Fortive Aktie

Good afternoon, everyone. My name is Brandon Knutson. I'm part of the multi-industrials team here at Morgan Stanley. And today, we are going to be speaking with Olumide Soroye, President and CEO of Fortive; and Mark Okerstrom, CFO. Before we get started, I need to read this disclaimer. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley representative.

All right. So to start, it's been a little over a year since you've been the leaner new Fortive. What have you -- or what have been your biggest wins and biggest lessons over the last 15 months?

Great. Thanks for having us. It's great to be here. Over the last 15 months, our biggest win at Fortive is really that our team has delivered terrific progress on each of the 3 pillars of our Fortive Accelerated strategy. We started out, first of all, saying we're going to grow this company faster from an organic point of view. Over the last year, if you think about 2026, our core growth is now tracking towards twice the level it was in 2025. In Q2, it was 6.7% core growth, 110 basis points adjusted EBITDA margin expansion, 28% adjusted EPS growth.

The set of initiatives that we're working on around innovation, commercial recurring customer value are showing really encouraging evidence that they're gaining traction and continuing to ramp. And if you think about all of that, it just sets us up really well going into 2027.

The second thing we set out to do was to really demonstrate excellent capital allocation discipline. And again, if you think about since the spin, we've done $2 billion of share repurchases, taking off about 11% of our outstanding shares out on the market. And primarily, that's because the return proposition from share buybacks have just been and continue to be exceptional. At the same time, we've honed our bolt-on M&A engine. We've completed several small acquisitions to strengthen our core platforms at Fortive. And we look forward to continuing to build just an excellent track record of capital allocation at New Fortive.

And then the final thing we said we're going to do was be intentional about building and maintaining investor trust. Really pleased that for the last 4 quarters consecutively, we've delivered results above expectations. We remain highly confident in the 2026, 2027 financial framework we laid out at our Investor Day last year. And just as a reminder, that's 3% to 4% core revenue growth. It's 50 to 100 basis points of adjusted EBITDA margin expansion every year. And it is high single-digit dollar plus adjusted EPS expansion.

We also did say in our Investor Day that our ambition is to deliver results that are even better than that framework after the '26, '27 time horizon. We've continued to build confidence that, that's attainable. And we're putting in place the pieces to make that happen, including making the right strategic decisions and investments today that will secure profitable growth for years to come. So I mean, overall, Brandon, I think our biggest lesson in this first 15 months is our Fortive Accelerated strategy is on track. It gives us a high confidence path to deliver our financial framework with very meaningful upside potential. And we believe a strong likelihood of outperforming shareholder return benchmarks in the next several years, especially given the current valuation dislocation in the marketplace. So we're feeling good.

That's great. So you highlighted the Fortive Accelerated strategy, faster profitable organic growth, capital allocation, build investor trust. Can you talk about some of the KPIs around new products or recurring revenue growth? Anything else to show that this initiative is really progressing post spin outside of organic growth?

Yes. And overall, just the evidence we're seeing in terms of traction and in terms of runway on our profitable growth initiatives, we feel really good about. And the 3 vectors that we've talked about. The first one is faster innovation. And we're incredibly across all our companies, just doing a terrific job of launching new products that are aimed at high-growth vectors like data center and defense and robotic surgery and industrial capacity getting built out in just about every country around the world. And we're launching new things that tap into those tailwinds. We feel good about, to your point about KPIs, the revenue from recent product launches continue to ramp in a very exciting trajectory for us. So we feel good about that.

The second vector was commercial acceleration. So think about this as placing specific additional resources in sales, marketing and operations in areas, whether it's geos or its end markets that we see high growth and provide the best opportunities. And again, we continue to see outperformance in the growth for all the areas where we're making those incremental investment. And that's a good KPI to see.

And on recurring customer value, we have 100,000 customers at Fortive. They all have the chance for us to do more for them and expand our share of wallet with them. And we're doing that on the hardware side. You see at Fluke as an example, which is our biggest hardware brand, the attach rate of specialized service plans and software that help our customers get more value from the hardware continues to get better with a long runway of continued growth ahead of us, which is terrific to have in a business like Fluke given our installed base that we have to mine. And on the software side, we continue to upsell and cross-sell and expand with our current customers as we launch new valuable modules for them. And again, that's showing up in KPIs around the performance of all of those businesses. So we feel across all the 3 vectors for driving growth, great progress. And frankly, more importantly, from our point of view, just great runway to keep ramping the contribution from those initiatives to growth.

Great. And growing recurring revenue is one of the pillars for driving growth. You talked about it at Investor Day as well. Can you talk about the opportunities here and where the upside is coming from in IOS versus AHS?

Yes. We've seen for the company overall, just terrific growth performance on both the recurring and nonrecurring part of the company. And just on your question, the 50% of the company that's recurring is really health care consumables and services. It's kind of hardware as-a-service type offerings that we have and it's software subscriptions. And we've continued to see the strong performance across those. To give you a few examples on IOS segment at Fluke, which is again our biggest brand. We've just had great success in attaching service plans and subscription software to some of our products at Fluke.

And this has really taken the experience that our customers have with our advanced professional instruments and saying, how can we make that better over -- beyond the time they're buying the device from us. And that's going really well and continues to provide upside. And then on the software side and the health care consumables side, it's really about driving utilization of equipment we have in health care and then attach for our software businesses. In health care, as an example, again, we have tens of thousands of equipment out there. Everything we do to help our customers run more devices through those sterilization machines that's recurring revenue growth.

So we talked about the recent FDA approval of a 50-pound weight claim for our STERRAD machines. That means our customers can put more robotic equipment and devices through those machines, which means the utilization rate on those machines go up, which means more consumables and more services. So those are -- it's a very, very targeted approach at looking at all the 100,000 customers we have and ways to do more for them on the hardware side and on the recurring revenue side to deliver more value and the best place to grow is with the customers you already have.

Yes, that makes sense. And on Fluke specifically, you highlighted that you're offering now more software recurring revenue opportunities to products you have. Currently, recurring revenue is 15% of Fluke. What now essentially the product portfolio, what percentage now has some software option attached to it that you can now bring to the marketplace? And how high can that go?

Yes. So Fluke is just a terrific business for us with a lot of growth vectors. And one of them is this attaching service plans and software to our Fluke portfolio. We talk about a 50% (sic) [ 15% ] of our revenue at Fluke being recurring revenues, and that continues to grow at a really strong rate. So if you play that through over time, it's going to -- it's just an exciting frontier for us for growth. The power of that in the end is that as you get into higher-value equipment, customers need more service plans around them to calibrate them and to keep them functional. And as you think about AI and what's possible with AI, it gives us a chance to add more value that customers are actually willing to pay for as upsell on those devices. So lots of runway ahead of us.

And speaking of AI, how are you using AI to enhance product value on both the hardware and the software side?

Yes. It's a great way to frame the question because it is on both the hardware and software side. And just as context again for everyone, we have the benefit of having started our AI journey with our center of excellence in AI launched 7 years ago. And so we've had time to mature this capability and didn't start it with Gen AI a few years ago. And what that's given us a chance to do is really be focused on real customer value, right? Because we were not trying to learn the technology, we were focused on use cases. And I'll just give you a few examples. On the hardware side, we took the approach of looking at every technician that uses our devices and trying to think through how we can leverage AI to help them do their job faster, make better decisions, better reliability and uptime.

