 Kaizen teams and our team's energy around amplifying FBS for profitable growth.

Finally, disciplined capital allocation is an integral component of our Fortive Accelerate Strategy. At our June Investor Day, we outlined our capital allocation priorities to enhance shareholder returns, invest in organic growth, pursue accretive bolt-on M&A, deploy capital to share repurchases and maintain a growing dividend. Aligned with these priorities, we are activating our bolt-on M&A engine, and we are applying a rigorous disciplined, approach based on relative returns to evaluate deals. We are ready to execute attractive bolt-on opportunities with the goal of enhancing shareholder returns.

Looking ahead, the future is bright for Fortive. We are emerging from the spin as a more durable and resilient company, with a clear plan to accelerate shareholder value creation through profitable organic growth, disciplined capital allocation and a deliberate focus on building and maintaining invested for us.

We have rock solid confidence in the quality of our new Fortive portfolio, [ purpose built ] team and Fortive Accelerated strategy shared at our Investor Day 7 weeks ago, notwithstanding fluctuations specific quarterly metrics. Our teams are energized and powered and excited to lead Fortive into this next chapter. I have been spending time with several of our customers, and they are thrilled about our new Fortive direction and eager to be part of our innovation acceleration, commercial acceleration and recurring customer value agenda. With that, I'll turn it over to Mark to walk us through the financial results for Q2, our last quarter before the launch of new Fortive.

Thanks, Olumide. I'll begin with Slide 7. In the second quarter, we delivered total revenue of just over $1 billion, down 0.4% year-over-year. On a core basis, revenue declined 0.7%. Q2 revenue growth for the company was negatively impacted late in the quarter by customer demand responses to macro pressures and uncertainty, which Olumide mentioned earlier and on which I will elaborate in more detail as I go through our segment results.

Across the first 10 weeks of the quarter, we saw a continuation of the revenue growth trends we saw in Q1. However, as June progressed, we saw year-over-year growth turn negative in the last few weeks, and we finished the month approximately $30 million below our expectations, driving year-over-year revenue growth on our $1 billion quarterly revenue base into decline territory. Although it's early, July is looking better. Aside from these end-of-quarter factors, the business performed broadly in line with our expectations.

From a geographic perspective, North America was slightly positive but less so than what we had anticipated largely due to the end of quarter factors. Western Europe, China and Latin America were down year-over-year. We delivered adjusted gross profit of $650 million, similar to last year. Adjusted gross margins were also roughly flat year-over-year as FBS driven pricing actions, growth in higher margin recurring revenues and lower costs from supply chain countermeasures were roughly offset by tariff-related cost pressures.

Adjusted EBITDA was $288 million, in line with Q2 of last year, with adjusted EBITDA margins holding steady versus the prior year. We delivered adjusted EPS of $0.58, up 4% year-over-year driven by stable year-over-year adjusted EBITDA, coupled with lower interest expense on lower debt balances and the positive year-over-year impact of share repurchases.

We estimate direct tariff costs, net of countermeasures, created a roughly $0.02 headwind to EPS in the quarter. This excludes the tariff-related quarter-end demand pressure referenced earlier. We generated $180 million of free cash flow in the second quarter with our Q2 trailing 12-month free cash flow of $939 million, representing a solid 14% year-over-year increase.

Our Q2 trailing [ 12 month ] free cash flow conversion on adjusted net income was 107%. Moving to our segment results, starting with Intelligent Operating Solutions on Slide 8. Both revenue and core revenue growth were essentially flat year-over-year, which was below our expectations. The back half of June, year-over-year growth turned negative, driven by 2 primary factors: first, general tariff uncertainty and questions around the permanence of tariff-related pricing and surcharge changes, resulted in what we believe was deferred, not canceled customer spending on certain categories of professional instrumentation of Fluke. While overall orders grew in the quarter, the mix of orders, particularly in the final weeks shifted to longer lead time products, resulting in an increase in backlog and a shortfall in revenue.

We expect to deliver most of the backlog over the course of the second half of the year, and we are seeing encouraging signs in July that order mix is normalizing, which would suggest that most of the Q2 revenue slip will come back to us in the next several quarters. Secondly, constrained U.S. government spending and fiscal tightening at state and local governments, pressure take rate procurement revenue at Gordian. Gordian usually sees a spike in spending in the last few weeks of Q2 as government entities with the June fiscal year-end rush to use their remaining budgets.

Our customer discussions suggest that overall concerns about go-forward funding more broadly created a chilling effect on the usual use it or lose it behavior. Absent the above factors impacting Fluke and Gordion, the quarter would have come in broadly in line with our expectations. As always, there were puts and takes, but we've been pleased with the growth we've seen in Industrial Scientific and the IOS software businesses year-to-date. Adjusted gross profit came in at $461 million, down slightly from prior year.

Adjusted gross margins declined to 66.1% from just under 70% a year ago, primarily due to tariff cost pressures partially offset by pricing countermeasures and growth from our higher-margin software businesses. Despite the slight revenue and gross profit declines in the segment, adjusted EBITDA grew 2% to $236 million as lower operating costs more than offset the modest decline in gross profit. Adjusted EBITDA margins grew to 33.8%, up from 33.3% in the prior year period.

Moving to our Advanced Healthcare Solutions segment on Slide 9. We delivered total revenue of $320 million, which was below our expectations. Revenue was down 1.3% year-over-year and down 1.9% on a core basis. Towards the end of Q2, we saw reimbursement policy changes and uncertainty impact the Advanced Healthcare Solutions segment. Specifically, we saw the deferral of U.S.-based hospital capital expenditures on health care equipment, including sterilization machines in ASP and quality assurance devices at Fluke Health with customers setting precautionary deferral of spending while they sort through the impact of reimbursement policy changes. We saw partially offsetting outperformance in other parts of the business with our AHS software businesses outperforming on strong execution and benefiting from resilient SaaS-based revenue models.

Absent the end of quarter pullback in health care equipment spending, AHS in total would have grown revenue, largely in line with our expectations. Despite revenue being down year-over-year, adjusted gross profit was up slightly. Adjusted gross margins were up from just under 58% last year to just over 59% with favorable pricing contribution aided by a mix shift into higher-margin AHS software revenue away from lower-margin hardware revenue.

Adjusted EBITDA was flat year-over-year at $86 million as we reinvested very modest gross profit dollar growth into R&D, sales and marketing initiatives to drive our top line acceleration agenda outlined by Olumide. Despite these investments and declining revenue, adjusted EBITDA margin expanded modestly from 26.6% to 26.9%.

Moving to Slide 10 for a brief update on tariffs, which has shifted meaningfully since our Q1 earnings call. Based on current tariff rates in effect or expected to go into effect, we now expect the gross tariff impact for Fortive of continuing operations to be approximately $40 million to $55 million in the second half of 2025 and $80 million to $120 million on an annualized basis. The majority of this impact is related to U.S. China tariffs while the global trade environment remains volatile and that volatility is impacting our results on the margin.

We are actively leveraging the Fortive Business System to adapt and respond. Our countermeasures include pricing actions, surcharges shifts in our global supply chain and manufacturing footprint and incremental cost and productivity initiatives. Doing tariff conditions continue along the path of what is known today, we expect gross tariffs to be mitigated fully by the fourth quarter, and we expect we will see a modest gross margin and EPS headwind in Q3 as our countermeasures continue to fully phase in.

Should global trade and fiscal policy remain as volatile as it has recently been, we would expect to continue to see near-term revenue impacts and challenges with revenue visibility of the type we saw in Q2.

Turning to Slide 11. We received a $1.15 billion dividend for the Ralliant spin-off, which is reflected in the Fortive continuing operations balance sheet in our earnings release. In July, we used approximately $725 million of proceeds from the dividend to pay down debt comprised of the entirety of our Japanese yen and euro-denominated term debt and a portion of our 2026 euro bonds. We Plan To use the remaining dividend proceeds for share repurchases. The balance sheet figures shown here represent Fortive continuing operations on a pro forma basis, reflecting the debt pay down.

From a leverage standpoint, our gross leverage ratio is roughly 2.5x adjusted EBITDA after these debt repayments in line with our stated target. As previously highlighted on a trailing 12-month basis, we generated roughly $940 million of annual free cash flow. This, plus our strong balance sheet and growing adjusted EBITDA gives us ample capacity and flexibility to execute our capital deployment priorities, always with a disciplined focus on allocating capital based on best relative risk-adjusted returns, [indiscernible] guidance for new Fortive at $2.50 to $2.60 per share.

This outlook assumes a continuation of the market dynamics we experienced in Q2. We are not forecasting any material improvement or deterioration. It reflects the expected net impact of tariffs based on currently announced rates. Now let me provide a few additional modeling considerations. From a phasing perspective, we expect Q3 reported revenue to be broadly similar to Q2, including a modest tailwind from FX. We are modeling second half core revenue growth broadly in the range of the core growth we saw in the first half.

We also expect AHS core growth in the second half to be similar to Q2 with a more challenging year-over-year comparable in Q3. From an adjusted EBITDA perspective, we expect typical seasonality with Q3 adjusted EBITDA lower than Q2 on a dollar basis. As a reminder, with lower debt balances, our interest expense will be lower in the second half. We continue to expect a full year adjusted effective tax rate in the mid-teens.

However, we are modeling Q3's tax rate in the high teens and the Q4 tax rate in the single digits due to discrete tax items in the quarter. Given seasonal revenue and margin patterns and the interest and tax assumptions I just outlined, we expect Q4 adjusted EPS to be meaningfully higher than Q3, which we currently expect to be slightly lower than what we saw in the second quarter on a cents basis.

Before I wrap up, I'd like to take a moment to walk through our approach to guidance and disclosure for the remainder of the year. As we have just outlined, we will provide annual adjusted EPS guidance updated quarterly, along with commentary on phasing throughout the year and modeling help on other key P&L line items. Our disclosures will remain focused on key metrics at the Fortive and segment level with color at a lower level of granularity as appropriate to provide clarity on key drivers of performance. This approach reflects our ongoing desire for clarity and simplification in our communications with the investor community.

As a final note, before turning it back to Olumide for closing remarks and Q&A, I wanted to directly and clearly state that recent near-term revenue volatility has absolutely no impact on our confidence in the future outlook for our business. And specifically, the medium-term financial framework we shared at our recent Investor Day remains firmly intact. Q3 marks the beginning of our new chapter and we are moving the pieces into place to drive accelerated growth and shareholder value creation in the coming years.

The 3-pillar value creation plan we outlined at our June Investor Day is now solidly in the implementation phase, and I couldn't be more excited for the road ahead.

With that, I'll turn it back to Olumide.

Thanks, Mark. Let me close our prepared remarks on Slide 13 with a few reflections on what's ahead for Fortive. First, we have a long track record of strong annual financial performance, as presented on this page. Solid revenue growth, expanding EBITDA margins and resilient free cash flow in the last 5 years. Q2 2025 was our last quarter before the launch of new Fortive. While core growth in the quarter was below our expectations, our earnings and free cash flow stood up well in the face of unexpected headwinds. We delivered 4% adjusted EPS growth and 14% trailing 12 months free cash flow growth. This is a testament to our team, the [ operation ] leverage and cash generation strength in our business and the Fortive Business System.

We are excited about what that portends as we return to normal and accelerating growth. With Q2 and the spin behind us, we now enter the era of Fortive accelerated. Our [ purpose built ] new Fortive team is excited about the opportunity ahead of us, and we thank you all for your interest in Fortive. I especially want to thank our investors, our 100,000 customers and all our Fortive employees around the world across our 10 iconic operating brands who do a tremendous job every day, deliver near-term results and build enduring advantages in our businesses.

With that, I'll turn it to Christina for Q&A.

Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions. .

[Operator Instructions]

Our first question today comes from Julian Mitchell of Barclays.

And congrats on getting the first earnings out of the way as RemainCo or New Fortive. Maybe just wanted to start with the sort of second half moving pieces between the third and fourth quarter. So it seems like maybe third quarter EPS is in the maybe low mid-50s range in terms of cents, perhaps sort of flattish EBITDA sequentially and then there's the tax pressure. And into the fourth quarter, it looks like you need a sort of $0.30 or so increase in EPS sequentially helped by that tax rate dropping in Q4. I just wanted to make sure that, that rough framework made sense in terms of your full year guidance. And just sort of help us understand on the operating line, why do you get such a big lift in Q4.

Yes. Thanks, Julian. I'll take this one. So there definitely are a few things going on. I'd say directionally, you're thinking about things the right way. As a reminder, just normal seasonality of this business is for there to be a step down from Q2 to Q3. So you definitely see that in the way we're sort of shaping the year.

Added to that is we do have some negative impact from tariffs still that are going to hit us in the third quarter, which sort of builds upon it. And then as you move into the fourth quarter, again, normal seasonality is the biggest driver. But if you work down through adjusted EBITDA first, you've got a couple of other factors. One is that the tariff countermeasures are fully implemented and they actually become a slight positive at current rates into the fourth quarter.

And secondly, you've got a tailwind from FX, which, again, foreign-denominated currencies, more U.S. dollars in revenue, and the vast majority of our costs are sitting in U.S. dollars. So that does drop through to adjusted EBITDA. That's been compounded as you move down to adjusted EPS because you've got the discrete items on tax rate that we mentioned, which pushes tax rate down into the single-digit zone. You've got lower interest expense on lower debt balances. And then you've also got the year-over-year impact of share repurchases, they're helping EPS as well.

That's helpful. And then just my follow-up would be around a couple of them main end markets that led to the shortfall in Q2 and how you're thinking about those playing out from here? In particular, I suppose the government pressure at FAL. What are you assuming there in terms of how much faster that improves? And then in health care, just unpack a little bit because you had the sort of selling days headwind in Q1 and then it's seen to morph into something more problematic late in Q2. Sort of what are you seeing right now there in Q3? .

Yes. Thanks, Julian. I'll take that one. So in many ways, Q2 played out exactly how we expected, except for these 3 discrete items. So I'll go through the 3 of them. So the first one on the the FAL and government spending at Gordian. The nature of that is we were coming up after 2022 and 2023 where we had double-digit growth in that business. So we knew we kind of had a comp issue coming in. And then the June, we always say June is a big month, but in particular for that business because it's the year-end, for the state and local agencies. They usually have a big spike in spending, which just didn't happen as much I've seen for the last several June -- the last several years.

