Fortive Corporation (FTV) Earnings Call Transcript & Summary

Hi. Yes. Good morning. My name is Andrew Obin, and I'm Bank of America's multi-industrial analyst. And with us, we have Jim Lico, President and CEO of Fortive. Fortive is one of the most innovative technology companies in my space, and they've sort of been pivoting their portfolio from their core industrial assets 5 years ago materially towards medtech technologies, industrial technologies and software. Our view, and we've written about it, is that it's probably one of the most misunderstood stocks in our coverage with cyclical and structural growth levers. And frankly, we've written that for what it is, it's really inexpensive in a world where people are looking for growth stories at decent valuations. Jim Lico, in my world, is now one of the best operators. And it's a very, very tough competition that he is facing. So that's says something. And with that, I will let Jim talk about Fortive, and then we'll go into Q&A. Thank you.

Thanks, Andrew, and good morning, everyone. It's great to be with everyone. Appreciate the kind words as we continue to endeavor. Maybe giving the audience a few minutes on who Fortive is, where we've come from and maybe put a little bit of structure around the comments you just made. Fortive, we were -- we'll be celebrating here in the company next month, our fifth anniversary of our spin-out from Danaher. We're incredibly excited about the work we've done over the last 5 years, but I think even more excited about the future. We've made significant pivots around to really be a technology company that is around a broad range of markets that we think are incredibly interesting and provide for strong structural growth and incredible earnings potential. We're about $5.2 billion last year, about 38% recurring revenue. So just a few numbers for everyone. And gross margin is almost 60% at approximately 58%. Strong operating margins. And I think the perennial part of our portfolio has always been the strong free cash flow at about 105% from a free cash flow conversion perspective. So very strong financials. That's a little bit more U.S.-centric, about 55% roughly of our revenue with strong global positions in a number of our businesses and a broad range of markets, as I said. And sometimes, we think of ourselves as an industrial technology company, but I think when you look at the range of opportunities for our businesses across our 3 segments, we not only see the strong positions in many industrial tech markets, but you also see great markets in enterprise software, and almost 25% of our revenue today is in health care as well with our Advanced Healthcare Solutions. So 3 segments. Intelligent Operating Solutions, which is roughly 40% of our sales. Great, strong brand names like Fluke, Gordian, Industrial Scientific, Accruent. In our Precision Technologies segment, which is roughly about 35% of our portfolio, really great brand names like Tektronix and we really have a strong sensing position in IoT-enablement position with our sensing tech portfolio. And as I mentioned, 25% of our sales in Advanced Healthcare Solutions, with a strong position in sterilization through the acquisition of J&J's Advanced Sterilization Products, really helping hospitals, really enable them with essential products that really ensure safety and productivity and quality assurance, bringing that timely health care to the business. So a broad range of -- I think those 3 segments that we just put in place at the beginning of the year with our separation from Vontier really puts us in a strong position, great margin profile. And I think one of the things that isn't understood by our -- by many is about $600 million now of software. So software is really becoming more a part of our portfolio, about half of that is SaaS. So strong positions in many enterprise software businesses as well as enabling a number of our hardware positions to really bring customers in really important workflows, bring customers great solutions. So I think we're in a wonderful position. Looking forward to discussing a little bit more about the portfolio. And with that, Andrew, I'll hand it back -- I'll hand it to you for a few questions.

Yes, Jim, and just FYI, I can -- we had slides up and I've been controlling them. Just FYI. So yes, so I think let's start sort of with the big picture, and we'll get to -- we will definitely focus on the tech part of the portfolio. What are 2 or 3 trends you're watching most closely now? And anything that gives you pause across the industrial end market, which is 25% of revenue?