And we're doing that systematically across our portfolio. A perfect example is our Fluke OptiCal Automated Visual Calibration product that we released recently. Think about this as a way to take the activity that technicians do of checking measurements on multiple devices and having to interpret those measurements. We now have a computer vision system that can capture those measurements and with AI can translate them into the implications and then some agentic workflows for some of those to actually take the actions needed. So it's gone from selling them a set of devices to now having this upgrade service that can actually, instead of a new technician trying to figure it all out, do 80% of the task and just help them get more done. So that's an example of AI delivering real value for customers on the hardware side.

And on the software side, we've talked on many of our earnings call about a range of AI enablement that we put on top of this incredible data-rich systems of record with multisided networks around them. ServiceChannel, [indiscernible] on our AI intelligence platform continues to see great adoption. At Gordian, our Flash AI solution, which can help people do estimates in minutes that used to take them days and weeks to do. And we've also talked about Provation and our voice documentation capability that helps surgeons now not have to handwrite everything or dictate everything to a nurse practitioner, but they can actually, in an automated way, capture content with their voice rendering. So just a great set of real use cases, again, enabled by the fact that we've been advantaged because we built this capability a long time ago.

Very interesting. A little bit on the cost structure now that you're sort of a leaner stand-alone company, how are you progressing on your structural cost saving initiatives? And how much progress is there left to make?

Yes, great question. So we talked at the time of the spin-off of there being about $50 million of stranded costs. We were able to take that out between the second and fourth quarter -- third and fourth quarter of last year. We also went beyond that and took out a fair bit of cost, particularly at the segment level and the corporate cost structure. And we used that capital essentially to reinvest in the initiatives backing the Fortive Accelerated strategy, and it's early days, but we're seeing great progress. I would just say that we're not done now. The Fortive Business System is all about continuous improvement always about looking at ways to do things more efficiently. We certainly see that in the operating companies, but also at corporate. We're on the hunt to do things with less. And even though the big chunk is behind us, I think we're going to continue to drive efficiency through the business.

And can you talk a little bit more about those investments and where those dollars are going? And how long do you expect before you see the return on that investment and where that's going to show up?

Yes. Well, I mean, the good news is we're already starting to see returns flow in. And the investments have really been across the portfolio and across those 3 initiative groupings that Olumide mentioned, which is accelerated innovation, accelerated commercial activity and recurring customer value. Just to give you a few examples. For Fluke, we really beefed up their engineering resources. They've launched an industry-leading data center tool called the CertiFiber Max. Order volume is way ahead of our expectations. We can't keep up with it. And that wouldn't have happened but for the investments that we are making.

On the commercial side, we've been putting more boots on the ground in places like Latin America, places in Europe, places like the Middle East, India. We're seeing the returns on those sales heads, again, across the portfolio, Advanced Sterilization Products, Industrial Scientific, Fluke. And we've also put more specialty commercial expertise into Fluke in both defense and data centers. Again, we're starting to see the returns on that. And then on the recurring customer value side of things, we've been working on some of the innovations around the software products that Olumide mentioned and then also working on making sure that our service center infrastructure for Industrial Scientific and Fluke and Advanced Sterilization Products in places like India or the Middle East is fully built out with the view of getting more of those great service plan subscriptions that will help drive the recurring revenue EBITDA.

Switching to capital allocation. You guys generate a lot of free cash, which is a very positive piece of the business. How do you make capital allocation decisions between M&A and buybacks?

So we do generate a lot of free cash flow. We love that part of the business. It will be about $1 billion or more of free cash flow this year, and it's growing very nicely. It's not a capital-intensive business, and we've got a free cash flow conversion on net income -- adjusted net income north of 100%, and we would expect that to continue. We really look at capital allocation across 4 primary categories. And we look at them broadly speaking, based on best relative risk-adjusted returns. First and priority is organic investment, and that would include things like building out the service center infrastructure that we mentioned.

Second and third, which we look at interchangeably, are share repurchases and M&A. We've leaned in heavily into the share repurchase since the spin-off. Again, $2 billion spent at the end of the last quarter. 11% of our share capital retired. And really, that's just been on the basis of the attractiveness of the returns on a relative basis. But while we've been doing that, we've rebuilt our whole M&A engine, new leadership, new process, new analytical suite to assess relative returns of deals and a focus on predominantly bolt-on acquisitions where we believe that we can buy companies and make them worth more under our ownership and have them make Fortive be worth more as well. And again, we look at buybacks and M&A interchangeably based upon best relative returns.

And then the last is our dividend. We've got a modest dividend, and it's growing. We're very happy for payment in the third quarter here to announce an increase in our dividend of over 16%. And that's just going to be a recurring feature of the capital allocation palette, if you will, over the years to come as well.

On the M&A piece, can you talk a little bit about some of your recent bolt-on acquisitions and what they brought to -- they bring to the product suite at Fortive?

You want to take that one?

Yes. So I mean our bolt-on M&A has really been very focused, as Mark mentioned, on a few ideas. One, we only do things that are going to strengthen our existing platforms. Second, they have to bring in some differentiated technology. And third, they have to meet our rigorous strategic and financial criteria. And those are very clear gates that we've set in place that guide everything we do. And you see that in the few examples that we've talked about over the last several months. And one of those is UV Smart, which is this company based in the Netherlands, and we did that acquisition in our ASP business.

And you think about a few things there. One is that technology is very differentiated. It gives us an expansion in addressable market at ASP that's about $0.5 billion in expanded market. And it gives us this ability to bring this ultrafast chemical-free UV-C technology that's really important for disinfecting some of the ultrasound probes and endoscopes that are going to be a growing market for years to come. And we had -- importantly, not only do we like the asset, we had a really clear value creation thesis. We knew this was a technology in the Netherlands that with the commercial and the global presence that ASP had, we could significantly speed up the growth rate and the adoption of the technology.

We also knew that while it's been approved for some use cases by the FDA in the U.S., there are a lot more use cases that this technology can apply to. And we knew that our ASP team has the regulatory process to speed up that process of getting more and more categories approved, which will further expand the addressable market. And we knew that we could significantly improve the manufacturing efficiency of the operation and drive cost productivity with our Fortive Business System. So really clear, really solid value creation thesis that's tracking very well right now.

And the same thing at Aeroqual, that's another of the small bolt-on acquisitions, this one for Industrial Scientific, brought in a differentiated technology around air and environmental monitoring, something that connects really well with our worker safety solutions at Industrial Scientific. We had a clear value creation thesis. In this case, we knew we could take out the entire manufacturing operation and facilities footprint of this company and just replicate it within our existing factory at Industrial Scientific. And that was a big part of the value creation thesis.

And at the same time, we could take the product they had, improve the distribution with our Industrial Scientific channel and customer relationships and drive faster top line growth while you're taking costs down. Strong clear value creation thesis and the team is off to just a terrific start on making that happen. So you'll see us do those types of focused bolt-on deals. They're not large in magnitude, but they play a really important role in giving a booster shot to our existing businesses at Fortive.

That's great. Shifting to some more near-term dynamics. Like you said, growth has been strong to start the year, 6.7% core growth in Q2. What are you seeing across your end markets today?

We feel really good. We talked on our Q2 call about what we describe as kind of broad-based strength across all of our platforms and end markets that led to that 6.7% core growth in Q2. And we continue to see the year play out as we expected and feel really good across all end markets. We talked about North America being the strongest region. That's -- I mean, that's held up really well. The other regions are holding up nicely, but North America continues to lead the pack. And then across all the pieces of both segments, we talked about the broad-based strength in terms of product categories, and that trend continues as well into the second half.