But what we do know to be the case is that the projects in the pipeline are still there. They are essential projects for these communities that have to get done. So we know as a matter of fact, that these agencies are working through getting those projects funded. The exact timing of when they flow through our revenues is hard to predict. I would say that for the second half, the guidance we've laid out here comprehends any range of outcomes on how that plays through, whether it's fast or slow. We have enough other things to make sure our guidance here is secure.

So that is going to trickle through, just the prediction of the time line is hard to nail down. With respect to health care, I mean, I would say that the overall segment continues to be very strong for us. There was a very specific plan in June for capital equipment purchases by hospitals. So if you think about it, the 1 Big Beautiful Bill was signed on July 4. So that means that 3 weeks before that, these hospitals were trying to figure out what the final provisions were going to be, how that affects the economics in terms of especially Medicaid and sort of uninsured and what that means for them overall.

So a lot of them really just precautionary deferral health equipment purchases. These are essential sterilization and safety equipment that they do have to buy. We've already seen in July some favorable trends that some of that's coming back. So again, we know it's going to come back. We haven't assumed it's all going to flow through in Q3 or Q4, our guidance is secure, whatever the time line is from that.

And I think the Fluke one, just to close it out, Julian, it's the easiest one in many ways because POS was very strong, orders grew in the quarter. And so you said, well, what happened. It really was we had a slight shift in mix from short cycle to longer cycle in late June, which meant we build backlog. And so again, we know the backlog is going to burn over the next few quarters. And again, whatever range of outcomes is safe within our guidance. So overall, a solid quarter, and we feel good about what we assumed here.

The next question is from Nigel Coe of Wolfe Research.

So I think you said sales in line with 2Q and 3Q. And then you clarified to the previous question that sales normally down Q on Q. I just want to clarify that point. Is organic sales in 3Q consistent with the modest decline we saw in 2Q, just want to pin that one up?

Yes. I mean I would think on a consolidated basis, it's roughly in line. The 1 thing to keep in mind is that for AHS specifically, I would expect the back half growth rate to be consistent with what we see -- saw in Q2, again, really largely on the factors that Olumide mentioned, there continues to be pressure on health care reimbursement rates, and we don't expect that to subside in time in the back half of the year. .

Okay. So just -- so again, maybe just being dumb. So the organic sales growth consistent with 2Q on in d basis or dollar sales? .

Dollar sales. .

Dollar sales, Okay.

Growth rate to be roughly [indiscernible] in the first half.

Okay. And so that implies that IOS organic sales growth would improve materially in 3Q, but AHS still in that down 2% type of range. if we're seeing this temporary dislocation in June from the sterilization equipment, why wouldn't AHS improve in the second half of the year?

Yes. Let me take that one, Nigel. That's the right question. I think part of it is the Q3 2024 comp for AHS is quite high. So that's part of what you see. And so Q3, especially for EHS, would not show the quick pop in [indiscernible] improvement that IOS will show. And I think we also, again, just precaution, we've kind of assumed in our guide here that, to Mark's point, these hospitals, and they're different -- the academic hospitals are different than the big ones than the rural hospitals.

But we've just kind of from a prudence point of view, assume that it takes a bit of time for it all to unwind. Unlike for Fluke, where we know its backlog we built, and that's going to be easier to burn because it's all in our control. So there's some of that that you see that the comp effect in Q3 for AHS and it's just the nature of the specific hurdles that we run into in late June and what we've assumed for how quickly they resolve.

So comps certainly do get tougher. So I see that. And then just a quick one on Gordion. It seems like you had a little bit of the June year-end friction around use it or lose it. So just to be clear that that business has recovered in Q3 so far. I'm just wondering, could you maybe just give us some renewal rates around Gordion or the IOS software. That would be helpful.

Yes. So I mean just on the Gordian piece. So yes, it was a specific situation around this year and for the state and local. We are seeing that kind of ease up a little bit in July, but it's too early to call victory on it, but it's certainly feeling like things are easing up a little bit. I think in terms of overall software renewal rates, I would tell you that all of our software business has had very good NDR in the quarter. So renewal rates are really strong across the board.

What we're really focused on is instead of just gross dollar retention, really working on the kind of the expansion and the cross-sell and upsell and pricing to get our MDR to even higher levels. But from a renewal point of view, are all really strong, really, really strong, like Mark mentioned, we're talking about the 3 areas that kind of didn't go the way we expect. But the fact of it is, everything else, went really well for us in the quarter, which I think just gives us a lot of confidence as we look at the medium-term outlook that we laid out 7 weeks ago.

The next question comes from Stephen Tusa of JPMorgan.

I Echo Julien's comments on congratulations for coming out here in your first quarter public.

So just a little bit on the -- at a higher level, the rationale around -- I mean, I didn't quite get the slide maybe. But it looks like you guys will not be giving organic growth guidance at a high level, you'll just be giving kind of like color on that. Is that right?

That's the intention Steve. And I think I would think about it as we're going to try this approach for the back half of the year. We want to get feedback as we go. And really just to reiterate the goals here, number 1, is we just really wanted to simplify the way that we communicate with investors has certainly been a strong point of feedback from the broader investment community of course, and we've taken that on board.

Secondly, though, just to be very clear, our sights are very much set on the value creation plan that we laid out. It's a multiyear value creation plan. And so part of the simplification effort is to make sure that we have the ability from quarter to quarter and across P&L items to make business decisions that are smart business decisions that will support that medium-term value creation goal and that's what's led us to, again, annual adjusted EPS, only with hopefully modeling help it is maybe more helpful than specific quarterly guidance might have been in the past.

Okay. yes, my feedback would be like one number is probably not enough, but I guess we'll see how it goes in the next couple of quarters here. And then I think Olumide, you said you're going to -- you emphasized that you're kind of ready to do bolt-ons. I thought there'd be a little bit of a breather on that front. Is there anything that you are changing in that approach relative to what Fortive has done historically? Was there a bit of a reset on the process or anything like that? Or should we just think about this as a continuation of what's been happening for the last few years.

Well, so thanks, Steve. So I mean, it is -- we've tried to be really clear about how this is a very different capital allocation play call that we've made here. And so the first is the kind of the dynamic balance across share repurchase and kind of accretive M&A that is really focused on bolt-ons. So that is very different. The second thing that is different is, we've really elevated our kind of the financial and strategic scrutiny that we apply to these bolt-on deals that we do.

We have a strong track record on them. And we've elevated that level of scrutiny on those bolt-ons. And I would say in terms of kind of the timing, obviously, we've been kind of quiet now since we announced the spin in September 2024. And even for 9 months before that, we've been quiet. So I think 1 thing we've continued to do in that quiet period, Steve, is we've continued to cultivate these proprietary deals with assets that are close to areas of strength for us that we advantage natural owners for that we know exactly how to create value for.

So now we're kind of opening the conversation to see which ones of those meet a very high bar on bolt-ons that are accretive and have strategic fit and meet our financial criteria. And it's always, as you know how to predict the exact timing of when these things will mature for execution. But we're open for business, and at the same time, a level of kind of discipline and especially our attention to making sure that every deal we do is beyond reproach is really high right now. So we'll hold it high bar, but we're also open for business.

The next question is from Jeff Sprague of Vertical Research Partners.

Yes, I'm still a little confused on a couple of the guidance inputs here and myself. So I think we've got AHS nailed down. But what are you implying for IOS then dollar sales roughly equivalent in Q3 and then a seasonal pickup in Q4. Can you just clarify that? .

Yes. I would think about IOS broadly is following the same pattern that we spoke about for Fortive in total. So you will see a pickup in core growth through Q3. And I think about the back half in total, as being broadly consistent with what we saw in the first half in terms of core growth rates.

And then just trying to triangulate to what you said about EPS and maybe I've got something wrong below the line on interest or other. But so it looks like you're implying down margins on flat sequential revenues in AHS. Is that correct? Or where is the implicit margin pressure in Q3?

So Q3, I would think about AHS as being broadly consistent with -- I'd say, probably down a little bit versus Q3 of last year, again, just on the trends that we saw, tariff impact, et cetera. And then IOS, I would think about is, again, just down slightly, again, on that tariff impact. And then you see a rebound in the fourth quarter on the factors that we mentioned.

And I'm sorry, just -- I mean there's -- I guess there's an upper bound on high teens and there's a lower bound on single-digit tax rate for Q3 and Q4. But maybe you could just tell us what you're expecting for the annual tax rate. So we don't get too far out of whack, I'm trying to triangulate between those 2.

Yes. I mean I would think about annual tax rate in, call it, 14% to 16% zone.

The next question is from Scott Davis of Melius Research.

Congrats on getting all the stuff done. So I'm sure it was a lot of work. But in that context, as I just wanted to ask, how big of a distraction was it to the organization with the spin and the management change kind of at the similar time, I would imagine that would create some angst amongst folks, but maybe some color around that.

Yes. Well, thanks. I think the -- it is a lot of work for the team, and I'm grateful to just the incredible effort that our teams put into getting the spin executed at the same time getting the quarter delivered and end up at the high end of our adjusted EPS guide. So it was a lot. And to your point, the leadership change is a lot too, while obviously, I'm not new to the team, but it's still a change. I would say that in the spirit of our culture because the thing that makes Fortive special, it's not any one of us is the fact that all 10,000 of our teams are deeply rooted in the Fortive business system, and that's how we do everything we do.

The show goes on in that sense. So from a distraction point of view, for most of our operating companies, which is where we serve our customers, it really wasn't much of a disruption. Most of the spin activity was on the corporate team. So again, I wouldn't say it was not changed, but just to calibrate it, overall, we still delivered a solid first half despite this kind of late in the quarter call growth range that's $30 million on a $1 billion revenue base in the quarter, I think our teams just did an incredible job of resiliency, staying focused, and I'll tell you just right now, the level of excitement about the future and the path we're on with Fortive Accelerated is quite a thrill to see.

The next question is from Andy Kaplowitz of Citigroup.

So you mentioned the deferred spending at Fluke toward the end of the quarter, but you said that the order mix, I think, is normalizing. I guess the question is why did you see a bit of a gap down now? Because Fluke's been as you know, pretty stable for a long period of time, even I think in the initial tariff-related volatility. So how much do you worry if at all, that it's just maybe more macro uncertainty creeping in? Or it's just the sort of temporary thing? And what are you seeing in the channel?

Yes. Thanks for that question. I mean, I think we're -- I'll just step back for Fluke overall, you're exactly right. Our level of confidence and excitement in the kind of really differentiated position of that business. If you think about industrial professional instrumentation, you'll be hard pressed to find a business with the brand strengths and the gross margins and the resiliency that we've shown the fact that [ 15% ] of that business is now recurring revenue, an continues to grow at double-digit ARR for that piece of it.

So nothing changed about Fluke, the focus on innovation and how that adds acceleration to what's already a great story. So all of that stays the same. And I think, again, what happened in Q2 was, again, just very simply, for short cycle type of products, customers on a few big orders saying, "Hey, I want to wait and see what happens with tariffs before I place the order. And in the meantime, I'm going to burn through the inventory I have" and a lot of those are coming back now.

So the broad story that's the context for your question is right, which is outlook remains strong, we feel great about the outlook. What we've done with the second half guide is really just very prudently and in a balanced way looked at what we saw in the first half and the fact that kind of the tariff back and forth is not all settled yet. And while we don't know exactly how all of that will would trickle through the system, including in some of the international markets in Western Europe and China and Latin America where there are other things at work in those markets as they try to shift some more money to defense and all of that.

We just prudently assumed that the second half in a kind of call growth performance for Fluke and IOS will be the same as what we saw in the first half knowing that there's a lot of things that give us kind of a chance to accelerate off that going into next year. So nothing has changed about the fundamentals of Luke in many ways, we're more excited about our prospects now in the medium term for that business than we've ever been. But we just really try to be prudent and balanced about the second half guide.

Helpful. And can I ask you a follow-up to that? Like if I look at China and Europe, it feels like at best those geographies are stable and maybe there's been a little bit of a step down as you for instance, you get that transition to defense in Europe you talked about. So what are you seeing there? Are you guys seeing sort of stability? Is it a little bit weaker in those regions? More color, I think, would be helpful.

Yes, absolutely. So I mean let me just give you a feel at a point. So from a point of sale point of view, I'd say North America was our best market. And so -- and as we look at the rest of the year, I expect that to be the case. I think double-digit POS, which is really strong. And then for Western Europe and most of APAC, the point of sale is generally flat, kind of flattish, which, again, is consistent with what we expected coming into the year.

I think as we look out, we're not assuming any of that changes dramatically. We think for North America will continue to be strong. I think in many ways some of the benefits of the policy changes as it pulls more industrial manufacturing capacity into the U.S. will provide a tailwind for North America. So we feel the North America trajectory remain strong. And then for China, we really do feel like -- it feels like there's -- it's bottomed out a little bit and it gets better from here on, especially given the framework on tariffs, feels to be getting to some point of closure on here.

We think that would reduce some of the anxiety in the system and help us sort of see the bounce in China over time. And in many ways, I think Western Europe is the one that still to be seen as they kind of try to walk through a number of [ active wars ] in the region and a number of important decisions on moving spend into defense and how that affects the the overall economy. But again, I feel good about the work that our team is doing in terms of innovation for those markets and controlling the things that we control.

The next question is from Joe Giordano of TD Cowen.

Just curious with all the pressure on hospitals and what reimbursement can mean for margins for like most of the hospitals are -- a lot of non-for-profits a lot with really thin margins. Does this push them towards like more down the line to single-use applications where it's just -- if they're focused on lowering the amount of dollars they spend at any given time unlike larger-scale equipment?

No, we don't think so. I guess this is a short answer. I think if you think about what this all means for health care providers, I think it means they probably would have pressure on reimbursement. They may even have at some level, pressure on sort of the kind of the inshore customer base, which may affect volumes. And so then you say, well, what are they likely to do about that? I think the first thing to think about is the profit center for these hospitals are in the operating room. So they're likely to want to move more activity through the operating room.

And as they do that, the fact of it matter is. There are a lot of disadvantages to single use steel, including effectiveness and also kind of total cost of ownership of those kind of approaches versus the kind of high effective instruments, robotics, endoscopes that are really needed for the highly profitable procedures going to the OR. So we don't -- we see in many ways more movement to advanced devices that tend to be connected with more profitable procedures.