Yes. Well, I think, number one, we're certainly seeing a number of our short-cycle [Audio Gap] direct businesses, we're just watching that come back and we're seeing things continue to come back. And we're watching inventory positions to make sure that we're really seeing natural demand. And I think we're seeing -- we haven't seen elevated inventory position. So we really believe that from an industrial perspective, we're seeing true demand come back in a number of our key markets. Certainly, in China. Europe was actually pretty strong in the first quarter. And we continue to see U.S. continue to get better. So I think that's first and foremost. I would say on our health care front, we're watching elective procedures. That's been a business that has been durable but that certainly has been impacted by elective procedures. Most of our business in terms of our health care business is driven by that. So that's certainly -- and then, site access. You and I were talking a little bit about coming back to work before we started. And I think as we continue to see folks coming back, we see customers -- a number of our software businesses get started with professional services on site. And I think we're getting more and more site access by the months as folks -- as vaccines are starting to come back. So I think we're increasingly seeing a better position across really a range of all of our businesses.

Sure. So semis and electronics represents 7% to 8% of Fortive's revenue but really strong growth last quarter. Lots in the press about global chip shortages and new investment in U.S. semi fabs. I think the Senate passed that -- I think they did pass a $250 billion bill last night. Have you taken further pricing actions -- sorry, so I apologize. How sustainable is demand on the semi side? And how much visibility, as you talk to your customers, do you have?

Yes. So I think we have -- maybe the second part of that, we have good bids about. Most of our semiconductor and electronics exposure is in precision tech -- in our Precision Technologies segment. Great positions on Tektronix with a number of our semiconductor -- the big semiconductor companies, mostly in the R&D phase. So as they're launching new technologies and new products, we're seeing good growth. And we think that continues at least through the year. I think we have good visibility through the year, and we think that continues. On the sensing tech side, our sensing businesses mostly go sell into semiconductor equipment manufacturers, a little bit longer lead time in terms of what we see from a visibility and certainly, we see continued success with them through the end of the year and even starting now, we think through what the start of next year might look like. So we think those businesses are a little bit of an easier comp in the first half because of last year's challenges maybe in China in the first quarter and obviously in the rest of the world in the second quarter. But we think strong double-digit growth through the remaining part of the year for that part of our business. Again, not a huge part of Fortive, but certainly a place where we believe we'll see continued growth, have seen continued growth and will continue to see continued growth through the year.

And how do you see sort of longer-term multiyear opportunity in this space? Do you see a runway now given the [Audio Gap]

We'll see customers -- I think we're starting to get a better sense of what that might look like. And I think '22, we might be a little bit -- I think we see continued growth in '22. And who knows about '23 and '24, but it's -- lot to go between now and then. But I think it's safe to say that continued investments will be good for that segment of our business.

Sure thing. So last question on big picture and then we'll go to a few techier businesses. So what are you seeing on wage inflation, raw materials inflation? Any higher costs associated with the supply chain bottlenecks that seem to be a lot in the press right now? And have you taken further pricing actions versus the initial pricing you've announced?

Yes. Well, I think, first, with the pivot we've made with the portfolio over the last couple of years, the last 5 years, we have significantly less exposure to some of the issues you just described, given the fact that in that 40 -- almost 40% of recurring revenue, we're mostly talking about software and services where we really don't have much exposure to material inflation or material supply chain issues. So first, the portfolio I think has been built longer-term for less exposure to some of the things you've been -- you described. That said, in the 60% of the portfolio, we have seen these challenges. I think the power of the Fortive Business System, the work we do every day to manage those things, we've done an exceptional job. They're not oblivious to those challenges. They're there every day. So I think it's more about how we mitigate those challenges and how well -- we use the term countermeasure -- how well we countermeasure daily those challenges that are out there. And we've done an exceptional job thus far. Really proud of our team and the work they've done and will continue to do to minimize the exposure to some of those shocks that are not only on the material side but also on the logistics side. They're well documented. I won't spend a lot of time on that. So we've been, I think, well prepared. We'll continue to do the things we need to do to minimize that impact. At the same time, as you mentioned, we've taken, I think, pretty significant pricing actions in a number of our businesses where we're impacted. We've done -- we've accelerated some of those things. And so, I think we feel very strong. We're very confident about the price-cost relationship and the fact that we will offset any cost inflation that we're seeing either on the material side or on the labor side, as we continue to really do what we need to do through the remaining parts of the year. So some of those things there. But again, I think we've demonstrated over time the operating skills in order to offset those on a timely basis.