Okay. And at the Investor Day, you outlined a framework of 3% to 4% organic growth, 50 to 100 basis points of margin expansion. The year is expected to be closer to the high end of the organic growth, but then the margin expansion is expected to be closer to the low end of that growth -- low end of the guidance there. Can you talk about what's driving those dynamics and that disconnect a little bit?

Yes. I think, first of all, I would say that the financial framework we laid out is perfectly intact. And deliberately, we laid out that framework such that we would have the levers necessary for us to make the investments required to drive the Fortive Accelerated strategy. And so far, it's working. I would also just say that the margin discipline that is inherent in Fortive's culture and its history is 100% intact. The differentiated nature of our products, their high brand value and innovative features gives us very strong pricing power. And we've got great operating leverage through the business. So we're really looking to make a step change in growth in adjusted earnings per share and adjusted free cash flow per share.

The first stop on that is to accelerate core growth. We're on the right track here. And where we land within that 50 to 100 basis points range is really a decision. It's not going to happen to us. It's a byproduct of the decisions we're making to drive the most optimal shareholder return and benchmark leading returns profile over a multiyear period.

Got it. Shifting a little bit to Fluke and data center. That business has been performing really well, strong order growth, strong point of sales growth. It sounds like a lot of this is coming from data center. Can you just talk about what the data center opportunity is there and how meaningful that could be to Fluke?

Yes. So I mean, Fluke is just a terrific business overall. And just to be clear, data center is an exciting driver of the growth, but our success at Fluke is really broad-based. And if you think about it for the last 5 years, Fluke has grown orders every single -- just about every single quarter, except for one, maybe, and that's way beyond the data center story. So we like the broad-based strength at Fluke. The data center opportunity is an important one for us at Fluke. And as we've talked about a few times, we really think about it as we participate in the build-out and commissioning stage of a data center. But even more importantly, and in a more enduring way, we participate a lot in the ongoing operations and maintenance of data centers.

So if you think about the focus on CapEx activity right now, it's exciting. Fluke plays a bit of a role in that. But the more exciting thing is the next 10 years plus when you turn on the data center, who is running it and who is making sure it stays up and running. And that's where Fluke really comes in. We have a range of existing product solutions at Fluke from power calibration to power monitoring and analytics to high-voltage diagnostics to electrical ground fault monitoring to high-density fiber testing. There's a lot of products that has always been important for data center operations and maintenance. And as you build more data centers, you're going to pull through more of those.

But importantly, we've also enabled our team at Fluke, to Mark's point, to drive more innovation aimed at solving new problems in data centers. And that's the CertiFiber Max is a good example of that, where the density of fibers in the data center and the complexity and the speed with which they needed to certify and commission those was just unprecedented. So you needed a tool with the fastest throughput in the industry optical loss test sets. And that's where we created in a way that uniquely Fluke can do the leading product in the industry to do that. And what that does is not just sell that product, but it pulls through the full suite of all the other things that Fluke already does for data centers. So it's an important opportunity for us. It's going to endure. You're not going to see a spike in the CapEx stage because that's not really the sweet spot for us. But as you add more data center capacity in the world, that's a lot more data centers that need to be run and maintained for the next 10-plus years. And we love that enduring aspect of how Fluke plays in the data center.

And to expand kind of the TAM within the data center opportunity, is M&A going to be a piece of that? Or is it more going to be organic looking at where you can repurpose products and things like CertiFiber Max?

We like the organic runway that we have to really address more and more of the data center opportunity, including coming up with new products as the architecture shifts around on the power side and other subsystems within data center. So we like that organic vector. If we see an M&A asset, we'll look at it. But one of the things that Mark mentioned this, but an important part of our M&A discipline is that price is part of the strategy. And I think this days, the valuation on a lot of these data center assets, you really have to make sure that, that meets your return threshold as exciting as the market is. So we like -- we really like the organic vector. We expect that gives us a good runway.

And on the new technologies and architectures around data center, like 800-volt is part of the conversation that's coming for future data centers. Is this something that could drive a potential upgrade cycle for electricians in terms of like the new product need to be used to be able to service that? Or can it be done with what's already out there?

Yes. Well, I think any time there is a shift in the requirements in the data center and whether it's the power architecture with this high-density power requirements in the rack or whether something is changing around the scale and the configuration of the data centers, it creates new needs for customers. And every time there is that, especially on the measurement and metrology side, that's where Fluke shines. That's when Fluke can come up with a new product that does something for 800-volt DC data centers in a way that nobody else can. And so we really like what that opens up for us. Having said that, whether it's a 480-volt 3-phase AC data center from a power point of view, or it's 800-volt DC data center, there's a lot of things that still need to run in that data center because there's a lot of subsystems beyond power. And that's what Fluke does.

So the beauty of what we do is we will, at Fluke, be relevant for whatever configuration, whatever scale and whatever power architecture, and we'll grow from that. And then whenever there's a new thing, we have a chance to innovate. So it's not a wholesale refresh cycle because it's 800-volt DC, there's an enduring part of the demand for Fluke. But then that new architecture opens up the lane to do something like we did with CertiFiber Max for high-density fiber from the point of view of the kind of high power density in the racks and all the sub racks that have to be created and the new way power flows, which means you need more advanced power diagnostics, tools that maybe don't exist today. You need really disciplined ways of monitoring what's going on in this high-power density racks because that's -- there's a lot of safety things that come with that, that Fluke can help address and so on.

Okay. Shifting back to capital allocation once more. In terms of where you see the most opportunity to add the portfolio, what's the preference between hardware and software?

Well, so our posture on bolt-on M&A, which, again, as we talked about in the 4 layers that Mark talked about, M&A has to compete with the share repurchase value return proposition. That's one step. So when you get to the M&A piece, then we really don't start with a predetermined mix idea. We focus on, is this an asset that makes our existing platform stronger? Does it add differentiated technology? And does it meet our strategic and financial criteria, whether that's hardware or software, it has to pass those tests. Having said that, because the bolt-on M&A we're doing is strengthen our existing business, the composition of our existing business is instructive in terms of what we expect. So over 70% of Fortive today is now really this incredible highly differentiated hardware brands in Fluke, in ASP and Industrial Scientific. That's over 70% of our service area, which means the bolt-on M&A funnel we're looking at, if they're going to make our existing business stronger, they're going to skew towards those.

So you're going to see them more towards those kind of hardware businesses. Hence, the examples that I talked about are really more -- they're all on that hardware side of the company. From a software point of view, why we wouldn't rule it out at the gate, I would just say that the bar is really high, right? Because if you're looking at a software asset from an M&A point of view, it has to have the attributes we love about our existing software businesses, deep proprietary data, system of record and action, multisided networks, compliance and regulatory lock-ins around the asset. Then it has to be -- those advantages are going to get stronger or at least endure in an AI-enabled world, so you feel they're secure. And if they pass that, then the valuation has to be at a level that meets our returns threshold. So it's just -- it's a pretty narrow path to land a software M&A deal, and we just have a rich set of opportunities that are surgical and can really help us on the hardware side, but we don't rule it out.

Appreciate it. And looking out to 2027 and beyond, what needs to happen to maintain growth at the high end of that 3% to 4% organic range in terms of what you can control and in terms of the macro as well?

So I mean, we really like our setup here. I mean if you think about it, we are for 2026, now modeling 4% core growth for the year. We started the year providing 2% to 3% as our call. We just came out of Q2 with 6.7% core growth and margin expansion and terrific adjusted EPS growth. The set of initiatives we're working on that we've talked about on innovation, commercial, recurring customer value have tremendous runway, and they're still in the early stages of ramping, and they continue to ramp their contribution.