And those devices are not single use and those devices would need very tough on germs and gentle on devices, sterilization procedures that map well with where we've picked us a position of strength. So I was with one of our big hospital clients just recently. And absolutely, everything we're hearing from them is, hey, we need you more than ever because the way this market is shifting, we need more through the OR. We need things that can really help handle robotics and endoscopes and these types of instruments that are becoming the higher -- you think about the volume of use of devices in ORs, it's really shifting towards this higher value, higher effectiveness, higher complexity devices, not not single use things that it really economics when you think about the total cost and the effectiveness trade-off just isn't as compelling as you might say.

Fair enough. As you guys start on bolt-on M&A., I'm just curious what the -- like the appetite is on the software side, just given where the multiple of the stock is, what you might have to pay for stuff like this. What is the kind of appetite to buy something that might be fast growth, but it's early stage and may ultimately grow slower? Just curious where that kind of force ranks between acquiring in fall versus acquiring an like on Fluke or on AHS type stuff.

Yes. Well, I'd say, overall, we've tried to keep it simple, which is that we have clear strategic and financial criteria. And whether it's a software asset, consumable recurring revenue asset, kind of a differentiated, very durable hardware asset. They have to meet the same criteria. So we've shown that irrespective of the type of asset, when we apply the new focus we have on proprietary deal cultivation, this is like we're not waiting for a [indiscernible] process, we're actually cultivating this over many years, whether it's software or hardware.

You can get a great asset and price is very much part of our strategy when we think about the ac accretive nature of this asset. So you get a great asset but also at the right price that obviously, to your point, is compatible with kind of the multiple we're trading at and give us the chance to be accretive from that perspective. So we feel good that we don't really need to draw a hard line as long as we stick on principal to the criteria that we've laid out.

Again, if you think about the bolt-ons that we did in the second half of 2025, there was a software asset in there, and it was -- the price point fit very well in terms of multiples. We didn't have to get frothy. And we had some data AI assets, and we had some hardware assets. So that's how we're looking at it. We'll hold to our criteria. And if it fits, it fits. If it doesn't, we don't sell a compaction to do any type of deal.

The next question is from Deane Dray of RBC Capital Markets.

I'll also add my congrats. I missed the first couple of minutes at the opening, so I don't know if this got to address. But anything on stranded costs? Is New Fortive already sized appropriately post spin anything kind of repositioning that and what the timing would be in size.

Yes. Thanks, Dean. I'll take that. I'd say we're broadly on track with the the guidance that was given previously. We've got about, I think, half of the stranded costs that are out, done and dusted and we're going to work on the rest over the next, call it, 12 months or so. I would also say just generally, as a team that sort of got this opportunity to drive or medium long-term value creation here. We are looking at opportunities around the business to just be more efficient to be able to divert dollars to their highest and best use. So I think in addition to stranded costs, I mean, we're going to be on the lookout for other opportunities to essentially describe better performance across the business through cost discipline. .

Great. And then just as a follow-up, -- on the cadence of the months, June being down, July bounced back, stabilized. We've heard that elsewhere today and some another industrial. Can you just expand on that? What were the businesses that were down in June? Was that deferred? And you think that will still the return in July, you still might see some of those deferred projects coming back over the next couple of quarters. But just kind of digging there, what were the businesses and expectations for the quarter.

Yes. No, thanks. So there are really 3 specific areas. So the first one was some of our short cycle professional instrumentation product groups at Fluke where we saw customers on some big orders just say, "Hey, I'm going to wait to see what happens with tariffs on July 9 and on August 1." And then I think a lot of them are now coming back in and placing those orders. So we feel good that, that results fairly quickly. And that's a big chunk of it. The second area is on health care capital equipment where, again, hospitals were holding up and seeing the impact of the Big Beautiful Act and other affect economics before they procure capital equipment.

The funnel remains strong. We didn't lose a single one of those deals just to be really clear. And so it's really things shipped into the right. The exact timing of when those customers place the order., we've tried to be prudent and it feels like it gets better in July, but it's too early to call kind of final victory on that. And then the third one is the state and local government procurement business where -- and think about this as projects in each of our communities where they're trying to fix it leaking roof and city hall, they're trying to replace mechanical equipment in a K-12 school that has to be replaced. And on the margin in the June year-end for a lot of them, they had less money to kind of use it or lose it.

And so they deferred some of those, but the projects that have to get done. So again, they will come back to it. So we -- and everything else at Fortive was right on track with what we expected, except for those 3. So we feel good about how that resolves. We've tried to be prudent on assumptions about how quickly they all come back but that's how we thought about it.

This now concludes our question-and-answer session. I would like to turn the floor back over to Olumide for closing comments.

Excellent. Well, thank you all for joining us. We appreciate your interest. Our team as you hopefully can sense is incredibly excited about the opportunity ahead. We've laid out the plan to have this company in its simpler and more focused form grow faster. We got our entire leadership team together to get everyone aligned on that. Just in the last couple of weeks here, the excitement level is really high for us. We also said our capital allocation is a critical part of our value creation strategy. So the discipline on that is going to be ferocious from our point of view going forward to make sure we're beyond reproach.

And then just making sure that we build and maintain investor trust. And again, hopefully, you've seen that in the way we are approaching these communications. We thank you for your interest, and we'll see you around.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines, and have a wonderful day.

Ladies and gentlemen, please welcome Elena Rosman.

Good afternoon. Welcome to the Fortive portion of the 2025 Investor Day. I hope you all had a chance to enjoy the showcase, highlighting our innovations across both Fortive and Ralliant. But since this is now Fortive's time, we're going to talk about those innovations that are really driving safety and productivity for our customers. And you're going to hear a lot about that unified theme today.

So just some quick housekeeping. Today's presentations do contain forward-looking statements, which are subject to a number of risks. Actual results may vary for reasons that we cite in our Form 10-K and other SEC filings. Turning to the basis of presentation, and this is really the big highlight for all of the analysts in the room.

Unless otherwise noted, all of the financials included in the Fortive presentation are representing New Fortive, excluding Ralliant. And in the very back of the appendix and on the presentation online for those that are on the webcast, you'll find historical New Fortive financials on a continuing operations basis for the years 2022 through 2024 and quarterly for the last 2 years.

And just quickly, a time line reminder. The spin-off of Ralliant will be effective on June 28. What that means is that both companies will be trading as independent companies on Monday, June 30. Following the spin, Fortive will continue to report 2 segments: Intelligent Operating Solutions and Advanced Healthcare Solutions. So maybe just to kick it off with a brief overview of the agenda.

Olumide Soroye will give us his strategic vision for Fortive Accelerated. Next, the presidents of our 3 largest businesses, ASP, Fluke, Facilities and Asset Lifecycle Software are going to dive into their businesses, give us a little bit of a peek at the market-leading brands that are aligned to really strong secular drivers and how they're leveraging the power of FBS Cliff to drive faster and more profitable growth.

And then our CFO, Mark Okerstrom, will provide an overview of the new Fortive financial track record over the last 5 years and then lay out his formula for our value creation strategy going forward. We will, of course, have a Q&A period, and we'll plan to end promptly at 4:00 p.m. So with that, we're thrilled to kick-off with a brief video highlighting our New Fortive.

[Presentation]

Ladies and gentlemen, please welcome Olumide Soroye.

Thank you, and thank you for joining us. We appreciate your interest. So we begin a new chapter at Fortive. Over the last 9 months, since we announced the CEO transition, I've had a chance to meet many of you in the room and joined us online.

And there's been a few frequently asked questions. What's going to be different about New Fortive? How are we going to accelerate shareholder value creation? And why should you be excited -- we're going to talk to those questions head on in the next few hours. And I hope you leave the time together with clarity, confidence and excitement about our path forward.

There are 5 key messages you're going to hear from me and from the rest of our team today. And I'm just going to walk through that to get us started. #1, we are a simplified forecast company with a track record of strong, durable financial performance fortified by our 50% recurring revenues.

We're going to be around $4 billion in revenues, 65% adjusted gross margins, 30% adjusted EBITDA margins greater than 100% adjusted net income to free cash flow conversion. Over the last 5 years, we've delivered 4% core revenue compound annual growth rate.

That's where we start from on day 1. The second key message is that we're poised for acceleration. Acceleration in our revenues, in our earnings and in our shareholder value creation. I'm going to talk to the strategy that's going to power this acceleration. It starts with our high-quality operating brands that are lined up with attractive markets with favorable circular trends.

And that's supplemented by a very intentional durable business. As a strategic choice we've opted to build a company designed for durability. And you're going to hear that. You're going to hear that in the competitive advantage of our businesses. You're going to hear us in the diversity of the end markets and the geos that we play in. You're going to hear that in the recurring revenue percentage of the business. You're going to hear that in the fact that just about all of our businesses focused on the operating expenditures of customers rather than the capital expenditures.

It's an intentional design for durability. The third key message is that a Fortive Business System is the engine of our success and will remain so. But it gets better because we're very intentionally improving the Fortive Business System to make it even more potent for accelerating profitable organic growth. We're doing that by infusing our AI capabilities that we've been incubating over the last 7 years into the mainstream of the Fortive Business System, which means these tools and these capabilities become part of our day-to-day weight at Fortive.

Key message #4. We're a great company. We accelerate Fortive Business System helps us do that. We generate so much free cash flow, $1 billion a year and growing. As a New Fortive team, we are committed to being excellent disciplined capital allocators. That's a choice that we're making. You're going to hear that show up as the dedication to make sure that every single dollar of excess free cash flow we deploy to the highest relative risk-adjusted returns for shareholders in the medium term.

Our priorities are clear. We invest in organic growth. We do M&A with a very high level of discipline bolt-on biased, but M&A nevertheless, we are very confident in the quality of our company, and so we're happy to do share repurchases where it's a better return, and [ M&A ] will have to compete with that. and we will maintain a regular growing dividend.

Importantly, you're going to hear us talk about a very rigorous process that we're putting in place to make that strategy happen every day. And the fifth key message and perhaps the one that I'm most excited about is that we have a strong energized purpose-built team. That is a fine blend of the history of Fortive and the Fortive Business System with a very intentional injection of capabilities with new talent, where we need it for the strategy that we're describing.

That's a story for the day. And I'm just going to lay the landscape I run through each of us. So first, why are we simplified and focused? Well, Fortive has been a public company now for 9 years. It's been 9 years of intensive portfolio transformation including the Ralliant spinoff, we would have divested of $6 billion of mostly recurring revenues.

We would have acquired about $2 billion of much more durable revenues. So that's what we've gone through. We now emerge from that intense portfolio sculpt in a focused, simplified durable growth company. And I say that for 3 reasons.

First, everything we do at New Fortive, will have a unity of why. There's a single shared purpose. Second, everything we do will have a unity of how. There's a single set of core values and a Fortive Business System that applies to everything we do. And everything we do will have a unity of what the financial profile of our 2 segments are strong and complementary, there is a strategic and financial coherence to new Fortive going forward.

Let me give you a bit of a taste of those. The reason for our existence at New Fortive is to innovate essential technologies to keep our world safe and productive. Every single 1 of our 10 market-leading iconic brands is united in the pursuit of this mission. We may do it in different arenas, but it's the same mission. It is the same purpose study that infuses every one of our 10,000 colleagues across Fortive with the passion they bring to pursue it every single day. And many of them here in the room, you're going to see many of them in the video, and I hope you get a feel for that. There is meaning in what we do.

And the 100,000 customers that entrust us every day with a mission-critical safety and productivity needs are all in the same pursuit. There's a unity in everything we have at new Fortive. There's a unity in the hub, the set of core values that we have exceptional teams for exceptional results.

Customer success inspiring our innovation. Kaizen as a way of life and competing vigorously for shareholders. Those same set of core values applies to everything that we have at New Fortive. And our Fortive Business System is very much the engine of our success for every single one of our operating brands. That's coherence to our how.

And as coherence to our what. On the left side of the slide you see the financial profile of New Fortive as we emerge, that where we start from. Like Elena mentioned we will continue to report in 2 segments: Intelligent Operating Solutions, 70% of the company focused on industrial operations. Advanced health care solutions, 30% of the company.

I would point out that everything we do in health care is the most industrial-like aspect of a hospital. It is how you clean instruments how you move them around, how you make sure their critical biomedical devices are compliance and functioning and how you make sure you're tracking radiation to keep medical professionals safe.

That could as well be in the steel plant. It is how you run your one piece flow through a hospital. So there's very clear coherence in terms of the problem we solve. Each of these segments also have the distinction that majority of what we do comes from customers' operating expenditure budgets, not their capital expenditures.

That means that we are not exposed to the upswing and downswing of the CapEx cycle. That means we are field maintenance operations-oriented things they have to do anyway every day and do very well every time because it matters. That's what both of the segments did. And the financial profile of the 2 segments are very complementary and each very strong.

In Intelligent Operating Solutions, we've grown a little bit faster. Our adjusted EBITDA margins are higher and I'm excited about continuing to drive the recurring revenue percentage that we have in that segment. Currently, we have 35, much lower 5 years ago, continue that journey of increase. And I'm going to talk about how we do that.

On the advanced health care solutions side, we have an incredible platform with 80% recurring revenues. And I'm excited about continuing to accelerate the top-line growth and margin expansion in that segment. These 2 segments together means we have headroom in top-line growth, recurring revenue percentage, EBITDA margins flowing down to free cash flow and creating so much value for our shareholders.

We exchanged talent across the segments. We share brands across the segments. We share strategies for growth across the segments we share operating infrastructure across the segment. There is incredible coherence to what we have at New Fortive.

So let me talk about where we start. On June 28, when the spin is complete, we started day 1 accelerated. This slide shows the last 12 months for Fortive, as you've known it so far. On the left and on the right, is last 12 months, the same period for New Fortive as it's going to be configured. You can see the acceleration in top line, just reflecting the reduced level of cyclicality from one portfolio to the other.

We've grown 4% core revenue CAGR over the last 12 months in New Fortive. 50% recurring revenues, most of that in high incremental margins, software and consumables means you see the benefit down the P&L. You see the better gross margins, the better EBITDA margins. And given our working capital discipline and capital light approach to those businesses, you see the free cash flow benefit.