Yes. And I just want to highlight for the clients who are -- or the investors who are live there on Veracast, feel free to e-mail us questions, and we will sort of address them as well as we go through the presentation. So one focus of last month's Investor Day was how the Fortive Business System improves results for software businesses. What are the common problems within Fortive's software company that Fortive Business System is able to address? And frankly, I remember having this conversation back in the Danaher days almost a decade ago. So -- but would love to hear where you are like almost a decade later in your journey.

Yes. Well, I -- you know it well. So I think what we've tried to do over a long period of time, certainly in our Danaher days and certainly today, is make sure that the business system, which is so important to our culture, always continues to improve. I would say our continuous improvement system continually improves, and it continually adapts to the businesses that are in the portfolio. When I started 25 years ago, those were a little bit more manufacturing-oriented. We evolved certainly through those years into a broader range of multi-industries and technologies. And today, we said, as I mentioned, we have $600 million worth of software and over $1 billion worth of health care in our portfolio. One might ask, how does that really apply? And I think as you said, I think in the investor conference that we had, which was incredible, 3 weeks ago, today, it seems like yesterday, was really to outline how we're really driving improvement in all of these new businesses with the business system -- with the Fortive Business System, and a couple of examples. In our software businesses for sure, one of the first things we really try to do is to really understand the net dollar retention. And that's a critical metric in software in order to understand how you can really drive growth and profitability. And the tools of the Fortive Business System really help really drive net dollar retention. Our problem-solving process around reducing churn is a great example while, at the same time, our digital tools and our sales tools that really increase the funnel, increase the opportunity for upselling and cross-selling. And so I think what we try to do is drive that things -- drive some of those numbers. I think we highlighted in the investor conference an example like in our current business, our Meridian engineering solution, where we had almost 1,000 basis points of improvement in customer retention. So significant improvements across a range of opportunities. And then, I think longer term, we apply our product development tools to really try to make sure lean software, to make sure that we're really reducing technical debt and that we're really continuing to evolve the platform architectures in ways that maybe we have to build more SaaS capability or multi-tenant SaaS. So generally, in due diligence, we'll have identified what some of those technology opportunities are, and we'll certainly apply the Fortive Business System in those things. But those take a little bit longer. So early stage, more on the commercial side. Longer term, on the product development side.

And another question I have. And look, you have actually been well ahead of the curve in sort of buying SaaS businesses and just generally buying software. So thinking more about potential acquisition, what's not fixable in software? And examples, I think, we've thought of like a company that's in growth stall out, is that too difficult to restart? Is transitioning from a license-based business model to SaaS transition, is that too much headache particularly for a public company like Fortive? What are the challenges that you sort of see easier to fix, and which are the ones you just sort of rather not touch in the software world?