And so we're -- frankly, at this point, our backlog in the company is higher than it's been for several years. So we really just like our setup going into 2027. And I think from our point of view, the key is not what happens in the market. The key is the ramp rate of those initiatives that we're working on. And we like the odds of having the main tools in our hands versus what happens in the market. So it's really -- it's us executing on those initiatives and make sure they continue to ramp.

Appreciate it. Well, that pretty much marks time for us. Thank you, Olumide. Thank you, Mark. Appreciate the time, and thanks for coming to the conference.

Thank you.

Thank you. Great to be here.

My name is Darryl, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Second 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 filing, 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, and thank you all for joining our call today. Let me begin on Slide 3. Q2 marked another quarter of strong results and execution of the Fortive accelerated strategy by our Fortive team. Four key messages from the quarter. First, our teams delivered strong financial performance across both segments. On a consolidated basis, we delivered core revenue growth of 6.7%, adjusted EBITDA growth of 12% and adjusted EPS growth of 28%. Importantly, our results reflect continued progress on our objective of driving faster profitable organic growth, powered by our Fortive business system amplified. Second, we remain disciplined in our [ capital ] allocation approach with relentless focus on optimizing shareholder returns over the medium to long term. This quarter, we executed a small bolt-on acquisition and deployed another roughly $200 million to share repurchases, bringing total share repurchases since our launch of new Fortive a year ago to approximately 38 million shares or 11% of shares outstanding. Third, we continue to execute our Fortive accelerated strategy, and we are pleased to see evidence that our investments in innovation, commercial and recurring customer value, our contribution to accelerating growth margin expansion and earnings performance, reinforcing our confidence in our medium-term financial framework and value creation opportunity. Finally, we are raising our full year 2026 adjusted EPS guidance to $2.95 to $3.05, reflecting our solid first half performance, and our confidence in the trajectory of the business.

Moving to Slide 4. Let me highlight some of the progress we are making in executing the 3 pillars of our Fortive accelerated strategy. Starting with the first pillar, delivering faster partial organic growth. Overall, we remain encouraged by the progress we are seeing across innovation, commercial and recurring customer value, all of which are building this foundation for durable, faster organic growth. This quarter, our acceleration innovation velocity again translated into faster growth. At Fluke, our innovation funnel is steadily expanded with new product introductions tightly aligned to strategic growth areas such as data centers, defense and early in career technicians. Demand for CertiFiber Max continues to exceed expectations, helping establish Fluke's position in the rapidly growing data center commissioning and maintenance market and driving pull-through of the broader Fluke portfolio into this high-growth area.

In facilities and asset life cycle solutions, we are expanding our AI-enabled predictive maintenance portfolio, our ServiceChannel and Accruent including tools that help field service technicians diagnose and fix issues more accurately in the field. At Gordian, our Flash AI solution launched in Q1 is now in production across many of our strategic accounts are running well above plan, cutting construction cost estimate in time from days to minutes and creating measurable value for customers and for Gordian.

In health care, ASP received FDA clearance for a 50-pound expanded steroid load capacity, put us strengthening our position in robotic-assisted surgery applications, 1 of the faster-growing areas within the operating room environment. On the commercial side, we maintained our focus on faster-growing end markets and regions where we've made deliberate targeted investments to capture growth at Fluke investments in data center expertise drove incremental demand for our networks, power quality and battery testing product lines. Additionally, we continue to see strong momentum in India, where our localized service and support investments are strengthening customer relationships and helping drive growth. So this channel is invested in commercial and markets and resources across Europe to capture the meaningful international opportunity in the business. At Gordian, our investment in growing contractor engagement is reinforcing the competitive differentiation of our two-sided procurement marketplace.

In health care, we continue to deepen our engagement with enterprise health systems and ambulatory surgical center networks through coordinated commercial efforts across ASP, census and our other advanced health care solutions operating brands. On our recurring customer value initiatives, we made further progress on deepening customer life cycle engagement and improving revenue durability. In Q2, recurring revenue growth was strong at cross-port segments. At Fluke recurring revenue growth was driven by strong performance in services and software offerings. And early customer feedback on AI-enabled capabilities recently introduced within Fluke's main platform has been very encouraging. ASP Consumables and services had another quarter of strong growth. with solid growth contributions from every major region.

Moving to the [indiscernible] pillar, the [indiscernible] capital allocation is an internal component of our Fortive accelerated strategy. Consistent with our priorities, we deployed another roughly $200 million to share repurchases in Q2. Since the spin-off, we have deployed nearly $2 billion for share repurchases, representing 38 million shares by approximately 11% of diluted shares outstanding. Our revamped bolt-on M&A engine, our team is now in place. We are continually evaluating opportunities for high-quality accretive bolt-on acquisitions that meet our rigorous strategic and financial criteria. This quarter, we completed the acquisition of the majority stake in UV Smart, an innovative company was complementary UVC high-level disinfection technology, expense ASPs portfolio and enables more efficient disinfection of specialized instruments.

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 and maximizing medium- to long-term shareholder value.

Moving to our final pillar, building and maintaining investor trust. We are pleased to deliver strong performance ahead of expectation for a fourth consecutive quarter of [Audio gap]. We remain laser-focused on executing against our 2026 financial and strategic plan and continue to have strong confidence in our medium-term financial framework that we shared at our last Investor Day.

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

I'll begin with Slide 5. In the second quarter, we delivered total revenue of nearly $1.1 billion, up almost 8% year-over-year on a reported basis, up 6.7% on a core basis. We were pleased to see price and volume growth again in both exits with results driven by healthy customer demand and strong commercial and operational execution across the portfolio. Software-related revenue remained a meaningful contributor to growth in the quarter, reflecting the underlying strength of our businesses and robust customer demand for our increasingly AI-driven new front leases. Regarding core growth by geography, North America saw a modest sequential acceleration in Q2 and continues to be our strongest performing region. Revenue in the Europe and Middle East and Africa region declined modestly due to macroeconomic uncertainty associated with heightened geopolitical tensions and continued economic softness across the region.

Pressure in EMEA was more than offset by year-over-year growth and sequential acceleration in APAC and LatAm, driven by strong demand for professional instrumentation and health care consumables. Adjusted gross margin was 63% in the quarter, down approximately 100 basis points year-over-year. Adjusted gross margin performance was primarily driven by product mix dynamics resulting from outsized growth in certain lower-margin products, partially offset by operating leverage. Note that tariffs had a minimal impact this quarter as the prior year Q2 also reflected tariff-related costs for most of the period. Q2 adjusted EBITDA was $323 million, up 12% year-over-year. This strong performance was driven by adjusted gross profit growth, operating leverage and discrete structural cost savings, partially offset by growth investments to support our Fortive accelerated strategy. Adjusted EBITDA margin in the quarter expanded by approximately 110 basis points year-over-year to 29.5%. We delivered adjusted earnings per share of $0.74 in Q2, up over 28% year-over-year marking our fourth consecutive quarter of double-digit adjusted EPS growth.

Strong adjusted EPS performance in Q2 was driven by growth in adjusted EBITDA and the positive year-over-year impact of share repurchases. We generated roughly $270 million of free cash flow in the second quarter with our trailing 12-month free cash flow topping $1 billion with conversion on net income well north of [ 100%. ] Please note that during the quarter, we recognized a $4.5 million IEEPA tariff refund benefit in GAAP earnings. We expect another roughly $20 million to $25 million of tariff refunds in the coming quarters. To help investors more easily compare results across periods, we exclude the impact of IEEPA tariff refunds from our adjusted metrics and expect to continue doing so going forward, for the cash benefit is very real and will be deployed using our disciplined capital allocation framework.