We start day 1 accelerated. And you look at the last 5 years for New Fortive, 4% revenue, core revenue, compound annual growth rate, 8% reported revenues compound annual we've expanded gross margins 300 basis points. And you can tell the operating leverage in the business with 12% growth in adjusted EBITDA and 12% growth per annum each year in free cash flows. And by the way, in this period, there's been a pandemic the PMI index in U.S. and EMEA has been in contraction zone for a big swath of that period of time. There's been geopolitical disruptions, there's been supply chain disruptions. This is what durability by design looks like. That's why we're different. Now we are better every day. That's what we think. And we believe fundamentally, we can do better than what our past suggests is prologue.

And we have an exciting moment here to bring that to life. And I want to take a few minutes to share the strategy that's going to power this acceleration. There are 4 key pillars to our story to underwrite the acceleration here, the 4 things that you have to believe.

The first one is that we have a high-quality set of brands. There's 10 of them. Each of these brands are aligned with attractive markets that have favorable circular trends. Each of these brands, as you'll hear me talk about, item #1, are leaders in their categories. Many of them invented their categories. These are iconic brands.

#2, is durability by design. We've made a strategic choice that a defining attribute of that company will be building everything for sustainability and durability. I'm going to talk about that in terms of the competitive advantages in our businesses in terms of the diversity of our end markets and geos. In terms of our recurring revenue percentages and frankly, in terms of the operating expenditure forecast that we have versus CapEx and the pace of new product introduction that's become a big self-help component of why we're durable because we're launching so many new things that bring in incremental revenues, powers that durability, durable by design.

The third key pillar of our strategy is that the Fortive business system, which has been the engine of our success over the last decade. And for companies that came before Fortive was created. That we have a chance to amplify the impact of the Fortive Business System by in a very focused way, improving its efficacy for accelerating profitable organic growth.

I'm going to talk through exactly what we're doing to make that happen. And importantly, for us at New Fortive. As important as those first 3 pillars are, we are committed to being excellent at the fourth pillar. This idea that capital allocation excellence can be a point of differentiation for a company and a management team. It's 1 that we hold deeply as an objective. So you're going to see us talk through how we're doing that and the process behind it.

Those are the 4 pillars. It starts with our 10 high-quality iconic inventor brands. Each of these brands, #1 are leading players. A very similar template across all of these brands. We find markets, but not just markets, we segment that to find specific swim lanes within a big market that has the best growth characteristics, opportunity for differentiation and large profit pools.

We don't try to be everything to everyone. We pick swim lanes with the best characteristics. That's true for every single one of these brands. As you listen to the spotlight. You're going to hear that thing. How we look at a big space, but pick particular the most attractive arenas in that space.

And the markets that we picked across these brands give us an incredible opportunity. There's $45 billion of addressable market opportunity, a great runway from our $4 billion starting point. And this market for both of our segments are benefiting from strong favorable circular trends. And I'll just give you a few examples of those.

In Intelligent Operating Solutions a simple way to think about it, anything that expands the industrial capacity of the world means you got to operate that capacity, you've got to maintain that capacity.

Anything that increases the maintenance intensity of capacity in the world infrastructure means you need more of our solutions to do that. Well, think about what's going on in the world right now. The reconfiguration of global supply chains, the focus of nation, states and companies are trying to build resiliency by having local for local industrial capacity means that so much going into expanding capacity 200% increase in the U.S. manufacturing construction investment, since 2020. And by the way, that's true for most countries in the world because everyone is trying to do local for local. That means more industrial capacity.

Not the investment itself is what drives our business. It's what you do after you build it. It's the operations, it's the maintenance of it, great tailwind for our businesses. Think about $1 trillion of deferred infrastructure maintenance backlog that's waiting to be unlocked. At some point, that infrastructure maintenance has to happen. When it happens, it drives value for our business. So great tailwinds for that business.

On the health care side, anything that increases utilization of health care services, anything that raises the need for productivity amongst health care professionals is great for our business. So think about 20% of the U.S. population is expected to be -- actually will be over 65% by 2030. And turns out 80% of our seniors have 2 or more chronic conditions that need health care services.

Combined that with the growing middle classes, 1.7 billion people expected to be added to the middle class by 2030. All of those come in with expectations of higher standard of care in health care. All of that drives up the need for health care services. All of that creates a flow of opportunity for our businesses. And then combine that at the same time with the fact that we're facing a shortage, a global shortage of medical professionals, doctors, nurses biomedical engineers, steroid processing department technicians. This 10 million shortage projected by 2030.

The less people you have the more productivity tools you need. That's what we do for customers. We make them get more out of less. And not only do we have these great brands and this great market trends that are driving value for us, but we also are durable by design. And that comes from a few things.

To start with a competitive advantage that's built into each of our operating brands. You're going to hear Parker, Chad and Arul bring that to life in the spotlight. But the pattern is the same. We play with differentiated solutions. We don't do commodity businesses. The differentiation might be from a technology that's patented, might be accelerating innovation. It might be proprietary data analytics and networks, but we do things, where we can distinguish ourselves.

And we combine that with deep customer loyalty, that might come from our iconic brands that invented categories. It might come from just superior customer experiences, deep integration into customer workflows or it could come from just our recurring revenue percentage, which we've honed over time. But that's not where the durability ends.

Think about the diversity of the end markets and verticals that we serve. This brings in resiliency on top of our advantages. That means we have stability through economic cycles. That means we have more ways to win and more vectors for growth. And that means we have less exposure to any single variable.

China is a great market for us. It's now going to be about 8% of New Fortive after this finished on. It's double digit of Fortive today. That just narrows our exposure to any one vector. And this is an important 1 for me because we've intentionally focused on recurring revenues. And this lays out how, over the last 5 years, we've increased our current revenue percentage by 700 basis points. We're now going to start as New Fortive with 50%, but we're not done yet. We're not done yet because across all of our businesses. This is now a strategic question that is enduring.

We're asking every day, not just how do we get recurring revenues, but actually how do we deliver recurring value to our customers because that's what really leads to recurring revenues. And we're doing that with hardware as a service offering for customers with our sufficient software. We're doing that with a razor/razor blade consumable type models. We're doing that with AI-powered analytics that add additional insights for customers that they're willing to pay for.

That's how we continue to drive that recurring revenue rate. That's durability by design. So let me talk about the Fortive Business System. I've been at Fortive for about 4 years, and I've had a chance to learn, practice shape and lead the Fortive Businesses System. It is the engine of our success. You have to live it to believe it. It is a thing. And we are excited about that passion for the Fortive Business System enduring. And we believe very strongly that we can make it even better. And we focus on a few ways to do that.

First, we picked one objective, which is enable FBS to drive faster profitable organic growth. We're doing that by infusing our AI capabilities right into the mainstream of the Fortive Business System. For the last 7 years, we've had a separate center of excellence on AI that we call the Fort. We have merged that into the Fortive Business System, which means all of those AI use cases and tools are now available to all of our teams. They become part of our way every day.

That means the pace of innovation kicks up. And we've picked 3 specific areas: innovation, commercial and recurring customer value, where we want to make the Fortive Business System, more potent for helping our companies drive progress. I'll just give you a few examples of what we're doing the nature of those.

In innovation acceleration, and this is all about -- we want more new products for our customers that delight them and are very successful in driving incremental revenues, including AI-powered solutions. We're doing that by tuning our lean portfolio management adding AI into a secure product development, including core pilots and agents for all of our software developers.

We have a new Fortive innovation studio that's focused on AI ideation and rapid prototyping and deployment of solutions for customers. We're not starting cold, we're already seeing some results from this, 3x increase in our new product funnel over the last 3 years. You saw a number of our new products at the innovation showcase that came out of this process. Terrific traction, a lot more to do.

On commercial acceleration, this is about gaining share in our core markets. It's about getting into new geos that are attractive and new verticals. We've tuned our complete tool set from digital marketing to inside sales to field sales to strategic partnerships to make all those better in driving progress. In the areas where we've applied them, we're seeing early success.

High single-digit growth in the markets that we focused on last year as high-growth markets. And you can see some specific examples, where we had pockets of especially notable outperformance. Double-digit growth in our ASP [ light ] business last year, Fluke has added $3 billion to the addressable market using these tools. And you're going to hear Chad and Parker talk about some of those.

And with respect to recurring customer value, which is one that I have a lot of passion about because I believe that 50% number getting bigger is an important indicator of our progress on durability. While we're taking all those ideas I talked about on ways to drive customer requiring value, turning it into a toolkit for the Fortive business system to deploy more consistently.

Again, you see a few examples of early success points with a lot more to do. I'm especially proud of our double-digit growth in annual recurring revenues at Fluke over the last 3 years. That's a big piece. That's 1 piece of many reasons why Fluke is a durable company that fits square in the middle of the strategy for New Fortive going forward.

So that's what happens with the Fortive Business System to unlock this opportunity. Let me spend a few minutes on capital allocation. And I'll say this again. We are determined as a team to be excellent, disciplined capital allocators. And we have to earn your trust on that, but we have that determination.

It starts with the fact that we generate a terrific amount of free cash flow, $1 billion a year supported by our asset-light business model and our continued working capital discipline. Our priorities are very clear. We invest in attractive organic growth in a very disciplined way, those same levers I just talked to.

The next 1 is M&A. Now to be clear on where we stand. We just went through 9 years of transformational M&A., mega deals that change the configuration of the company to set us up for success that I just described. We don't need to do those big transformational deals again.

For that reason, our forecast is on bolt-ons that build on our position of strength in those 10 high-quality operating brands. We believe we have a runway ahead of us to create incredible shareholder value by building on our positions of strength. So our M&A strategy will have a bolt-on bias. And share repurchases will be a permanent piece of our capital allocation.

We feel because we have a high-quality company. We're fine investing in ourselves. And so any time we're looking at the relative returns between share repurchases, any M&A we do has to be competitive versus that in terms of returns. So you see us dynamically balance between M&A and share repurchase. And that leaves us room to have a regular growing dividend as a part of our story.

Our M&A process will be more disciplined, rigorous strategic operational and financial frameworks that reflects that bolt-on bias because it's a different thing looking at a bolt-on deal than looking at transformational deal. Importantly, it has to fit strategically. It has to be accretive to our durability to our growth rate on revenues and to our margins. That's our new approach.

As you can imagine, we've had to look at our entire M&A process to make sure it's oriented towards this new strategy, and we will do that. And over the last few years, I just picked this few examples of bolt-ons that we've done second half of 2023. These 4 bolt-ons gives you a bit of an example of what we mean by bolt-ons.

Four deals, not huge, but in combination, they grew revenues 25% last year. The return on invested capital in the second year is already mid-teens. So not everyone would look like this, but that gives you an idea of what we mean. I also want to spend a minute on our Fortive accelerated financial framework. And I'm going to walk through this page from the left to the right.

The first column shows you last 12 months, Fortive as we are today, before the spin. Second column shows you we start day 1 after the spin with new Fortive accelerated. 3% to 4% revenue growth, 29% EBITDA margins and very strong adjusted EPS growth rate even after adjusting for tax rates. We believe for the next few years, in spite of the uncertainty and all things that are going on in the world, we have the durability to continue that revenue growth. So 3% to 4% remains what we believe for the next 2 years will be our path.

The discipline around everything we do on operating leverage remains. So 50 to 100 basis points of adjusted EBITDA margin expansion each year. That leaves us room to invest in organic growth in a very disciplined way. And we believe, combined with the work we do on capital allocation and share repurchases, that sets us up for very strong adjusted EPS growth. That's all on the path to acceleration. If you listed the strategy that I've described, that sets us up for much better. But that's what we look at for the next 2 years.

Let me spend a few minutes on our purpose-built team. This is our leadership team and they're all here in the room today. And I'm incredibly excited about this team. Over the last 9 months, I focus on curating a team that fits the strategy we just described. I'm excited about what we have here. It's a blend of Fortive Business System experienced leaders, that's 80 years of an FPS experience on this team. But we've also injected some new talent, where we needed it. Let me just spend a few minutes on some of the speakers you're going to hear about.

So Chad Rohrer leads the majority of our Advanced Healthcare Solutions segment. He has been instrumental to the transformation of our ASP business over the last 3 years. Chad has a distinguished career in the medical devices industry and the health care industry. He was also a [indiscernible] football linebacker before that, if you're interested. And I look forward to him sharing the spotlight on ASP later on.

Parker Burke now leads fluke business. We just appointed him. Parker has been with Fortive for over 15 years and our related companies. He is a great example of joining us as a General Manager development candidate and he's had progressively increasing roles. And most recently, led our Industrial Scientific business way was instrumental to driving a hardware transactional business to what's now more than 50% recurring hardware as a service business. He joined us after serving for 6 years as an officer in the U.S. Marine Corp.

Arul Elumalai has been with us for just 100 days, while he joined us after a 25-year career in the software industry, including 10 years at Microsoft, building a lot of the products that we love and use today. He now leads our facilities and asset life cycle software business, and I'm excited to see what it brings to our great team to elevate the performance of those businesses.

And finally, Mark Okerstrom, our new CFO. This is a role as many of you know from our discussions that I had a very high bar for someone that will fit our culture, but also can execute the strategy I just described. Discipline operationally, capital allocation effectiveness and shareholder effectiveness. And Mark hit the mark from my point of view.

It joins us with great public company CFO experience as a CFO, a great track record of shareholder value creation and delivering on expectations consistently. The big reason why it was Institutional Investor magazine, top 3 public company CFO in the Internet sector for 3 years back-to-back. Excited to have this team together. Everyone on this page has a great story.

And that's backed up as well with a terrific our refreshed Board of Directors with highly relevant expertise. We have people that have been around high-growth businesses, people that understand capital allocation, the 3 CFOs are former CFOs on our Board with a lot of passion around the disciplined capital allocation that I described and just terrific oversight to make sure that we execute on that and great expertise on both of the segments that we play in.

In the end, it's about our people. The thing that gives me personally a lot of joy, excitement and a lot of humility is the quality of our team across Fortive. All 10,000 of our colleagues across this company I am bed with this passion, this meaningful passion of making our world save and productive and apply themselves with the Fortive business system to make that happen every day. They are ready and fired up to execute the strategy, and that fills me with a lot of excitement as well.

So that's a story, simplified focused company poised for acceleration, the Fortive Business System amplified to have impact, determined to be excellent disciplined capital allocators and a terrific purpose bill team fired up, ready to go. That's where we stand today. And I hope you join us on this journey.

I'm excited to introduce Chad Rohrer to do our spotlight on ASP. And as it comes on, we'll roll a video that just shows you a little bit about how we protect patients at their most critical moment.