Yes. Well, I think for -- it's a great question because given the multitude of kinds of opportunities that we've seen and looked at over the last 5 years, we certainly moved on some things and not moved on others. I think first, before we even think about the software business, we really get back to how we think about acquisitions in general, which starts with great markets. So I think, number one, as I mentioned, our -- we want to look at the exposure to better secular drivers. I think, I'm just going to look here, but on slide -- what's it, Slide 6 of the presentation, if people wanted to look at that, you'd see the secular drivers that we have really outlined relative to Fortive. And I think really, first and foremost, whether it's hardware or software, we're going to make sure we like the market. And we're going to make sure we're really working towards having better exposure around those secular drivers, whether it's the channel, whether it's the Internet of Things, whether it's regulatory and safety environment, whether it's the digitization and transformation that's going on in the world, or it's the demographics of having technicians or engineers that have broader things to do that really -- technology really helps them understand their challenges better and brings more productivity through data analytics. So a lot of those secular drivers, that's first and foremost, because you can't fix bad markets. And that's number one. I think as you -- specific to your question, I think as we look at software in particular, one of the things we really want to do is when we have tools to fix things -- so as I mentioned, we wouldn't necessarily be scared of a churn problem if in due diligence, we found the customer -- that there was something that was fixable. A really bad product that customers don't like is not something that's necessarily fixable in the short run. It's probably not something we would run into. But maybe there's a little bit more -- slightly more insignificant challenge. Maybe it's how they've been calling on customers, maybe it's their customer success process that maybe doesn't necessarily meet with the customer needs. Maybe the customer -- maybe the company has lost its way a little bit in a particular vertical market that we think the attention of our strategy process and the Fortive Business System could improve. So that's an example maybe. It's a very nuanced question because I think we want to make sure we understand what the challenges are and that we can fix them. And in every case, I think bad product architectures can take a long time to fix. As you mentioned, if the product is very much not on the kind of platform that you can -- it's one thing to do the SaaS conversion from a commercial perspective. It's an entirely different thing to have to do that from a technology architecture standpoint and then commercial standpoint. That just takes a lot longer, it's going to make the returns a lot longer, and you wouldn't pay the same price for a company that had that kind of issue versus a company maybe that just needs a little bit more attention from a commercial perspective then maybe that's something we could fix in a 12-month period, which is, I think what we saw in the investor conference where numerous examples of how we've done that in a number of the businesses.

So on SaaS example. So if the company already have SaaS architecture product, but maybe in the earlier stages of transition, this is great. But if they're thinking about doing SaaS, but there is no product, that's -- is that how...

Yes, exactly. Or if the product they've got is not -- maybe they didn't take a good step forward and that architecture itself is challenging.

That's a great answer. And another thing, I think what differentiates you is -- with sort of at least how you position yourself, how important is it strategically for Fortive to tie together software and hardware offering? And I think you've owned eMaint the longest, that's the asset maintenance software. How tight is that today with Fluke, where you sell condition-monitoring equipment and building monitoring tools?

Yes. So I think it's critical. I think what we've tried to do from the onset of Fortive is to really look at workflows where we have domain expertise. And I think that's forged in decades of hardware experience, relationships with customers, and that ability to understand really deeply what's going on in the workflow. So I think those -- that hardware, even where we bought software companies, as an example, like Accruent and Gordian, that was forged in the ability of understanding the challenges of maintenance managers and facilities managers. So I think, number one, it's through domain expertise that comes from that work. You mentioned eMaint, we'll use that as an example. And it's a good one. It's our -- one of our -- clearly, one of our best-performing acquisitions. It's had 15% to 20% growth every year since we've owned it. And it really has forged a relationship with Fluke. Fluke has obviously been the tool that customers use around the world to troubleshoot maintenance, problems, electrical maintenance problems, 20 million instruments around the world that our customers use every day to troubleshoot challenges. And so the domain expertise that's forged in that really allows for us to accelerate maintenance software, building on relationships so as you -- with customers we've had, but more importantly, on the domain expertise that we've had, and a scalable model around the world to really be able to grow that business in places maybe outside of just the core customer set that eMaint had when we bought it. So I think that -- what we tried to highlight at the investor conference with 5 workflows -- within the 3 segments where we really believe we have that kind of domain expertise forged in very often in that hardware domain, but ultimately getting to where we can add value with software. And ultimately, really get to the place where customers really want to be, which is software is just a vehicle to data analytics and better answers and -- it's the machine learning and the data analytics that you can get through software that fundamentally help customers do the things they want to do from a safety, compliance, productivity perspective.

So another question, I'll just go down the same path and maybe focus on ASP and Censis. And I would argue that ASP is one of -- actually has worked out well, but maybe not an acquisition that investors really understand. So ASP for generalists, that's sterilization equipment for hospitals. And then you acquired Censis, which is software for tracking surgical equipment through sterilization around the hospital. It's only been 18 months, but what are, let's call them, early synergies between these 2 businesses?