Moving to our segment results, starting with Intelligent Operating Solutions on Slide 6. Revenue for this segment grew about 9% on a reported basis with core revenue growth of 7.4%, and we are pleased to see broad momentum continue across the segment. Core growth was driven by both price and volume reflecting solid performance across professional instrumentation, facility and asset life cycle solutions and gas detection products. At Fluke, order volume remained strong with order growth modestly outpacing revenue growth during the quarter. Customer demand continues to be robust across our industry-leading portfolio and across a broad set of geographies. Our Fluke team executed with discipline across the board, while increasing investments into further tapping into key high-growth end markets, including data centers and defense. North America remained our strongest growth driver with broad-based contributions across product lines. While performance in Europe was affected by macroeconomic uncertainty, this was more than offset by strong growth in APAC and LatAm, where increased commercial investments in strategic growth markets are yielding promising early results.

Both in facilities and asset life cycle solutions was strong getting Q2 led by strong performance in multisite facility maintenance and marketplace software in North America. We continue to see evidence that our commercial and innovation investments are driving increased demand for our increasingly AI-enhanced products. Our Gas Detection business is growing nicely buoyed by strong demand for our Hardware as a Service product line in North America, the Middle East and in Latin America. Adjusted gross margin in this segment was just over 65%, down about 100 basis points year-over-year, primarily due to strong growth for some of our lower-margin products serving multisite retail customers, partially offset by operating leverage.

Q2 adjusted EBITDA in the segment grew 12% to $264 million, driven by adjusted gross profit growth, operating leverage and discrete structural cost savings, partially offset by growth investments. Adjusted EBITDA margin for Q2 expanded by about 100 basis points year-over-year to just under 35%.

Moving to our Advanced Healthcare Solutions segment on Slide 7. We delivered total revenue of nearly $340 million, revenue grew 6% year-over-year and 5.3% on a core basis. Q2 growth was driven by solid demand for health care consumables, services and software in Latin America, APAC and North America. Our software products in the segment continued to deliver strong growth driven by [indiscernible] execution and strong provider demand for our gastrointestinal case documentation solution. Low temperature sterilization capital demand improved modestly again in Q2 and contribute to growth. Adjusted gross margin in the segment was roughly 58%, down about 110 basis points year-over-year, reflecting product mix dynamics and strategic growth investments, partially offset by operating leverage. Q2 adjusted EBITDA in the segment was $88 million, up approximately 3% year-over-year, driven by adjusted gross profit growth, operating leverage and discrete structural cost savings, partially offset by growth investments. Adjusted EBITDA margin contracted by about 80 basis points year-over-year, while remaining a healthy 26%.

Turning to Slide 8. Our balance sheet remains strong. We finished the quarter at 2.7x gross debt to adjusted EBITDA, modestly delevering from last quarter. As noted earlier, we deployed roughly $200 million to share repurchases in the second quarter reflecting our continued focus on deploying capital with a laser focus on driving best relative risk adjusted returns and confidence in our ability to deliver on our value creation plan. As a result, we had approximately 307 million diluted shares outstanding at the end of Q2. In terms of M&A, we completed the acquisition of a majority stake in UV Smart towards the end of Q2, and the execution of our value creation plans for the two small bolt-on acquisitions we completed in Q4 of last year are both going according to plan. We continue to evaluate high-quality accretive bolt-on deals that meet our rigorous strategic and financial criteria and deliver superior returns relative to alternative uses of capital, and we now have the team and processes in place to execute effectively on our M&A strategy.

We have a healthy balance sheet and a growing business with high durability, strong margins low capital intensity and very attractive free cash flow generation characteristics. All of this gives us ample capacity to execute on our capital allocation priorities with a relentless focus on optimizing shareholder returns in the medium to long term.

Moving to Slide 9. We are raising our full year 2026 adjusted EPS guidance range to $2.95 to $3.05, reflecting solid first half performance and confidence in the trajectory of the business. This outlook assumes a continuation of the market dynamics we experienced in Q2 and reflects current tariff rates. Now let me provide some additional considerations to assist with modeling. Based on current foreign exchange rates, we now expect full year reported revenue of approximately $4.35 billion. Given solid performance to date, we now expect full year core growth of approximately 4%, up from our prior expectation of 2% to 3%. In terms of the shape of the balance of the year, we expect Q3 reported revenue as a percent of total to be broadly in line with historical patterns, while Q4 will be a smaller than usual percentage due to there being four fewer selling days in the quarter versus prior year. As we mentioned last quarter, it will also drive about a $15 million to $20 million headwind to reported revenue and a 150 basis point headwind to core growth in Q4.

We expect FX and M&A combined to be about a 50 basis point tailwind to reported revenue in each of Q3 and Q4. We are affecting Q3 adjusted EBITDA margins to be slightly below Q2 levels, driven by slightly lower revenue on an absolute basis and the impact of modest strategic growth investments. On a year-over-year basis, EBITDA margin trends will also be impacted by a more difficult Q3 OpEx comparable. We now expect a Q3 effective tax rate in the mid-teens and Q4 in the low double-digit range. And full year net interest expense of about $140 million. From a bottom line perspective, as we look forward to the balance of the year as has historically been the case, we expect adjusted EPS delivery to be weighted towards the fourth quarter with Q3 EPS up very slightly year-over-year, as we said last quarter, broadly consistent with what we saw in the first quarter of this year.

As the balance of 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, our first half results reinforce our confidence in the Fortive Accelerated strategy and the financial framework we outlined at our last Investor Day, and we remain focused on delivering benchmark in returns for our shareholders.

I'll now turn it back over to Olumide.

Thanks, Mark. Let me close with a few observations on the quarter and where we are headed. Q2 represented another strong quarter of performance. We delivered 6.7% core growth, approximately 12% adjusted EBITDA growth and 28% adjusted EPS growth. Our fourth consecutive quarter of delivering double-digit adjusted EPS growth and exceeding expectations. 1 year after our launch of new Fortive, we are generating momentum from our 4 accelerated strategy. And our confidence in the 2026, 2027 financial framework we outlined at our last Investor Day is fully intact. We are pleased with the progress we have made. We believe we are still in the early stages of realizing Fortive's full potential, and we are excited about the value-creation runway ahead of us. I want to thank our customers for placing their trust in us every day and all our 40 team members around the world for their commitment to our shared purpose of innovating essential technologies to keep our world safe and productive.

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 questions come from the line of Scott Davis with Melius Research.

I wanted to touch on two things. The first being new products and the second one being bolt-ons, but new products, is it something -- when you talk about NPIs and you think about the KPIs around that, that you guys look at internally, are new products having a tangible impact on top line growth or sometimes you see in price or are you seeing margins because it's -- you're selling something that's iterative. But is there a tangible sign at least that you think you're getting a return there?

Scott, thanks for the question. I think short answer is yes, absolutely. I mean, we've been really clear in our Fortive Accelerated strategy are the three factors that would drive this company to grow faster, first of those is innovation and new products, second commercial and this recurring cost on value, which means we do more for the 100,000 customers we have that trust us every day. And what we've seen really is from a product innovation point of view, all 10 of our brands have really been introducing products and have a funnel of new products that's deeper and richer than we had, and it's also more pointed at really high growth vectors. So the fact that we're growing 6.7% call this quarter in Q2, and we've been accelerating in the last four quarters. That certainly has had the fingerprints of those new products on it. We've talked about some examples of those [indiscernible] Fluke CertiFiber Max at ServiceChannel with some of the exciting AI enabled innovation. We've introduced for [ work order ] anomaly detection and conversational [ work order ] completion and other things. So the short answer is yes. And as you can imagine, knowing us well, we have extensive instrumentation on how we track the portfolio of new products and each individual product in terms of what we expect and what we're delivering, and we feel quite good about what we're getting out of them.