[Presentation]

It was a privilege kicking off the afternoon spotlight sessions, and I'd like to start on what Olumide finished on and that is a purpose-built team. And I would contend that it is very much at the heart of everything that we do at ASP.

You saw in the video 1 out of 31 patients suffers from health care associated infection. Think about the strain on population health, the cost to the health systems across the globe with those type of statistics. For many of us at ASP, it's personal. Ourselves experienced it or a family member or a member of our community. And so we know we are united in our purpose.

If you talk to anybody at ASP, they'll be able to recite your mission, and that is to protect patients in their most critical moments. I have 3 key messages for you here today. The first is a market leadership position in low temperature sterilization that we are very proud of and is underpinned by clear clinical differentiation.

Second point, we have a highly recurring revenue base, intentional strategy to continue to develop our recurring revenue base and strong secular tailwinds. You heard Olumide talk about the growing middle class and other trends that are driving sterilization. And last but not least, we are poised to accelerate our top and our bottom line performance.

Let's take a snapshot at our numbers. We're roughly a $900 million business, but perhaps more importantly, we have 80% recurring revenue. I love how Olumide put it. Recurring revenue is wonderful, but we want recurring customer loyalty. And that is what you see in terms of 15,000 global customers. Many of these customers are coming back to us after renewing 1 or 2 or 3 different cycles. And that is something we have to earn each and every day.

I also like looking at our market potential, our addressable market under this lens. If you look at the total number of surgical procedures, there is 30 million. We estimate 30 million procedures that happen annually that those medical devices are best suited to be reprocessed in a low temperature sterilization.

The exciting part is that number should continue to grow as there's more indications of use for medical devices being reprocessed in our sterilization modality. I love talking about who we are by looking at our innovation time line. I bring you back to 1993. At this time, the awareness of health care associated infections was rising. The complexity of medical devices was continuing to become more and more important.

And frankly, the devices could not tolerate a high-temperature steam modality. Now there was a solution it's not a GTO or ethylene oxide, but there is more and more research upcoming showing that ethylene oxide, it could be a possible carcinogenic and based on the risk to the operator, in many cases, was not appropriate in a health care setting.

This set up the opportunity for us to introduce our iconic inventor brand, and that is when we introduce steroid in the low-temperature sterilization space to the world. We didn't stopped there. We've also ventured into software side of the health care arena. In 2002, we introduced the world's first web-based instrument tracking system.

That SaaS business has continued to give us opportunities as we grow and be more intimate with our customers. Most recently, we introduced what we call Sensus AI Square. This is a productivity tool. So what we're able to do here is we're able to give real-time insights to the sterile processing leaders that make better real-time decisions in their department. That drives productivity, which supports our mission as a company.

And then you look into the top right of the slide, Ultra GI. You had to had a chance to see it in the video, hopefully, you had a chance to see it in the innovation showcase. This is a really big deal. Many of the headlines you may have seen the newspaper clippings of health systems that had to deal with outbreaks, painful outbreaks, bad PR, of course, but more importantly, if you think about the patients that are behind those outbreaks.

In many cases, that was caused from endoscopes in the GI space. Prior to the launch of Ultra GI, there was no ability to sterilize GI scopes, 0 ability to sterilize GI scopes. And this is the highest standard of care. Sterilization gives a larger margin of safety to protect patients.

And last but not least, if you look at the bottom right of our slide. Many regulators around the world require serialization assurance. Basically, they want to make sure the sterilization process actually worked. Prior to this introduction of the BIOTRACE Instant team, best-in-class was a 20-minute read time.

It took 20 minutes after the cycle is over to verify that, that cycle is effective. We have taken that 20 minutes to 7 seconds. That is productivity at its best and what we continue to strive to do as a company with our innovation. Let's look at it from a little bit different lens. These are our categories. I first start with terminal sterilization. This is where low temperature sterilization space lives.

I mentioned 1993, we introduced the market. I'm proud to say that even today, we still remain the strong market share leader in the terminal sterilization space. Now you see our iconic brand there in our steroid units. But this is very much a razor/razor-blade approach.

So I'll tell you exactly how this works. So every time there's a procedure, the medical, the device goes through the procedure itself, needs to be reprocessed and sterilized. Every single time that process requires a proprietary ASP cassette in order to make that process run.

It also requires sterilization assurance, as I mentioned earlier, as far as biological and the chemical indicators. Then I draw your attention down to the instrument tracking software in AI, the third line. We talked about the Sensus business and the opportunity that we have there. We also have our exciting startup opportunity within the Advanced Healthcare segment. We went after a really big problem. And we're using computer vision to analyze surgical trays to see where they may be waits, where there's instruments that the surgeons never use and ensuring that we provide the right instrument to the surgeon at the right time, but no more. That reduces excess has a strong return on investment. And this is an example of where we're placing bets on future growth opportunities.

And last but not least, you see our large services organization. We have nearly 30,000 installed base units today, and those units last over a decade in some cases. Because of that, we have preventive maintenance that regularly needs to occur, but this is an advantage. This is an advantage for us to get close to our customers and keep the customer intimacy as we aspire to be true trusted advisers. And that service team, our field service engineers that visit with our customers. You saw some of it in the video a major competitive advantage for us at ASP.

That's another way to look at it. Everywhere we see illuminated dot, this is where we have an active steroid unit. You'll see it's in all the developed worlds around sort of developed countries around the world, but also many of the developing countries around the world. 30,000 installed base demonstrates a strong market share leadership position in low temperature.

It's not just the quantity, it's also the quality that matters. The U.S. News & World Report every year publishes a top 25 hospital list. I'm pleased to say that every 1 of those top 25 hospitals utilizes our steroid technology. And then you look at our win rate. We are winning 70% or greater of our deals and competitive opportunities. This shows that we have enduring customer value that we are able to demonstrate our clinical differentiation and one of which we can continue to grow and build our customer base over time.

I'd like to look at where we play, talk a bit about our marketplace and where we have opportunities in terms of procedural growth. We have a $5 billion addressable market, but more exciting, you look at our priority categories. I talked about that very important GI endoscope space, 100 million procedures. Again as mentioned, high-risk space, a big cause of many of the hospital acquired infections that are happening or associated infections in our hospitals.

And prior to ultra-GI, no ability to sterilize. As you can think of more and more products in that 100 million procedures being able to be sterilized, there is an increasing market opportunity. The same can be true with robotics. There's, of course, a lot of talk and energy out there as far as soft tissue robotic entrants. This is growing double digits. These are highly sophisticated devices that require low temperature sterilization. We can grow with robotics.

And then you have general MIS or minimal invasive surgery that continues to grow in many of these other segments that we are very well positioned. Why do we win? Perhaps 1 of the most important concepts we're going to talk about today. I talked about true clinically differentiated technology. And it really all starts and ends with us in terminal sterilization, with the concept that we talked about at ASP is the power of plasma. So what does that mean?

Well, simplified, our system uses hydrogen peroxide gas plasma. Hydrogen peroxide is injected into the chamber through our cassettes. And at the end of the process, Plasma is activated. So what does plasma do? Well, what plasma does is it dissipates to sterilant. And so it allows us to take it to safely inject more sterilant than anybody else on the market. And that gives us the ability to be more effective, but then protect the caregiver and the environment.

As you heard on the video, I'd like to say that our products are tough on germs, but gentle on instruments and gentle on people. We have 2 peer-reviewed publications in medical journals talking about clinical evidence demonstrating this effectiveness and this advantage, and we intend to continue to invest in more proof points for our customers.

Accelerated innovation. We've had 6 NPIs introduced with 510(k)s in the last 18 months. Some of those were on the slide you saw. There were others that we can't talk about yet, but we have really truly restarted that innovation machine at ASP.

We talk about partner for our customers through our life cycle, 80% recurring revenue, and we have over 100 countries served. With the advantage we have on this, you heard Olumide talk about the rising standard of care, the rising middle class. As those people demand higher quality health care, we are there. We are there to support them, and we are there to grow our business while also making the world a better place. It's a great combination, and it's a great position for us to be in as an organization.

We're leveraging FBS to accelerate our results. If you go back to the time of our acquisition from Johnson & Johnson, this is a new concept. They didn't have a business system. It took a few years to get ingrained. I'm happy to say that it's become part of our culture now. So it's how we talk. It's how we work together, and we're seeing proof points of how we're accelerating growth.

We've seen in recent years our ability to accelerate faster than market growth, and that just gives us reason to believe into the future. Let me give you a little bit of a case study. I think this is a great example. And this is analyzing our overall consumable business. If you go back a couple of years ago, we are growing in a steady rate outside of the United States.

But in the United States, we are losing -- modestly losing some market share. And we analyze what is our opportunity here? What can we do to accelerate growth? Part of what we learned is that we had a customer intimacy issue because our consumables were being distributed through a list of distributors. So it was taking the direct contact from our team and our customers away and adding unnecessary cost to the system.

Also it's a big deal because you're talking about the customer experience of your most important product line. So we knew we could get it wrong. So we deployed to set a very focused FBS tool, starting to voice the customer, make sure we understood the expectation, value stream mapping, and I'm happy to report that it was a resounding success. Nearly 100% of our customers converted to the direct model, a 2,000 basis point acceleration in North America consumable growth. It's a 200 basis point operating margin expansion.

Now some of this was a onetime impact because we eliminated the distributor fees. But what it did is it put us on solid foundation as we introduce more innovations to the marketplace, continuing to grow recurring revenue, we can get an impact from that innovation faster in a direct model.

We'll talk about 3 other drivers, innovation acceleration. We have an opportunity here to expand device indications. And what I mean by that is we are partnering with medical device companies across the world. And we're working with them and say, how can we help have more of your product to be sterilized in our low temperature modality?

Everyone recognizes this increases the margin of safety. So we have a lot of cooperation, but we are working dedicated here because if we can get more medical devices indicated for our application, it grows our market opportunity. Commercial acceleration. We have some great examples of where we can grow with adjacencies. I take that steam biological indicator market. I spoke about that instant steam earlier. This is a market that we didn't participate in, 0. We had 0 participation prior to that introduction. It's a $650 million market. We have now entered this market, not only entered it, but entered it with differentiated technology going from the 20 minutes down to 7 seconds. That gives us growth opportunities into the future.

And last but not least, I highlight our recurring customer value. We aspire to be trusted advisers to our customers, and we're going to be working with thought leadership, partnering with key opinion leaders, working with our regulatory bodies to help influence standards that we believe makes the world a better place and making serialization available for a greater portion of the world's population.

So I leave you with 3 key messages. We have a market leadership position with clearly differentiated technology that we believe is a sustainable competitive advantage. We have a durable but choice highly recurring revenue business as well as strong market tailwinds, and we are poised to accelerate our top and our bottom line growth.

It's a privilege to be with you all here today. And I'm going to introduce our next speaker, Parker Burke, [indiscernible] leads our Fluke business who's also going to start off with the video. Thank you.

[Presentation]

Good afternoon. Having used the FBS toolkit for the last 15 years, I am both a student and a practitioner of the Fortive Business System. I value our lean tools, our growth tools, our innovation tools. And I've had the opportunity to make a measurable impact on a number of our operating companies leveraging this incredible toolkit. And at Fluke, our FBS culture continues to enable us to outperform, outperform for our employees, for our customers and ultimately our shareholders. And I'm pleased to share with you a bit about the story today.

Today, I couldn't be more proud to represent the 3,500 Fluke employees who wake up each morning with an unmatched focus on serving those people who trust us. Our people understand the work that our customers do because we spend time with them. We study how we can make their lives safer and more efficient. And in turn, electricians, facilities and maintenance workers reach for our tools every day to keep the world up and running. We are their trusted partner to keep them safe and productive in every moment.

Today, I'm going to touch on 3 key points about Fluke and the incredible opportunity that's ahead of us. First, Fluke instruments are the gold standard for professional instrumentation. Further, as the leading experts in metrology which is the science of measurement, we are well positioned as a key player in defining industry standards in an increasingly complex world. Secondly, we play in a large addressable market. And our strategy, both organic and inorganic, has doubled the market opportunity ahead of us, enabling us to take advantage of durable secular tailwinds. And today, I can tell you, Fluke is a resilient business that will continue to deliver a consistent growth performance.

Let's take a look at some of the details of our business. We're a $1.7 billion business with 15% of our revenues recurring. Those recurring revenues coming from our Software-as-a-Service and services attached to our professional instrumentation. We have over 50,000 customers around the world, with more than half of them outside of the United States, which is a testament to our global brand and the fact that people around the world trust Fluke. Finally, innovation will continue to drive the sustained growth led by our over 2,000 patents and growing, which enables us to keep an increasingly complex world up and running.

See, at Fluke, we're a story of pioneers, founded in 1948 by John Fluke, Sr. Mr. Fluke engrained a passion for innovation in our company, which we continue to build upon today. And since our founding, we built market-leading positions across a variety of professional instrumentation and software-based condition monitoring. And over the last 10 years, we've accelerated both our organic innovation and our M&A, resulting in a higher growth, much more durable business.

See, starting in 2016 with the acquisition of eMaint, we created our Fluke Reliability business, our asset condition monitoring business, which contains a significant software and recurring component. As Olumide indicated earlier in the presentation, more recently, we acquired Solmetric, which gave us access to -- or gave us access to the solar market, and Azima DLI, expanding our AI condition-based monitoring offerings. This expansion into attractive, high-growth vertical markets has resulted in a strong return on invested capital and contributed to our above-market growth rate.

When you leave here today, I challenge you. Ask any electrician in the world. Perhaps it's somebody who may come into your house to do some routine maintenance around your home. Maybe it's somebody in your office who's doing work on the escalator or the elevator. Or perhaps it's an industrial worker working in some of the riskiest high-voltage situations. I challenge you, ask them, do you have a Fluke instrument in your toolkit? I guarantee they'll either smile and show you the latest technology they had invested in that they trust each and every day to do their work, or they will admit that they wish that they had one, and they'll share with you which one they're targeting with their next investment in their toolkit.

Our unmatched portfolio of professional instrumentation, software and services are critical to keeping our customer sites operational and running efficiently. Further, standard writers around the world trust Fluke and our products to define industry standards for measurement in an increasingly complex world.

Quite simply, electricians, facilities and maintenance workers and standard writers around the world will tell you that Fluke sets the gold standard for professional instrumentation. The great news is that our market is large. And it continues to grow, led by favorable secular tailwinds, including the energy transition and the increased consumption of power in all parts of the world, growth in key markets like the maintenance and operation of data centers and the proliferation of connected systems around the world.