Yes. Well, first, as you highlight, the position of being in that central sterilization lab with the equipment, with a strong consumable and service stream really gives us great understanding of what's going on in -- and very optimal between what's going on in the operating rooms, the OR, as well as other parts of the hospital. So we get a good view of the hospital that -- that was a complicated carve-out from J&J, as you know. And the team did a wonderful job of carving that out, I think, creating a business -- a very sizable business in which we have a tremendous global position in now. And then, as you said, we got a great view of that from a software perspective in Censis. Buying Censis and now coming together, the hospital relationships that we have from both companies, being able to go to an IDN, as an example, within the United States and call on them, and really show how the benefits of both -- having both of those solutions, I think, has been a great advantage. We've grown the installed base considerably at ASP this year in a tight -- in a challenging COVID environment. And I think we stand ready to take advantage of that plus the software opportunities that exist with instrument tracking, as you mentioned.

I'll just keep going. So Tektronix, another one because this is -- it's interesting that you're able to sort of do different things with software within your different verticals. And I think that's what we find fascinating. So Tektronix, for those who don't know, you compete with Keysight's, basically oscilloscopes, for like -- but it's electronic test and measurement business. There is a growing focus on adding software. We sort of estimate software today is maybe $20 million, so 2%, 3% of Tektronix' revenue. And this is more of an organic growth story. So maybe you can walk through the software strategy for Tek, the key metrics and what success would look like in 3 years' time at Tek for software.

Yes. Well, as you said, I mean, if we look at what we kind of call Fortive 1.0, which is really our hardware advantage businesses; Fortive 2.0, where we're really using software -- we're enabling software within the context of our businesses; and 3.0, where we're really using data analytics and machine learning, we have a range of businesses that are within that sort of framework, right? And I think we've got a slide in the deck that sort of highlights that. I think it's Slide 7. So if people want to go to it. So I think at the end of the day, Andrew, we feel very good about where we can bring technology capability within each of those businesses to be able to take advantage of the dynamics of software and data analytics. And so, as you mentioned, Tektronix is early in that journey. We've been -- we've had a tremendous advantage from the standpoint of technology and the work they've done principally on oscilloscopes with test engineers in the R&D labs of every technology company in the world. Everybody who's trying to develop wireless solutions, everybody who's trying to develop new electronic solutions, whether it's consumer electronics to WiFi-enabled refrigerators, everybody in their R&D labs is going to be using Tektronix' oscilloscopes to validate those kinds of opportunities. And now with software, we can help on the validation process, we can help customers understand what's going on, we can improve their R&D process, we can give them more insights into the testing that's going on, and fundamentally, reduce test time. So I think very early stages in what we can do there. Vertical applications for customers as an example that are thinking about how do I continue to move with lower power as we think about more maybe lower power IoT-enabled sensors as an example, being able to give customers better solutions with not only great hardware, but also with software is really where the business is. And I think it's easy to think that we could double that number that you just described here in the next 3 or 4 years without -- with what we have done -- what we are doing organically for sure.

Yes. I was actually going to ask you about the sensors and you actually answered that. So let's talk about your investments. And I think, frankly, our view at BofA that people are confusing sort of the signal and the noise here and the investment. If we tell people, if Jim Lico is investing, there are very, very good reasons to invest. That's what we tell people. And I think -- anyway, it's -- you don't want this long tirade out of me. But you are investing $35 million through the P&L into growth areas like the FORT, your internal AI machine learning group. How does current funding level for growth compare to the range of projects that get presented to you from the operating companies? Or said differently, how much is your foot on the gas right now?