Okay. Fair enough. And then on the bolt-on side, are there -- I don't know what proper word to use here, it is my fourth call today, and my brain is starting to fry. But are there limitations meaning particular businesses that you would not want to bolt on to or areas that you have limited interest in expanding? Or are you looking at bolt-ons across the entire portfolio, software, not software healthcare health care. I mean just a sense kind of priorities there and where we might expect to see the lion's share of bolt-ons?

Yes. So I mean, we, first of all, have a much simpler portfolio. It's really quite interesting because if you think about the company today. Fluke is more than 40% of what we do. Business at ASP is a really big chunk of what we do. And then there's the rest of the company. So if you think about just the softest area we have to look for bolt-ons in, it certainly would skew towards our strongest platforms. I'll use Fluke as an example of those, and ASP is a good example as well. So while we don't exclude any area, we're generally building a funnel that's sort of looking at what's available and what strategically and financially interesting for each of our brands. You're going to see us skew towards strongest brands. On your point about software, I mentioned this, I think, a few calls ago, we like the software brands we have because of the attributes they have around proprietary data and regulatory lock-in and two-sided networks. And so if we're looking to bolt-on anything, that thing has to have those attributes to light as well. It has to be at a financial proposition that fits a criteria in terms of returns. So software bolt-ons are possible, but it's a very narrow path to find something that was in is affordable. So that's the way we think about it. We build a funnel, but I think if you think about what's going to come out as executed deals, you see them skewed towards our biggest brands where we're strongest and probably less towards software and more towards differentiated hardware businesses.

Our next questions come from the line of Nigel Coe with Wolfe Redarch.

I know that Christina will do the great job of kind of like sending an e-mail with all the modeling items. Just wanted to clarify, your comments on 3Q, Mark, do we have revenues and margin down modestly sequentially. I think that will be normal seasonality. Just wanted to clarify that. And then it seems like there's some moving pieces on the tax between 3Q and 4Q. I think you said high teens in 3Q is now mid-teens and 4Q looks to be a bit higher. Are we still on the path for a mid-teens tax rate for the full year?

I think you've got it entirely right. So I think normal seasonality, as we said, Q3 revenue would track in normal path, and that would be a sequential step down along with the commentary we made on adjusted EBITDA margins. And then absolutely right on the tax rate, we are continuing to expect something in the mid-teens on a full year basis and again, mid-teens in Q3 and low double digits in the fourth quarter.

Okay. That's great, Mark. I just want to do that. And then just maybe just elaborate a little bit more on mix headwinds that you called out, especially within ASP. Just wanted to understand, how persistent that is? And then just kind of beyond that, maybe just talk about memory chip inflation. I think you might have touched on this last quarter. Is that weighing on conversion rates in the back half of the year to any degree.

Sure. Happy to take both of those. So gross margin, yes, again, mix shift was a big driver in both segments, specifically in AHS, as you called out, we saw mix shift driven in part by just resumed growth in our -- in the capital part of ASP. They also made some strategic investments against some larger accounts that also impacted gross margins in the quarter. And again, overall, just as a reminder, make shift is predominantly impacting gross margins in iOS as a result of strength and high growth in one of our lower-margin products -- strategic product in ServiceChannel, particularly. With respect to inflation generally and memory chips, I'd say FBS is incredibly good at offsetting these, and we certainly had price cost was positive for us in the quarter. On the margin, there are projects that the teams are working on to make sure that we have multiple sources for things as some things like rare earth and memory chips become harder to come by. It's not a material factor that you would notice in our results at this point in terms of converting orders and backlog to revenue, but it is something that we're actively working to countermeasure.

Our next questions come from the line of Deane Dray with RBC Capital Markets.

Olumide, I really was interested in your prepared remarks today where you walk through all of the different new AI products in your software offerings. And this is as far as we're concerned, really important proof points on the AI as an asset, not a threat debate. And could you just step back and kind of give us a sense of where is Fortive in the rollout of these AI features? Is there any way that you can size the event that you've made and then even probably harder how you measure enhanced functionality and benefits and so forth. But just further color on this would be really important to hear.

Yes, Deane, thanks for the question. So just maybe the context on this is for us. We started with an AI center of excellence 7 years ago before generative AI made it more fashionable. And so we, at some level for industrial health care technology company, we've been ahead of the curve quite a bit with some of the top companies as partners over several years. So that really gives us a head start. And what we've done across 6 software brands is we've been able to very quickly figure out the best use cases for AI, like real use cases that deliver measurable returns for customers, i.e., we save them millions of dollars. We help them improve output in measurable ways. And our teams have done a terrific job of really deploying us very quickly across our brands. And we've talked about some examples of those. I'll say to you that it's been -- it's been really terrific to see the adoption of those. We refer to the eMaint example in the prepared remarks this time. But every single month, we have another one of those AI-enabled stories on our software platforms that I agree. So we're well into it at this point. We're seeing customers adopting it. We're capturing value in terms of returns to your point in multiple ways. In some cases, it's an explicit additional sale that a customer pays for. And in some cases, those are outcome-based. In some cases, it's a pass-through of taking cost plus a markup. In some cases, it helps our overall NDR on the account and just deepens our presence with the customer. As you can imagine, with FPS, we've got deep instrumentation, and how we track the returns on each of this. The investment level has not been significant for us, again, because it wasn't a new initiative for us. We've had this COE for a long time. We've been able to scale it by adding capacity in India and making sure that the partnerships we had give us good pricing in terms of any any additional tools that we were using. So overall, it's been a great story for us. The fact that our software business has continued to do really well, is not exactly separate from how well we've been able to leverage AI. We feel good about the setup.

Great. And then just as a follow-up, and I'll keep this one a bit more direct. Can you give us an update on Fluke. We're always interested in the sell-in versus sell-through inventory in the channel, so forth. Whatever you can share there is helpful.

Yes. Thanks, Deane. And Fluke is a big part of what we do. I mean if you look at another just terrific quarter in terms of performance. And it was broad-based strength really across product lines and across both volume and price, which was great to see. So we're gaining share, we're capturing price. From a regional perspective, North America remained our strongest growth driver. With strong POS in terms of sell-through. We've talked about that in several quarters, and the strength continues Europe was affected by some of the macroeconomic uncertainty. But really it was more a China customers that deferred purchases. If you look at the POS in Europe, it was actually the best we have seen in 6 quarters. So it really was a China flat, which is from an inventory point of view because we're leaving the quarter with a much better inventory channel inventory position. APAC and Latin America both posted really solid growth at Fluke and really partially reflecting the increased commercial investments that we've referenced that we've been making in these regions for the last few quarters as part of our Fortive Accelerated strategy. And orders grew modestly faster than revenues like we referenced. So book-to-bill was nicely above 1. And we just -- we feel really good about the setup, but Fluke [Audio gap] team continues to drive just a terrific innovation funnel. We continue to have probably the best commercial intensity whatever had in that business with a full consumer behind good because like data center and defense and early in career professionals that now to be tooled up and want time to start with Fluke and stay with Fluke all through their career. So we really like the performance trajectory and set up for Fluke, which again is well over 40% of our entire company. So we're like that.

Our next question is come from the line of Andy Kaplowitz with Citi.