For the last 5 years, we've expanded this market opportunity by deliberately targeting segments with durable macro tailwinds: solar, where we help customers install and maintain solar photovoltaic plants or solar farms; EV charging, where we provide equipment for maintaining the charging infrastructure and are working with regulators to define standards for safe and equipment -- a safe and efficient operations; and finally, data centers, where we've leveraged our expertise across condition monitoring and professional instrumentation to help with the build-out of this growing critical infrastructure. As a result, we're a very durable business, and we're poised for growth through volatile industrial cycles.

At Fluke, we can say we win quite simply because we are an iconic inventor brand who has earned the trust of our customers for having the highest standards of safety, accuracy and reliability. We've built on this through a recurring pattern of disruptive innovation focused on solving our customers' hardest problems in most mission-critical needs. Secondly, we have an unmatched portfolio depth and breadth, as evidenced by our incredible patent portfolio in the new-to-world groundbreaking technologies that we bring to market each year. Our customers trust Fluke. They continue to invite us into their workloads with their instruments and software, where we help make them safer and more productive.

I've just touched on our incredible brand, our unmatched technology and the software tools and how they can work together to help solve challenging customer problems. And a great example that I'm excited to share with you on this is in our partnership we have with NTT DATA. As one of the largest data center operators, NTT DATA needed a partner to work on their site optimization. And we have the opportunity to work with them across our instrumentation and software portfolio, enabling them to dramatically increase their uptime, which helps them earn the trust of their customers each and every day.

Secondly, we create standardization across their workflows, enabling them to optimize their operations and total cost of ownership across their thousands of assets. As data centers continue to grow and proliferate around the world, I'm proud that Fluke, our software and our tools will stand alongside those who are building, operating and maintaining this critical infrastructure.

Having studied and benchmarked Fluke as a part of Fortive for the last 15 years, I'm excited to share with you about our FBS journey and where we're heading in the future. I've seen the power of the Fortive Business System transform Fluke many times over. And these tools, our lean tools, our growth tools and our innovation tools have led to incredible results: most recently, the expansion of our recurring revenue profile, enabling us to weather the cyclicality in industrial markets; secondly, building on what were already world-class operating margins, expanding them each of the last 5 years; and finally, the continued expansion of our working capital, demonstrating how FBS not only fuels our growth and our profitability but helps us multiply our free cash flow.

One of the best elements of FBS is that its runway and impact only accelerates as an FBS culture matures, and this is something that the Fluke team exemplifies. Most recently, I'm excited to share with you Fluke's deployment of our FBS tools focused on innovation. These tools have enabled us not only to meet the evolving needs of the markets we serve and the customers that are in them but also in building a much more durable business.

In 2022, we implemented our Lean Portfolio Management tool, a tool that we codesigned with some of the world's leading innovators. And this tool focuses our teams on efficiency and prioritization, ensuring that we are working on the things that are most important to our customers and the things that ultimately are most important to our business.

In 2023, we doubled down on innovation. And we started to focus on really deeply understanding the customer problems that we can go and solve by studying them, spending time with them and understanding the workflows. Then we innovated. We iterated. And we prototyped to determine if we could build software, we can build technology or devices that help meet our customers' needs. In short, can we solve with technology the problems that they were asking us to solve?

And then finally, we validate. We validate our business model. What are customers willing to pay for these new innovations? How can we maximize not only the value that we create for them but optimize the value that we capture? And our focus over the last 3 years has led to an incredible increase in our active innovation project funnel and more importantly revenue from new products that we've launched in the prior 12 months.

As we look to the year and the years ahead, innovation will drive our success at Fluke across 3 incredibly important frontiers. First, we will reflect user-friendly interfaces. We'll enable the next generation of technicians to do their jobs effectively while leveraging AI and our Azima product to continue to drive innovation. Next, we'll develop tools that solve customer problems in the fastest-growing and most attractive markets, including solar, electric vehicle infrastructure and the data center build-out, operation and maintenance. And then finally, we will move -- continue to move from discrete tools to integrated decision engines using software and AI to enable the technicians who trust us to be more efficient and draw more powerful conclusions from the data that we were able to provide to them each day.

As I close, I'd like to invite all of you to be a part of what we're building at Fluke and across Fortive and reiterate 3 important points. First, Fluke instruments are the gold standard for professional instrumentation. Further, we're a key player in defining the industry standards for measurement across an increasingly complex world. Secondly, we play in a large addressable market. And our strategy over the last few years has enabled us to double this market opportunity to take advantage of durable secular tailwinds. And today, I can tell you, Fluke is a resilient business, and we will continue to deliver a consistent growth performance.

Thank you for the honor of letting me share with you a little bit about the work that the Fluke team has done over the last few years and more importantly where we'll go in the future. And as we welcome my colleague, a rule, to the stage, please enjoy a video on how our Facility and Asset Lifecycle group is enabling the built environment and supporting thriving communities around the world. Thank you.

[Presentation]

Schools that our children go to on a daily basis. Grocery stores and warehouses that stock supplies critical for our sustenance. Hospitals, the lives are saved. These are what we call built environments. And the purpose of the Facilities and Asset Lifecycle group is to manage these built environments to deliver outstanding experiences for the owners, operators, workers and visitors.

Three key messages about FAL. We are 3 leading software brands serving targeted workflows in the Facilities and Asset Lifecycle where we are differentiated to win. Number two, our differentiation comes from deep industry expertise, proprietary data and network effects. As we look forward, our growth accelerators are in product innovation in SaaS and go-to-market capabilities improvements.

The FAL Group drives $700 million in revenues on an annual basis. 60% of that is recurring in nature. And that number goes up to 85% if we include multiyear reoccurring purchases. And we are growing at mid-single digits. The impact of what we deliver is in the scale at which we operate. $25 billion plus square foot of commercial real estate are being managed by our solutions. 80,000-plus businesses, including contractors, service providers, are connected using our software. That is the impact that we are having.

The group is made up of 3 iconic category-creating brands: Gordian, Accruent and ServiceChannel. Gordian pretty much created this category called job order contracting. And with the addition of RSMeans Data, it became the de facto and gold standard for construction procurement in many sectors. Accruent pioneered real estate management and expanded into asset management and document management. ServiceChannel made the best of network effects, bringing together a 2-sided marketplace consisting of owners and service providers who are highly fragmented and thereby automating the end-to-end maintenance life cycle.

So how do these brands come together to solve the problems of Facilities and Asset Lifecycle? I will break it down for you. In its simplest form, any physical structure goes through a life cycle. It's being built. Then there is day-to-day operations, and then there is ongoing maintenance of the facilities themselves as well as all the equipment that are housed in them. So what do we do? We bring together these 3 iconic brands to go and automate targeted workflows where we specialize. And we focus on workflows that are mission-critical in nature in industries where budgets are allocated on a resilient basis due to the criticality and where we are differentiated to play and win.

In specific, in the build workflows, we focus on construction, planning, estimation and procurement. Think about projects like school buildings needing a new roof or a hospital going through a multiyear renovation. Our Gordian software enables facilities managers to go and complete these projects on time and under budget and to code.

And the facilities operations side using Accruent software, we specialize in workplace management, running facilities such as factories, office spaces or hospitals. We also specialize in asset management, monitoring and tracking all the way from a simple life fixture to a refrigerator or a very expensive medical equipment. And finally, document management, thousands of documents, including leases, contracts, engineering drawings that facility managers have to deal with. That is being done with our Accruent software.

And finally, in the maintenance phase, we are automating the end-to-end maintenance workflows. This could be just the scheduling of an annual refrigerator maintenance that has to happen across hundreds of locations, or it could be the rapid response needed when an HVAC or a plumbing system breaks. And that is done using a SaaS solution, which is ServiceChannel.

The markets that we play in can be broadly categorized into 3. This is an $11 billion opportunity growing at mid-single digits. The first is construction planning technology. Here, things like smart buildings or rising energy costs are leading to renovations beyond just routine maintenance. The second category has to do with workplaces and sites, return to office. We all know what that is doing to workplaces. And customer experience modernizations, they are driving spend in this market category. And finally, in asset management, where it is becoming a norm to do predictive maintenance, to do remote monitoring, and AI is opening up new opportunities for technology providers like ourselves.

While we think about all these secular trends, there's something that goes unnoticed. That is the amount of catch-up that we need to do. The maintenance backlog in commercial real estate that Olumide alluded to is north of $1 trillion. And you know what is more bothersome? The scarcity of labor, people with the right experience, the right expertise to get these jobs done. And that creates a perfect storm, and that is where we come in.

There are many vendors who solve that space with software alone. But software can automate the workflows. In order to make that unlock true value, we need the data and the analytics. We need industry context tuning, and that is where we are differentiated. We are unique in bringing proprietary data, and we are differentiated in our industry context. And the durable value that we deliver to our customer is grounded in the principle that we meet customers where they are with software and services that they are increasingly consuming as fast and via flexible consumption models.

Above all that, what makes us stand out is the benefits of the network effects that we bring to our customers. 80,000-plus businesses are growing and offering services on our platform, and our customers are increasingly tapping into that network for the expertise.

Let me bring this to life with a customer example. Sam's Club, 600-plus mega warehouses. Sam's Club has invested in tagging all their assets across the country. So today, they have a single source of truth and a universal view of all these assets. If you are a facilities manager, your worst nightmare is when something breaks, a technician shows up and they're unable to fix the issue because they do not have the right data or they do not have the right expertise. With our solution, Sam's Cloud is able to match the right service provider for the right job. The impact, the first-time resolution of maintenance task went up by 40%. That is increased productivity. And understanding that the temperature in a refrigeration unit is spiking and doing the maintenance that prevents the milk or the meat from becoming harmful to consume, that is increased safety. That is what our technology does.

But in addition to this technology, when we step back and think what makes us deliver the superior value and differentiation, the answer is in our culture of FBS. As our customers are making this transition from on-prem to SaaS to flexible consumption models, the FBS mindset, the value stream mapping methodologies and tools for financial model transitions are helping accelerate these shifts, both for us and our customers. The impact, ARR as a percentage of total revenue is up by 500 basis points. Net dollar retention is also up by 500 basis points.

Beyond those, as a software practitioner for almost 30 years, what inspires me is the maturity of the software development life cycle process and the portfolio management process that FBS gives us. It dramatically increases the speed at which we can bring new product capabilities. Revenue based on new products has gone up 4x in our operating companies since their acquisition. These are the exact principles that help us deliver margin-accretive growth in our SaaS business in ServiceChannel.

High teens growth and 800 basis points operating margin expansion. How did we do that? The portfolio management process helped us take products from ideation to delivery at a much faster date. And when we applied some of our FBS tools for cloud ops practices, our DevOps practices, we brought down the cost. To give you a very specific example, we brought down cloud spent by innovative storage tiering. How did we unlock that? Thanks to FBS. FBS is and will continue to be a powerful driver of growth, profitability and innovation across all our software products.

And when we look forward, our growth acceleration, the primary focus areas are threefold. From an innovation perspective, it's about AI-driven software products. We have a head start here. Many of the offers that we've been working on are hitting the market now. For example, Gordian Cloud that many of you would have seen in the innovation showcase. Gordian Cloud allows all our customers to experience the full capabilities of Gordian across planning, estimating and procurement. We are a single cloud portal with human in the loop AI, all delivered as SaaS.

On the commercial side, international expansion, Accruent with the acquisition and the cultivation of a channel partner network is increasing its footprint in Asia Pacific and Europe. And we are dramatically improving our capabilities across sales and go-to-market, cutting across people, process and tools to be better tuned for SaaS go-to-market. Those are our growth accelerators. In short, FAL, 3 leading software brands differentiated by deep industry expertise, proprietary data and network effects, best positioned for margin-accretive growth.

Thank you for being a wonderful audience, and I would like to invite on stage our Chief Financial Officer, Mark Okerstrom.

Thank you, Arul. Appreciate it. Thank you. Right. Well, it's great to see you all. I'm going to start where Jim started, which is a huge thank you to all of you who are here today. These are long days, and we appreciate you being here and investing the time with us. And I'd also love to thank the people that are with us remotely and those that are going to watch and maybe read this later. The fact that you are here gives us even more confidence in the path ahead.

So I'm going to start with just a little bit of context. I joined Fortive about 2.5 months ago, but my work on Fortive have started long before that. And it started not unlike you would start your work. I read through the Ks. I scoured the research reports. I started to build my model and I spread the numbers. And I spoke to anyone who would speak to me who knew anything about Fortive. And as I did that work, 3 key themes really popped out at me. And as I spent more time with Jim and Olumide and the team and the Board, again, those 3 key themes record back at me.

Fast forward to the beginning of this year, and I went up to Everett for what was, I think, supposed to be an hour meeting with Olumide. And after 2.5 hours of him sharing his vision for where we could take this company and his clear value creation plan, I was in. And guess what we talked about. Those 3 key things. Well, at the beginning of March, I joined, and that's when the interesting bit started because up until that point, I've done all the work that an outsider could do. But now I was on the inside.

I was on the inside. And as I showed up, I got handed a schedule called my immersion schedule. Now some people might call it onboarding or training, but that wasn't this. This was my immersion schedule. It was a plan, handcrafted by Jim himself to onboard me into this business. I went to operating reviews. I went through the trainings. I studied the Fortive Business System, and it helped me become a student and a practitioner.

I learned the mindset. I learned the cadence. I learned about the tools. And I thought about how I could apply them. And as I went through that immersion process, 3 key themes just kept on coming back to me. But I'll tell you the thing that gave me the most conviction. It was actually meeting with you, members of the investment community. And a few of you will probably remember these questions that I asked you, which is what's going right and what could be improved. And you know what I heard? Those same 3 key themes.

These are attractive businesses that have been operated rigorously, and they're poised for acceleration. But there's a real opportunity to do better on capital allocation with a returns-focused approach. And it's time for us to rebuild investor trust. These are the 3 themes I'd observed. These are the 3 themes I had heard. And these are the 3 pillars of not only our messages today, but our value creation plan. We're all aligned at the opportunity, and that's what gives us the clarity and the confidence and excitement for what's to come ahead in the years to come.