Yes. I think, as you described, I think we had tremendous margin fall through in the first quarter. We looked out. We raised our guide on the revenue side. And we said, hey, we're going to take a little bit of that, and we're going to accelerate some investments that we think are important to do. Some of that in our operating companies where we've got ideas, and we're really saying, hey, let's accelerate those ideas. Rather than them maybe taking 18 months, let's accelerate that window. And we're -- from a detail perspective, we understand that, that the best thing from an R&D perspective to get strong returns from R&D is to do things faster, right? So being able to give some additional money to our operating companies where their best ideas exist was part of that funding. The other part of that funding was really about our centralized activity around data analytics and machine learning, what we call the FORT. And we want to accelerate capability into the FORT, hire more data scientists, hire more really smart people that can help bring data solutions within Fortive and for customers. And so -- and we also have a relationship with Pioneer Square Labs where we have early-stage incubation, and we wanted to fund some of those things. So I would say very much the foot on the gas. We feel good about the outlook for the remaining part of the year. And I think our confidence in the remaining part of the year said, hey, let's get on some investments. Not only -- I think it gets confused a little bit because there's good strong returns on those investments, and they're important as we continue to evolve our portfolio. We now have the opportunity to do things for great growth, but we also have to do things fast, faster. And so really what those accelerated investments were all about, really all about speed, speed in product development, speed in innovation and bringing solutions to customers in ways that really add value. But I think what gets lost is the earnings potential of those relationships over a long period of time as well, particularly in software.

And you sort of -- I think you sort of highlighted that existing projects coming out of the FORT have $250 million market opportunity. So what does success look like for the FORT around revenue generation, say, in 3 years? And what's the cadence for new offerings each year and annual contribution at scale after you are done?

Yes. It's a -- it will be a little bit episodic because the projects will ebb and flow from an internal perspective to an external perspective. I think we started early in the fourth with more internal projects so that we could get data analytics and machine learning going within the context of what we do every day. One of the things I think we highlighted is how the -- one of the things I really think differentiates us from a continuous improvement perspective, sort of everybody says they have a business system similar to ours. But I think the reality of what we're doing with machine learning and data analytics, combined with the Fortive Business System, is incredibly unique and quite frankly, is something that I think was a great presentation at our conference a couple of weeks ago. So I think that's number one. I think number two, as we look at, specific to your question, I think we get at least $50 million worth of revenue opportunities from that $250 million in the next 3 years, maybe more. And I would expect that we'll continue to see more and more of that over time. That number will only get bigger as -- in the years to come as we continue to invest. And quite frankly, customers adopt these solutions. Many of them are in our SaaS businesses, so they take a little longer to ramp. You're not getting a product revenue, right? You're getting an add-on. Maybe you're getting an upsell to a software package. That might take a little bit longer to ramp than in a traditional hardware sense. But it's far more durable. It's $1 in for $1 forever. And so in many of those data analytics projects as an example, they're really combined with a software offering that fundamentally is going to make our businesses more durable and really increase that net dollar retention number that we talked about a few minutes ago.

Got you. And maybe just shifting to Advanced Healthcare Solutions. It seems like you have the most margin upside potential marked Fortive's 3 platform. And just to remind, ASP was acquired from J&J in 2Q '19. And as you said, it was a complex carve-out so arguably, haven't seen the full margin potential. Could you talk about the consumable versus equipment split there and the relative margin and what you've seen, you alluded to them, but what you've seen in elective procedures, which is the key driver for consumables there specifically, Jim?

Yes, well, first, I think we have incredible margin potential in all 3 of our segments. IOS is our highest-margin segment, but I think it also has the most software and really is just -- it is in very early days of growth and profitability. So I still think all of our segments have incredible potential. But to your question around health care, you're right, ASP is in the very early days. We have great margin potential there as we continue to move consumables. There's significant margin differential between consumables and hardware. And depending on the hardware, it can be anywhere from 20 to 30 points of margin improvement when you're talking about the differences between those 2. We're about -- we ended the quarter -- first quarter about 91% of elective procedures prepandemic level on a global basis. That was really for the quarter. But as we said on the earnings call, we saw that get better through the quarter. We're at 93% in an exit rate. We think we're probably at around 95-ish in the second quarter. But I think that's going to be -- it's funny because every time we say that percentage, but it differs between every part of the world, given just, as we know, the Southern Hemisphere is challenged right now. So -- but we think that's probably where the number is. And really, we don't really think we get back to prepandemic levels, I think, as we said until the end of the year. So continued opportunity through the -- to continue to improve through the year, but certainly continued improvement into 2022 for sure.