Olumide or Mark, AHS growth continued to be solid in Q2, but maybe you could talk about what's going on between consumables, where growth seems to be strong and where you said growth has been maybe a little more modest. Are you still being slowed down at all by tight hospital CapEx budgets? Are they starting to get better? What's the outlook there?

Yes. Thanks for the question. We're really happy with what we saw in the AHS segment overall, frankly, in ASP, especially. And we really see it as an opportunity to reach environment as we dig more into those businesses. They're just a lot of exciting initiatives that can deliver sustainable growth, profitable growth for years to come. So we really like what we're seeing there. In terms of Q2, the strength was broad-based. To your point, in ASP, the consumables and services business grew in every major region with particular strength in APAC and Latin America, which is great to see. But every region grew our consumable and services. To your point on the capital business, we've talked about the hospital budget pressure now for several pressures. There's still some of that, but it's continued to improve. And that capital business returned to growth this quarter, which was great to see, and the commercial pipeline remains strong and very healthy. I think the south parts of the segment continue to deliver strong growth, led by probation and our SaaS sales in North America. So it was a great quarter because the strength was really broad based and and across regions and components of what we do for customers.

Very helpful. And then I think last quarter, Olumide, you said that [indiscernible] growth was accretive to this segment. Is that still the case? And then I think you said ServiceChannel has led growth for [indiscernible], but could you clarify what seeing between ServiceChannel and Gordian and Accruent?

Yes. So again, great quarter for the file platform overall. It was led by ServiceChannel, which continues to benefit from robust demand in [ Fortive ] site Facility Management Solutions and marketplace software. But every part of the FDL portfolio performed really well. Gordian, for example, had a solid quarter. As you know, Q2 is a part 1 for them for some of the state and local government at year-end. It was a solid quarter for Gordian like that. And Accurent continues on its improvement in trajectory as well, which led us to an outcome where fall delivered really strong growth as did every other piece of the iOS segment. Frankly, we've talked about Fluke and gas detection piece as well. So a good quarter for our team.

Our next questions come from the line of Chris Snyder with Morgan Stanley.

I wanted to ask about back half margins. And I understand that corporate is a headwind to the overall Fortive margin into the back half. But it seemed like if my math is right, it seems like you guys are calling for the segments to be maybe flat to down on margins into the back half. So I guess -- is that right, what are the drivers of that? Is that just investment coming through? Is there some gross margin? Does that remain down in the back half? Just any kind of color on the segment margins?

Yes. Happy to provide a little bit more color, Chris. I think, first of all, we continue to operate the business in accordance with the 50 to 100 basis point EBITDA margin expansion framework on an annualized basis. And I would expect that for this year. And again, it's part of the framework, so we'll run it through next year as well. There's a lot of puts and takes in terms of just what's happening quarter by quarter this year. We talked about in Q3, particularly some EBITDA margin pressure. Part of that is driven by a tougher comp from Q3 of last year. And then we also continue to see some of the mix shift dynamics on a gross margin basis across both segments as we look through the third quarter as well. Q3 also is just a smaller quarter from a revenue perspective. So that's just on an OpEx base when we have, again, small tactical incremental investments like we do, that puts pressure on the margin as well. On a corporate cost basis, I would continue to think about corporate costs in the $26 million to $27 million on per quarter. There was a little bit of a step-up this quarter just due to some mark-to-market of some incentive compensation matters. And I think as you look through Q4, again, you've got the smaller selling days for less selling days that creates an interesting dynamic but you should see a better actually margin outlook in the fourth quarter compared to the third quarter.

It makes sense. And then I also -- I wanted to follow up on Fluke. You guys are trying to talk, I think, for a couple of quarters now about some data center opportunities there. And I guess kind of my question is, is there something new happening in data center because we didn't really kind of associate that vertical that we hear a lot about that opportunity in Fluke going back a year or two. And of course, data center has been strong for a long time. So is anything specifically happening? I'm hearing about some maybe Fluke opportunities within fiber specifically as that comes to market. I don't know any -- is that new [indiscernible] new product? Why is that seems like it's coming through a little sharper now in the first half of '26?

Yes. Thanks for the question. I think the beauty of Fluke is the kind of the durability that comes from the fact that we play in so many different sort of end users. So data center have always been a part of what we did at Fluke, but it's one of many, many good drivers for us within Fluke. So it's not -- Fluke is not a data center company. It's just one of many things that we do. And Fluke already participates in the tool belt for data centers with a wide range of products from power quality monitoring to high-voltage diagnostics and to your point, high-density fiber testing, electric grant fall detection. So we've always done provided a lot of tools that have been used mostly frankly, in the commissioning, but as well as operations and maintenance of data centers. What is new is that as part of all the things that look doing to drive innovation, they've actually pointed some exciting new products towards the data center use case, that's become a pull through for everything else we already do. So we've talked about the CertiFiber Max example, which to your point on fiber testing, that's for testing kind of cables that have new fiber in them. And this tool essentially helps the certification process to go a lot faster than the existing tool set that this technicians use. And as you know, one of the key things right now is everyone trying to get their data center off as quickly as they can. So this tool is coming at a time that addresses the really unique meet. And so what the team stand done is taking -- the demand for CertifFiber Max is way above our plan, and it's now pulling through other things that we've always sat for data centers at Fluke. So it's really a good example of how our team and pivot when there's momentum in a particular market, that's one of many that we play in. And we've seen just incredible growth in the products at Fluke that are relevant in towards data centers within our overall mix. So that's the way to think about it. It's not -- we wouldn't say like data center is a new thing for us at Fluke, but we've certainly been able to leverage our existing strength plus innovation, plus obviously, the momentum in that space to benefit from that. And the growth were seen at Fluke is quite exceptional, and it's not completely unrelated to how we've tapped into that velocity in the end to the data center.

Our next questions come from the line of Andrew Buscaglia with BNP Paribas.

I just wanted to touch on some of the comments you made in as it pertains to recurring revenue. And as I had is the manufacturing complexity is increasing in some of these areas like semis and aerospace life sciences, you guys kind of discussed those at faster growing. Are you seeing any changes in how customers calibrate equipment or use the equipment that could provide more wear and tear that would require more upgrades and a higher velocity of repurchases. Just wondering if that is a, I don't know, new dynamic we're seeing out of Fortive days.

Yes. Look, I think that trend -- it's been building for several years in terms of how customers use, especially some of these higher-end tools and what that means for the calibration cycle and they calibrate more frequently, less frequently do it themselves with third parties so they use let that's always been an evolving space for us. The thing I would say is that we are seeing customers more interested in innovative by [indiscernible] on Fluke both on the calibration side on the service plan side and on the software side to help them get better outcomes and more productivity out of the entire tool fleet. And that's -- again, we've talked about the recurring revenue at Fluke growing double digits now for many quarters. And we're seeing that trend you're kind of referencing a piece of there as the underlying driver of why customers are more interested in, don't just sell me a device, but actually help me with a lifetime experience that includes a calibration pattern and includes software includes services. And for a business like Fluke, that's as big and broad and global as we are. That's just a great chance to attach recurring revenues to an incredibly loyal customer base that we have. and we like that.

Yes, it's interesting. I guess as a follow-up, I think how does that inform where you go with your -- these growth investments you talked about and/or M&A in that like some would argue the hardware and the instruments are becoming more important. But you are kind of -- you could arguably see more interest in your software, the software applications you provide and then the ability to help your customers optimize all these assets. I'm wondering where you -- where do you think is the more interesting place to go that sets you up for the next 5 years of growth?