Now over the next 15, 20 minutes or so, I'm going to go into a little bit more detail on the 3 pillars of the value creation plan in the hopes that I can help you form your own view on new Fortive. Let's start here. It's a great place to start, $4 billion in revenue, growing 3% to 4%, 50% recurring. $1.2 billion adjusted EBITDA and $1 billion of free cash flow, growing nicely. 64% gross margins and nearly 30% adjusted EBITDA margins. We have an attractive product mix, about 28% software, 50% recurring and climbing, diverse end markets, predominantly industrial, medical with some exposure to government but not too much. And of course, attractive geographic exposure, the U.S., Europe and exposure to the secular tailwinds flowing through non-China, Asia.

And this is a chart that Olumide shared as well, which really highlights the durable growth of Fortive. Core revenue growth of 4%, gross profit growth of 9%, adjusted EBITDA growth of 12%, perfect conversion into free cash flow, operating leverage down through the P&L. But the great thing is this is happening also at the segment level, healthy durable revenue growth and operating leverage down through the P&L. And the benefits of diversification and resilience are clear.

There is a lot happening in the world during this time. You can't see it at the Fortive level, and you can't see it at the segment level. If you're looking for Fortive Simplified, it's right here, 2 segments, strategically coherent, financially coherent and resilient. This is new Fortive.

So Olumide spoke a bit about the work that had been done to really focus on building more durability in the business. And what a great chart to illustrate this. In true Fortive style, they set their eyes on something and we delivered. I wasn't here, but wow. Recurring revenue climbing as a percentage, something we expect to continue, and growing very nicely.

Okay. So what to expect going forward? I just want to go into a little bit more detail and something that Olumide shared with you earlier. In this far left column, if you are a shareholder of Fortive today, this is what you own. On June 30, in addition to your shares in Ralliant, the next column over, that's what you own. That is the beginning, day 1 of Fortive Accelerated.

But our ambitions are much higher. So if you look to the next column, this column is what we would expect in the next couple of years because this is what the business has demonstrated that it is absolutely capable of. But make no mistake, this is not our ambition. Our ambition is for better, faster than 3% to 4% core revenue growth with more than 50% recurring, more than 50 to 100 basis points of margin expansion and better than high single-digit adjusted earnings per share growth on the back of strong and shareholder-focused capital allocation. This is where we're going. So that was the first pillar, Fortive Amplified, Fortive Accelerated, Fortive organic trajectory.

Let's talk about the second pillar, capital allocation. We have 4 priorities. Number one, invest in accelerating organic growth. You've heard from the team, the plans. They are real. Our plan is to accelerate this business, and we are going to look for opportunities to invest in it to take advantage of the opportunities that are in front of us. FBS will be absolutely at the core. We will also look at M&A. We're going to have a bias to bolt-ons. And we're going to look at this, just to be clear, interchangeably with share repurchases, optimizing for the best relative return. Again, our goal in all of this is to accelerate shareholder returns. And lastly, our dividend. We're going to have a good dividend. It's going to grow. We will be adjusting this to reflect the spin going forward.

So let me double-click then on M&A and just dive a little bit deeper in some of the messages that Olumide already shared with you. We are in a new phase as a company. And we have been gifted with some incredible assets. This is not the Fortive of old. The Fortive of old was building the Fortive of today. And now we have a benefit of saying what can we do from an M&A standpoint to make this even better to accelerate the returns. And that will be our focus with M&A.

The M&A process has been Kaizened. It has been improved by the team. And it starts with having frameworks for really thinking about what do we want to do and what are those bars we're going to hold ourselves up to. We have clear strategic and operational framework. We're looking for things that have strategic portfolio coherence aligned with our existing domain expertise.

Why is that? Because if it's aligned with what we're doing, it's more likely that we will be able to create differentiated value through providing synergies. It also makes deals just generally less risky. We're looking for businesses that have a clear right to win with a strong market position, technology, management teams and track record. And if we can put 2 businesses together, one new with one of our own to create this, all the better. And we will have an FBS-enabled VCP, value creation plan, ready to execute on day 1.

In terms of our financial framework, we'll be looking for businesses that are supportive to the durability that Fortive has become known for, that's supportive to growth, that has attractive margins and potential to create even more attractive margins. And again, we're looking for deals that will deliver attractive returns versus other alternatives. And of course, we have got to have clear line of sight to return on invested capital better than WACC.

As I said, the process has been Kaizened, rigorous systematic due diligence, biased proprietary deals where there's less competition. Price is 100% part of the value creation strategy. We will be focusing on value creation and enhancing shareholder returns. I'll say it again, that is the goal. And the Board will be with us every step of the way.

As a foundation to this capital allocation approach is an incredibly strong balance sheet. We are committed to investment grade. We very much value ongoing access to the capital markets come what may. We're going to target gross leverage to adjusted EBITDA of 2.5x or better. And we will increase leverage to 3 or more times, always with the intention of delevering within the next 12 to 18 months.

So let's bring it all together on a page, investment thesis on a page, 3 pillars and a clear plan. Now as I run through these pillars, perhaps you could think about imagining a bridge, a bridge that starts with the share price on the day we spin and ends with a share price in the future. Each pillar, a bar in the bridge.

So the first pillar, again, attractive business with strong prospects, acceleration on day 1 and more to come. What does that mean for us? We're going to continue to run this business with incredible rigor, with an orientation though to growth, FBS Amplified. What does that mean that you can expect? Continued operational rigor, continued financial discipline, occasional short-term investment of margin to drive medium-term financial performance and ultimately accelerating revenue, adjusted EBITDA, free cash flow and earnings per share growth over time.

Let's move to the second block in the value creation bridge. New capital allocation approach geared to enhance shareholder returns. What does that mean to us? Well, we're going to allocate capital wisely with better equity returns as our North Star. So what can you expect from us? Select organic investments to accelerate growth, a strong desire to find deep and wide pools to do regular returns-enhancing great deals with a bias to bolt-on. You'll see buybacks prominently featured, and you're going to see a growing dividend over time, and we'll regularly review the payout ratio and the yield. And lastly, we will have conservative use of leverage. We understand the value of leverage and accelerating equity returns, and we will use it.

And of course, the last pillar, building and maintaining investor trust as a core part of the value creation plan. What does that mean to us? Well, it means we're going to earn and consistently work to build greater trust with all of you. So what to expect? Clear expectation setting with a bias to underpromise and overdeliver, delivery on expectations set by us and also expectations shaped by us. We can't shape them all, but we know we're going to try to shape them all. And of course, simplified guidance and disclosure with a focus on key metrics and color on the key drivers.

This waterfall, this bridge all adds up in our model to shareholder returns that exceed the S&P 500 Index over the next 3 to 5 years. We want to beat the index so that you can beat your benchmark. Attractive businesses with strong prospects, acceleration on day 1 and more to come, a new capital allocation approach geared to enhance shareholder returns, and building and maintaining investor trust is a core part of the value creation plan. We think it's a powerful framework for value creation, and we hope you'll join us.

With that, I'm going to bring up Elena, and I think we can go to Q&A. All right.

Ladies and gentlemen, please welcome our Fortive leaders back to the stage for our Q&A session. We have our team positioned around the room with microphones. Please raise your hand, and we will run one to you to ensure your question is being heard in the room and for our webcast viewers.

All right. Terrific. Well, we've got about 30 minutes. I'd love to kick it off with some questions. I see -- we go with Scott Davis, please.

Mark, I just wanted to be clear. Do you have a new M&A team or a different M&A team?

I'll answer your question, and then I want to kick it over to Olumide. Do you want to start with anything? Or should I just get after this one?

Yes. No, thank you for that. I mean I think the -- maybe I'll start since, Mark, you're 2 months in. So the M&A team that we have is a blend. So we believe for this bolt-ons to work, a lot of the work needs to happen in our 10 operating brands because the benefit of a bolt-on cultivation process is you need the people in the business to know, in some cases, third-party partners that they integrate with or someone they're running into in the marketplace.

So the biggest shift here, Scott, is really putting the cultivation more in our companies because that's where the action comes. The deal execution at the center itself leverages some of the same people we have because that -- the discipline there, Mark can add to the team we have in the center. The real work is in the tentacles for cultivation. So that's the way we think about it.

And I'll just -- just to build on that, too, we've got a great M&A team. They are very solid, and they were geared for what Fortive was doing, which was transforming portfolio. And the second I came in and I said, hey, how do you guys think about bolt-ons they'd already Kaizened the whole process. And as I started to talk about, hey, here are the things that I'm generally used to seeing, literally on the first deal approval that came my way, which was, I don't know, a few weeks ago, amazing. So it's Fortive style. It's been FBS.

Okay. And then just to change gears a little bit. I think we could ask the same question 6 months ago, but I'll ask it since this is a fresh chance. But the software assets within the portfolio, can you help us understand why you think you're the best owner for those assets and how you can make them better from here?

Yes. So a few reasons. The first is there are assets that connect to the problems we solve for customers in general. And I'll just give you a few examples. So we have a set of professional instrumentation tools that get used in the cost of maintenance and mostly field-based maintenance, not in the lab, in the field. And it turns out that in the cost of those technicians during their work, the most important value driver is actually where is the work to be done and who is the best technician. And the idea of not just giving you the tools but actually bringing the intelligent system, so tool and the person arrives at the right place at the right time, actually turns out that unlocks more value for customers.

So you saw the example of NTT DATA. That's the third-biggest data center provider in the world that Arul talked about. That's a great example where we could have been a vendor that's just selling them tools from Fluke, but the power of being able to show up with actually an extended solution that has here's how you can tag your assets, track your assets, and then when something needs to be done, use a set of professional instruments to solve the problem. It just takes us up a level to the point about we don't want to be a commodity player. So the more we have this integrated solutions, the more nobody else can do what Fortive does. So that's the way -- and each of our software assets has that dimension to them. They're not stand-alone software things that don't connect to anything else. They actually build on what we have.

Great. Next question. Julian, in the middle row.

Maybe just the first question around the health care business. There's a common perception that it's kind of lost share versus STERIS, for example. Just wanted to understand kind of what your market share ambitions are in health care and how we should think about its margin expansion potential from here.

Yes. I mean I'll start and I'll kick it to you, Chad. So the health care segment for us is done really, really well. From a margin expansion point of view, you see the journey we're on. So I'll just -- that's the easy one. The journey continues on margin expansion. Some of that will come from just the fact that our growth in that segment is coming from some of our software and consumable assets that are just high incremental margins because there's not much variable cost that comes with them. So the margin improvement journey will continue over time.

I think from a top line and share point of view, we really like the strategy that we have that you heard Chad describe because we picked a lane. Some other players may do a lot of different things. We picked a lane where the puck is headed, where there's more instruments moving to low-temperature sterilization because it provides a higher margin of safety. And the medical device providers also need sterilization approaches that don't destroy the instruments. So there's a lot of trends that move towards where we're headed, and we are winning in that lane that we're sticking our bets on. So we feel really good about the top line trend.

I think like Chad talked about, before we acquired the company, there was a period in consumables where we were losing share in North America. But that's -- the story is very different now from the 70% win rate that you heard Chad talk about. Anything you want to add, Chad?

Julian, thanks for the question. I'll just add a few thoughts. I mean first of all, it's not a perfect proxy for our business versus any competitor. And so we analyze our competitive win rates. And I think as I mentioned in the presentation, we're winning over 70% of our deals. We track that rigorously. I do think you saw it show up in our financials with some improved performance in 2024. But I also underpin a lot of the innovations and investments we're making such as Ultra GI are just hitting the market now. So this is going to really show up in years to come when that innovation machine takes hold.

Great. And then just a follow-up on FAL. I think the margins there look low-ish given the organic growth is sort of mid-single digits. So I just wanted to kind of understand, is there a path for a big margin catch-up at FAL? Or it's not likely just because of the competitive landscape?

Well, the interesting thing, Julian, is it's a kind of multiyear view. So the journey we've been on is always the margin top line growth trade-off, right? And so take ServiceChannel as an example just to be specific because we've talked about this. We've had incredible margin expansion at ServiceChannel, 2,500 basis points over a 3-year period. And that was a choice we made in terms of what was important at that period of time. And there may be a period where we feel there's more top line growth to be had, to Mark's point. And so you may see a period of time where the margin growth slows down but the top line growth goes up.

But if you step back and you look at the journey on FAL, it is a great platform for us. It's $700 million plus, scaled platform with a chance for us to both grow the top line and then grow margins over time as well towards our fleet average. That may not happen every single year because we're making those choices on what's the right forecast in each period based on what's going on in the market and what's, frankly, best for the business over the medium term. So -- but in general, I'll say on both top line and margins, there's headroom for FAL.

In the back row, Jeff Sprague.

Jeff Sprague from Vertical Research. Just another one on FAL, if I could. Olumide, you gave an example, and there was 1 or 2 in the pitch on cross-selling. But just curious, what percent of your customers or what percent of your software revenues represent a situation where a customer is using more than one of your software offerings?

Well -- so the -- there's different ways to look at our offerings. So each of the brands that Arul talks about have different software components within them. So Gordian has got planning, estimating, procurement. Accruent has got -- so if you look in each pocket, there's probably half of the customers that use multiple things within each of those companies. ServiceChannel being the highest in terms of cross-sell and probably Gordian in the earlier stage of that journey with Gordian Cloud just launched. So there's a lot more within each brand.

In terms of our across the brand, like I've talked about a few times, they each have a clear forecast and an area of strength in terms of verticals and what they do. So the cross-sell across is still very small because it's really -- Gordian is optimized for state and local, higher ed and health care. On the other hand, ServiceChannel is optimized for multi-site retail, and Accruent has a bit more diversity. So there's a little bit that cuts across, but we really view it as win the battle in each of those 3 playing grounds that Arul described. And that's -- if you think about a cross-sell that's still available in each of those buckets, that's a huge headroom for us.

And then maybe just a modeling or 2 for Mark, I guess. Just a couple of footnotes. At constant tax rate, I know we're thinking about tax rate in the mid-teens. But are you indicating there's pressure north of that? And then also, I just wonder if you could share your thoughts on sort of the $1 billion dividend coming in from Ralliant. How might that be deployed? How quickly might that be deployed?

Sure. So nothing to signal specifically on the tax rate. We live in some pretty interesting times. So our plan is to basically deliver strong growth rates regardless of what happens with tax, but we are assuming that it's at similar rates to what it's been going forward.