That was great. And let's talk about Accruent and maybe we'll fit in investor questions. So basically Accruent, for -- and I always screw up for pronouncing it so hopefully, I'm getting it right -- is your largest software operating company focused on facility and asset life cycle. There are a lot of companies taking a look at footprints considering hybrid work models, et cetera. So would that be a catalyst for you?

Yes, for sure, there's a lot of attention in property tech right now, right, or proptech, for sure. And I think our position in that market through Accruent is very strong. We have several solutions that are linchpin to coming back to work. We use them ourselves. So as we think about hoteling and planning and bringing people back in a hybrid work environment, maybe not where everyone has their own desk but maybe needs to hotel and find a desk or find a conference room, those solutions are in place today. We're offering those. We think there's continued opportunity, both organically and inorganically to build on that. So we really like the position Accruent has in what we call employee experience, because I think it's more than just thinking about how helping commercial property owners really understand how to bring people back to the office. But I think as we know, I'm sure BofA is thinking about this, it's about an employee experience. It's about how do I -- when I come into work, how do I continue to network with the people that are important to me. In a hybrid environment, it's likely that folks might not see everybody every day. So how do we make sure we help companies, from a collaboration perspective, continue to have the interactions that are so important to collaboration activity. So we -- some of this is solutions to come, but I think both organically and inorganically, we're in a good position with customers and with software solutions as we start to get people back into the office.

And just a question, just to clarify on Accruent. What's the sweet spot in the market for the business? Is it best in manufacturing, office, retail? Is it geared towards smaller or larger footprints? Just so we understand what really -- where is the boost for you.

Yes. Well, Accruent is a multiple set of businesses. So I would say probably commercial real estate facilities managers' probably our #1 customer. But we do have good solutions for manufacturing and health care as well. So something like CMMS, which we offer at Fluke, we have a CMMS solution as well at Accruent -- that maybe even goes more into hospitals or retail as an example. So we've got, I think, good exposure into the verticals you just described, I think. So we're in a good position. And I would say it tilts a little bit towards the larger enterprise, particularly when you look at things like lease management or some of our engineering project management tools tend to be larger customers that we might, in some cases, be able to secure in one situation. Our Lucernex lease management software is really an enterprise sale tool to people who are really managing their leases. Engineering, documentation like Meridian, likely one facility and then after they've adopted, maybe go facility by facility. So a couple of different business models within Accruent. But as you said, a sizable business. But within Accruent, a few different businesses that we feel very good about.

And I'll squeeze in one more question from the audience. Do you think you can do any software M&A deals these days given valuations in software?

Well, valuation -- yes, I think we've always looked at valuations in software against the environment. 3 years ago, I think when we bought Accruent or Gordian, people thought that those were expensive given what was going on at the time, but I think they see now that those are almost value deals and quite frankly, the returns are going to be good. So I think it's always relative to the market. But I think at the end of the day, you have to be selective. I think what's important about really understanding, we talked a little bit about some of those things that we look at during due diligence. We've significantly increased I think our skill set and capability to know what good looks like. I think fundamentally, we have to know, can we accelerate our strategy? Can we add value? And if we can, we'll get the returns in -- no matter what the valuation. So we're return-focused first. And I think we see opportunities within our funnel where we can get strong returns. On the other hand, we see opportunities in the funnel right now that we won't get the return. And so we're not actioning those, or maybe even in some cases, we're not going to do those deals. So I think it's a broad range of opportunity. And I think we feel good about the ability to do some things, but we're going to remain disciplined and financially focused as well.

This has been fantastic. We are out of time. Jim, always a pleasure to have you. And hopefully, we've introduced Fortive to sort of people who are more tech-oriented. And thank you so much for joining us. Always a pleasure.

Great to see you, Andrew. Thank you so much. And I'd just say there's -- on our website, we have a number of things from our investor conference for people to do a little bit deeper dive into our businesses. So we look forward to that. And we look forward to seeing you, hopefully, in person here soon. Thanks.

Thanks a lot.

Stay safe.