Yes. Well, the way we think about it is we kind of go where we have the strength and the right to win. So for example, in this question you're asking, we'll think about it as well, if you think about our business at Fluke. It is a business that has an incredible footprint of hardware. And then we have some services and we have some software. And so if we see a piece of software back and attach to our extensive footprint of hardware. We think we can deploy it to a half a hardware footprint. That will be interesting because nobody else can do [ that ] with our software asset. If we see a piece of hardware that is aimed towards a really attractive market and it's differentiated. We will be really interested in that because it extends our installed base. And so we really think about it in terms of not just whether it's hardware or software services, but is it something that fits with our strength? And is it something where we have a real commercial plan to scale it in a way nobody else can. I think what you would find is given our footprint is over 70% differentiated hardware and maybe just about 20% real software and a little bit that's a little mix of data and integrated services that we're going to skew towards hardware in the M&A that we do. But any software we do will have that kind of advantage to our natural strengths.

Our next questions come from the line of Quinn Fredrickson with Baird.

On ASP, there's some mixed feedback out there regarding the impact of ACA subsidies expiring on elective procedures. I'm curious if you think you're seeing any impact or expect to see an impact on either capital equipment or consumables demand based on your conversations with customers?

Yes. Thanks for the question. Look, as you know, the health care reimbursement space has been a dynamic one for a while. So we feel quite good about proximity to customers and their decision process and their funnel. I guess what I'll say on that specific question is, it is totally comprehended in in kind of the way we think about ASP right now, which is -- it's in recovery. Q2 of last year from a capital point of view was the epicenter of the one big beautiful app of the cost in these hospitals to hold back on procurement. That's been opening up as they consider a whole bunch of other things. They've concluded that they actually have to keep enabling their operating rooms to run. So we think those orders flow through, and we expect that will continue to be the case. A procedural volumes as well have to recover and continue to recover because that's in the hand, what drives the economics of this hospital. So we see that continue to get better, and we continue to deepen our presence with our key customers, including some of the investments that Mark referred to, that's making us even deeper with them and something like the UV smart bolt-on that we did give something else that we bring to this customer. So we feel good. I think all the ACA subsets is within a broader range of changes, all of which I think would like to with sets us up at ASP.

And on the FDA clearance, you mentioned you received in the quarter. Can you just expand on what that means for you? Is this enabling you to go after new robotic surgery OEMs, or just any color you can share?

Yes. So this is really for our main sort of low temperature sterilization on capsule equipment that's called STERRAD. And with the approval we got is to be able to run in more than up to 50 through the chamber in these machines. And so what that does is for a lot of our customers most of the robotic equipment that they need to sterilize generally need something that can handle that weight range. So now we have an addressable market in terms of this equipment for robotic surgery, that's bigger than we had before. And so what that means is customers that way, maybe saying, well, if you had that, we'll be interested we now have a compelling offer for them. So we're excited about it. Our teams up there. It's going to show up as increased win rate and expansion in our funnel and better growth in the business.

Our next questions come from the line of Jamie Cook with Truist Securities.

I guess just two questions. Just on the guidance, Mark. It looks like just based putting everything together, like the EBITDA margin expansion this year should probably be more like, I think, at the lower end of 50 basis points. I just want to confirm that. And I guess my longer-term question is understanding we're making some investments, in particular, in HS and sounds like those investments might be going into -- it sounds like a lower-margin product lines, et cetera. I'm just wondering when we start to see the payoffs of that and just sort of the setup for 2027 on margins. I mean, just given the margins -- where margins are coming out this year on, what I would argue probably better than you expected core organic growth.

We're happy to tackle those. I think I'd just start by saying that we're very happy with the margins of the business, gross margin 63%. I think that's a pretty good indicator of the strength of the brands, differentiated products, FBS' ability to drive down manufacturing costs. And I think it's a good indication of what we would expect for a full year basis. And I think EBITDA margins in around 30% that we saw in the quarter. Again, did strong cost discipline while reinvesting in the quarter, and I think that's a good range to be in for a full year. We do continue to expect to operate within that 50 to 100 basis point range. And we're going to continue to do that through -- for 2026, and we expect to do that in 2027 as well. The investments that we're making, I wouldn't necessarily assume they're going into lower-margin products. I think we saw in the second quarter, particular strength from lower-margin products due to strong customer demand. We saw that at ASP. We saw that in iOS segment as well. But a number of the products that we're launching, including the CertiFiber Max, for example, which is a highly differentiated product have very strong margins and margins at or better than the fleet. And as we look about look around at innovation just generally, we're going to innovate on products that have those similar characteristics, just strong innovation, which is in high demand from our customers and that command premium prices. And then as is the case always with Fortive and FBS, over time, margins just generally improve because we continue to find ways to drive costs out of manufacturing overall. So we feel good about the margin trajectory of the business, both margins and EBITDA, and we're going to continue to drive price through innovation. We're going to continue to drive commercial acceleration and recurring customer value all in line with the Fortive accelerated strategy.

Our next questions come from the line of Chigusa Katoku with JPMorgan.

Just following up on the margins. I also think that -- I also see you trending maybe towards the lower end for this year. Just if you could give a little bit more color on why you could do more in the range of [ 50 to 100 ] in 2027. I think [ Robert ] talked about some margin pressures as they're making investments in AI, but are you seeing any of those?

Yes. I would just remind you that the 50 to 100 basis points is something that we have to roll over. We use it as a framework to guide our investment framework. We're investing very tactically against high-return initiatives across the three pillars of the accelerated organic growth pillar and the Fortive Accelerated strategy. We have seen four quarters of sequential growth acceleration. And on a normalized basis, I think as we talked about when we gave our updated expectations for core growth of 4% for the year. We -- at least based on what we see today, seem to be trending at least for this year, near the higher end of our core growth framework that we laid out at Investor Day. So the margin expansion story continues to be in line with the framework. We are driving organic growth, quite frankly, ahead of where we expected. And I think that gives us opportunity for margin expansion and also for increased investment levels. And that gives us confidence that our aspiration, which is ultimately to grow faster than our framework and sort of 2027 and beyond is definitely insight for us.

Great. And then a little bit on organic growth. Is it directionally correct that third quarter, you expect organic growth around same range as the full year around 4%. I'll leave it there.

Yes. I think you're in the zone. I think it's -- just as a reminder for everyone, there are a number of year-over-year comparable and calendar impacts that are impacting just the year-over-year comparisons this year. As a reminder, in the first quarter, we had four extra days. That was about 150 basis points of tailwind to that 5.3% core growth. This quarter, we had a slightly easier comp relative to last year. If you remember, the impacts that Olumide mentioned in the second quarter of last year. But Q3 does look like a more normalized quarter for us. And then as a reminder, in Q4, you get the opposite impact we have in Q1, which is about 150 basis points headwind to core growth of $15 million to $20 million on a reported basis. But I think the important thing to say is that on a normalized basis, this is a business that is gathering momentum, and we see the broad course and speed of the business as one of accelerating. And it's really a testament to the good work the teams have been doing to implement the Fortive Accelerated strategy across all 10 of our iconic operating brands.

We have reached the end of our question-and-answer session. I would now like to hand the call back over to management for any closing comments.

Well, thank you, everyone, for your interest in Fortive. We are excited about the acceleration in our business over the last year. Our entire organization is aligned and energized about Fortive Accelerated strategy and our Fortive Business System that's enabling us to execute that. And we're laser focused on delivering a strong 2026 and setting the foundation for an even stronger performance and shareholder value creation in the years ahead. And thank you for joining us today, and we look forward to speaking with you next quarter. Have a great day.

Thank you so much, ladies and gentlemen. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

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.

1

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.