With respect to the dividend, so we get actually a $1.15 billion dividend from Ralliant, which is the $1 billion plus reimbursement of $150 million that was being left in the business. Of that, about $700 million is going to be used to repay debt. First piece of that will go to our term debt. We'll then look to the next spot. We'll probably retire some of our foreign-denominated bonds early. And this is all really to get ourselves in that target leverage ratio of 2.5x gross. And then with the remainder, we're going to use those for largely repurchases. And the Board actually authorized a special repurchase authorization for repurchases up to $550 million. And that will happen in the next 12 months.

All right. Next question. Cliff?

I'm not -- Cliff Ransom, Ransom Research. I'm not quite sure how to answer this -- ask this question so it doesn't sound negative. I'm a friend of the family. When you look at what you want to do, Mark, in finance with respect to the Fortive Business System, how -- I'm assuming you're still using Hoshin Kanri. And what does your X matrix looks like? What do you have to do to do what you want to do? Do you have the resources in place? And how will you apply them?

Yes. Well, we've got the resources in place. We've got the team. We've got the processes. We've got the tools. And our plan is actually to set this business up for acceleration. We're on a very strong path. And I think as the team has laid out, FBS is at the core of it. And the interesting thing, as I've gotten to know this team, is that you've got some real FBS practitioners here.

And over time, I mean, if you compare what the Danaher Business System was, which I studied in business schools is incredible, it has evolved and continuously improved. And today, as the portfolio has evolved, just more tools and more process have been built in. So I think we've got the team. I think we've got the process. We've got a great technology team. And I think we have everything we need to actually be successful. And again, FBS is at the core. Olumide, anything you'd add to that?

Yes. No, thanks for the question. I mean I would say that Hoshin Kanri and policy deployment, as we call it, is still the center of how we accelerate executing our strategy. And so from a finance function point of view...

It is or is not?

It is. It absolutely is. So just to give you that comfort and piece, it's still at a center of how we approach executing strategy faster.

Next question. Scott Graham?

I have 2 questions. The first is on -- so ASP, you're assuming that the market is growing low single digit plus. Is that just the low-temperature side? Or is that the entire market?

That's where we participate. And so that would be the market which would include not just terminal sterilization. That would also be the washing and disinfection space in the service side of the business -- of the market.

Okay. Well, then I guess I actually have 3 questions. The other one around ASP is, would you have interest in getting into high temperature?

There's something we could certainly consider. But the reason why we've hesitated in the past, as Olumide mentioned, we don't want to be into commodity businesses. So anywhere we play, we want to be deep and differentiated. So the path that's been looked at is not as much differentiation in that marketplace. And so we've elected to partner with other companies in the marketplace where it makes sense and given deals.

Maybe I would just add. If we find a path that is coherent with our strategy, which is durable business, is able to be accretive to our 65% gross margins and 30% adjusted EBITDA margins and it happens to be a differentiated technology in high-temperature sterilization, we probably would look at it. If it's a business that's -- it looks like it's good but it's 30% gross margins, we probably wouldn't do it. So I think that's where just having clarity on what we're optimizing for really helps us.

The other question was around FAL, which I think 2 years ago, perhaps less the aspiration there was sort of high single-digit organic. And now we're kind of in mid-single digit. Is that just the maturing of the business and the market? And then secondarily, I guess it's 4 questions. Secondarily, smart buildings, AI-enabled solutions, aren't these true potential accelerators to the market growth going forward?

Yes. Maybe I'll start. And then, Arul, I'll have you add on. So I think the way we look at the market growth rates is dynamic. So we look at it 2 years ago. But to Mark's point, when we're talking about it now, we wanted to reflect the current state of the market. And between 2 years ago and now, a few things have shifted. Some of that market around infrastructure maintenance spend comes from kind of government spending flow. And with DOGE and everything else, that's evolved in a way that we think affects the outlook for the market for the next 3 years.

It's also the case that the overall kind of macro has an impact, too, for the corporate side, the nongovernment side, on how willing they are to invest in some of these facility maintenance things. People are deferring and so on. So we factor all that in. We still feel, over the long term based on the circular trends and the $1 trillion of deferred spending, maybe the next 3 years is mid-single and not high single. But at some point, that $1 trillion has to resolve. And we will be there with the leading businesses in those markets. So I think that's the way I think about the shift in the growth rate over time.

I think with respect to smart buildings and what that does, it's this idea of expectations are rising on the experiences we have in the built environment. And that's true everywhere, including like if people are in the office, you actually want to make sure the experience they have is attractive enough for them to be in the office versus hybrid. So we are absolutely finding that all of that focus on experience in built environment is a tailwind for our FAL businesses. And again, it's one where we pick our lane. We're not trying to be the company that does building automation. We know what we're really good at. We partner with some of those other players, and we win the battles that we get into.

Great. Next question. Andy Kaplowitz?

Andy Kaplowitz, Citigroup. So I know you want to set a reasonable bar for expectations, but new Fortive growing. It's been growing at 4%, as you know, saying the guide to 3% to 4%. What would pull back to 3% to 4%? And then maybe you can give more color about price versus volume. Like what are the assumptions around price in that forecast going forward?

Okay. Mark, I'll let you start.

Yes. Well, I think first of all, the guidance we've given for the next couple of years is what this business has been demonstrated that it's capable of. And I think just to be clear, our aspirations are for much better. And I would just call your attention to the environment that we're living in right now. It's pretty volatile. And I think just even the conversation we just had around what's happened with government spending to have one example or the pressures that you can see that are on the health care system right now with federal spending getting pulled down. These are all things that could happen.

And so we just wanted to give you a perspective on kind of where the business is sort of right now given all the things that we can see. On pricing, I would just say -- and again, we're not going to give specific guidance on pricing, but I will say that the quality of the brands and products that are in this portfolio give them incredible pricing power. And I'll leave it at that.

That's helpful. And I wanted to ask Parker. Like the ability to -- like it's 15% recurring, much lower than the rest of Fortive. But the ability to lean into recurring for Fluke, can you get that sort of up over time? And even if you can't, you're expanding markets there. So the ability to sort of press growth in Fluke seems pretty interesting. It's a large portion of your business. You've talked about building into data centers. So what is the growth runway going forward? Can it accelerate from here?

I've had the opportunity to build a Hardware-as-a-Service recurring revenue model, built upon a great model at Industrial Scientific over the last 6 years. And I think about what Chad said in his presentation, thinking about recurring revenue models are most successful when we can truly create real enduring value. I saw that in Industrial Scientific. And since I've joined Fluke and worked with the team, I see opportunities where we can create ongoing recurring customer value. And I'm excited to dig in with the team to learn more about it and work together to figure out -- see where we can make real progress.

Great. Next question. I apologize I don't know your name second row. Thank you. Next to Chris Snyder.

This is Michael Anastasiou from TD Cowen sitting in for Joe Giordano. So earlier in the presentation, you mentioned that the Fortive FORT was folded into FBS practices. Can you just perhaps enumerate on what the FORT has done to the FBS practice specifically? And I have one follow-up to that.

Yes. Great. So just to set the context, so the FORT was the creative name we came up with for AI center of excellence, which we created 7 years ago. I think about it as a group of kind of data scientists and AI-savvy practitioners that help all of our company, all of our businesses to really developed use cases, both for operational productivity, customer experience, product innovation, G&A efficiency. And they were doing that for 7 years as sort of an incubation room, go try something out and see how it goes. That developed enough and obviously accelerated with gen AI over the last 2.5, 3 years that we felt it's now ready for mainstream.

So what we've done is we've taken that FORT team and combined it with our FBS office, which is kind of our -- think about it as an academy and center for the FBS in the company. And so that team is now one team. And some of the examples I talked about, about creating a Fortive innovation center or bringing in AI core pilots and agents into our lean product development so it becomes part of our standard, think about it as really taking something from the periphery, putting it into the major freeway that drives the company, which is the Fortive Business System. And so that's trickling to innovation, commercial acceleration and the way we think about enduring customer value.

So they're now thinking, if you think about 100,000 customers, you think about the data that we have about them, what can we do with AI to create upsell solutions for those customers. So it's really that combination that accelerates in the adoption of AI use cases.

Great. That's helpful. And then you also mentioned a Fortive Innovation Studio. How is that related to the practices that you just mentioned?

Yes, very much related. So one of the things that -- once we combine those 2 teams, one of the things they decided is we actually needed an innovation center. Think about it as space and a set of assets that can be an assembly place for our companies to ideate, rapidly prototype and launch new products focused on AI-powered use cases. The thesis of it is, you heard from the team a number of times, we serve 100,000 customers. They trust us. They respect our brands. And we happen to have so much data about the different kind of mission-critical things to what customers are doing. So then the question is with the capacity that AI has layered on top of that incredible customer access, respected brand and data sets, how do you create add-on analytics, AI-powered solutions for those customers that can just become a cross-sell and an upsell for them. So that's really what the Innovation Studio is about, and trying to do that for each of our companies.

Great. Chris Snyder?

I have one on Fluke. I just wanted to hear about your confidence in ability to continue to innovate and stay ahead of the market as a stand-alone company. I would think that some of the domain expertise that comes from Tektronix, which is really on the kind of the cutting edge there, filters its way down into the innovations you guys make at Fluke. Maybe that's wrong. So I'd just like to hear your perspective on that from an innovation standpoint.

Yes. Parker and I will tag team on this one. So the Fluke business is very different than the Tektronix business. Fluke business, think about field-based maintenance operations professional instrumentation. So these people with bells in the field. Tektronix is more you are in the lab for R&D. You're designing something that's kind of cutting-edge new technology. It's kind of a lab focus. So it's very, very different, very different OpEx versus CapEx. The drivers of the business are very different. This is more about how much capacity you need to operate and maintain. This is about how much are you investing in new innovation in different things.

And as a result of that, the technology road maps are very different. They're really very different. I think Tami mentioned it earlier. The one area where we had something being shared was on services, where we kind of said, well, let's not have services in 2 places. We had a host and -- but you could still tell the different things. And so what we've now done is separate those. So each one has its own service unit. So although from the outside in, it might look like, oh, it's -- they're both kind of measuring things, they're just very, very different.

And that's part of why you've seen for Fluke as a result of that OpEx exposure, as a result of the more global nature of the Fluke brand versus Tek, as a result of the fact that I think importantly for Fluke, while Tek has a higher recurring revenue content, Fluke has been growing that more recently. So we now have 15%. That used to be maybe 2%, 9 years ago. So it's just very different businesses, not much dependency from a technology point of view and just a very different profile. It takes an amazing business when we have those tailwinds or big Tek trends. Fluke is just a lot more durable. So that's the thesis.

Yes. I mean maybe just following up on that point of Fluke being more durable. I understand it's more OpEx MRO driven. I guess is there any context that -- or color you can provide about how Fluke has performed in down cycles through history? Did that durability really show through?

Yes. Well, I think history depends on how far you go back. But just for the benefit of our time here, I think if you just look at what's happened in the last 5 years, Fluke has grown every year. I think as you all know, the U.S. PMI and even EMEA PMI have kind of been in contraction zone for a lot of that period. And I think if you look across, if you define the industry broadly, there are very few companies that have grown consistently through that while at the same time achieving the margin expansion that you heard Parker talk about and driving improvement in working capital.

And so it's just -- it's a very -- it's been a very impressive piece of that durability story. And that was a crucial question for us as we thought about the spin, is making sure the characteristics of Fluke, given it's such a big part of new Fortive, really fit with the strategic focus we have around durability. And it's just incredibly compelling when you look at the history of it.

Okay. Time for one last question. Cliff?

Elena, I forgot -- Cliff ransom, Ransom Research. I forgot to congratulate you on finally getting to a Danaher descendant. When you look at policy deployment, how do you want that to change over the next 3 to 5 years? What will you do with it differently?

Yes. No, thanks for asking that. We always have this question of what's our favorite sort of FBS instrument. Policy deployment is high on my list of my favorite. And what it is, is really just you come up with a strategy, and it's a beautiful strategy, but then you've got to actually get it done. And policy deployment is a way of establishing a high-priority focus space to go drive the most important pieces of that strategy. And I think in that sense, the wiring doesn't change. I think it's a beautiful thing.

We still have a strategy. We'll still pick what are our 3-year objectives and what are our annual objectives, what are the improvement priorities we have, what are the kind of targets to improve. And so the frame itself doesn't change. I think what evolves is the nature of things that we get after. So for example, while 5 years ago, on a typical policy deployment matrix, it might be a lot more about we have a desire to grow and now we're going to go hire more salespeople, build sales enablement, come up with a way to make sure marketing is feeding the right leads, that's what you've have seen 5 years ago.

I think if we do that next year, based on this combination with our AI center of excellence, you're seeing things like how can we use more agents and copilots to completely reimagine the way we sell. How do we use the intelligence from the market to aim the types of prospects we're going after? Not only that we can sign them, but we can actually retain more of them and upsell more things to them.

So the freeway structure doesn't change, but I think you now just have high-speed cars running through those same freeways. And that's exciting for our teams. And this goes back to the Fortive Business System is an amazing, amazing foundation for us that will endure. And what we have a chance to do here is to do more with it and get more impact on our strategy.

Okay. Thank you very much for your very active participation today. I do want to hand it back to Olumide for some closing remarks.

Well, I think we've said this a few times. First of all, just thank you. Thank you for spending this time with us. We're grateful for it, for your interest, whether you're here in person or you're watching this on the webcast or recording. It means a lot to have you with us. And we know some of you have been with Fortive for a long time. Some are new. Some are just curious. But wherever you are in that frame, I hope you leave today with clarity, with confidence and with excitement about new Fortive.

We are a simplified focused company with a deeply rooted recurring revenue profile, 50% and going up, durable financial performance over the last 5 years. We have a clear strategy to accelerate, accelerate not just our top line growth but our earnings growth and our shareholder value creation. It's a grounded strategy, and it is one that we feel excited about. And the Fortive Business System that's been the engine of our success is going to endure, and it's going to get even better as we amplify it in some very targeted ways to help us grow faster and more profitably.

And importantly, as you heard us talk about a few times, we have a renewed focus on being excellent disciplined capital allocators. We know that's a high bar, but it's a high bar we set for ourselves. And we are fully aligned across our entire management team and our Board, and it's something I take very personal.

And finally, we have an incredibly strong energized and purposeful team that's fired up and ready to get this done. So we hope you join us for the journey. Thank you for being here with us today.