Fortive Corporation (FTV) Earnings Call Transcript & Summary

Yes. Good morning. My name is Andrew Obin. Welcome to day 3 of our Industrial Software and Automation Summit. I sort of found the previous today is to be actually very eventful and very insightful. So thank you for joining us for day 3. And we're going to open day 3 with Fortive. And with us, we have Read Simmons, who is the Senior Vice President of Strategy; and Justin McElhattan, Group President, Environment for Health and Safety. Before we start, there is a slide -- a regulatory slide, so please refer to Slide 2 of the presentation for disclosures on forward-looking statements and non-GAAP financial measures. And now that I have this out of the way. Look, we think Fortive has a very, very unique approach to software out of our probably entire coverage. And what we can tell is this is a company that was early. This is a company that sort of looks at deals and strategic imperative for doing software deals very differently from their competitors. Just my history with the company tells me the strategy has been in the works for many, many, many years, going as far back in the decade. So as I said, one -- probably one of the most mature, if not the most mature software strategy in my coverage. And with that, as I said, would like to welcome Read and Justin. And the first question is going to be , thank you, gentlemen, for joining us.

The first question is going to be to Read, look, Fortive software acquisitions are close adjacent to this through establish hardware positions. So for example, Snap is not for it to try the surgical instruments in a hospital, which fits right on top of ASP, which is the sterilization of hardware for those instruments. So I'm going to have a couple of questions, and I'm going to start with the first one, is Fortive start meeting for software acquisitions, only in established hardware markets, is that a requirement to enter the M&A model? So that's going to be the first question.

Well, thanks, Andrew, and good morning, everyone. I'm thrilled to be here with you all today. Andrew, on that question, I'd say no, not necessarily in terms of how we think about the workflows, we are -- we can have and can add value on it. And what I'd say is that our hardware -- our hardware position and presence get those insight into valuable workflows and customer pain point that maybe best kind of result by hardware or software or data analytics or some combination of all 3, and what we're really looking to do with our customers and in our segment is to improve those workflows and create value for customers. There is often value and integrating across hardware, software and data analytics. But there are also workflows where we'll be more software agnostic. I'd say, our facilities workflows our example is where our long history with our group business and working in the factory with maintenance and on facilities and on assets. It gave us insight into the workflow and the pain points, and we have built a primarily software-centric strategy and our facility match and merit booking on top of that. So sure, it's not a requirement, but definitely helps us with insight into where software value might be.

Got you. And what are typical expectations for broad sell into the hardware client base? And how does that benchmark against actual results for completed deals?

Yes. I would say, there are elements of the comments I just made that are, I think, the most important for us here as we think about synergy. I'd say, the synergy actually comes much earlier in the process from us. We are in our hardware businesses; we think we're in great markets with lots of opportunity. We think we -- as we engage with our customers, we deeply understand those workflows. And we see the value -- or the place where software can add value. And so it's not necessarily that we're looking for in all of our deals, cross-sell. And it's not -- it's definitely not the case where we're often underwriting a very large amount of cross-sell into our hardware base when we acquiring the software or data assets. I think the standard work we do across all of these sectors allows us to spot the opportunity, to spot both the opportunity here create value in the workflow in software and in data. As where there are opportunities to bring together hardware and software and data, we do love to do that. I think, if you look inside of our IOS segment, our connected liability businesses, there is often synergy in what we're doing with EMV, which is maintenance software or software for maintenance professional as a maintenance operations to help enable those workflows. There are places where Fluke has offerings, for instance, in our sensor portfolio there, that integrate very well into EMV and with EUC and try to drive cross-sell there. Justin, this may be a place where you can talk about some of the things, we're seeing at ISC and LS. But I think that the most important point before I hand it to Justin, is that what we're looking for is that full understanding of workflow and whether there are explicit hardware synergies or just insight we have into the market that's going to allow us to create value with our FBS tools and that's really the primary driver of how we think about kind of the value creation across the workflow.

Yes. Maybe just to pile on, on Read's point. I think one of the -- if you look at an example of something like iNET, where we have devices in the field that people are wearing, that are monitoring circumstances, and we're able to get that data to cloud and that through iNET's and drive a complete workflow through that. The hardware enables a workflow that isn't just about the last thing our customers need is another dashboard, it's beyond the dashboard. It is completing the workflow to initiate action on an unsafe condition or to drive a repair or maintenance cycle that has flagged on that. So that interplay of -- it oftentimes, I think that interplay of hardware with the workflow enabled by software is incredibly powerful and that vantage point we have is very unique deep in the business.

And just a question for you, just a follow-up. So how often do you guys look -- and I think you sort of alluded to that. But looking for a data play, what software can benefit from data coming off your hardware? Do you think about...

Yes, absolutely. I think, Andrew, as you said at the outset, I think we realized insight a Fortive long ago and long before my time here, frankly, that value continues to migrate and be enabled by software. We're seeing the same thing in data analytics, where a lot of tomorrow's value will be enabled by the insights that companies and customers can drive off of those tools and out of their software. So we, in the last several years have made significant investments at Fortive in what we call Fort, which is our center of excellence around artificial intelligence and machine learning. The Fort is constantly working with our hardware and software companies on those data analytics opportunities. So if I think across our portfolio of businesses in IOS, in Precision Technologies and AHS. The Fortive is actively engaging with companies like Fluke, Qualitrol, Tektronix, ASP on their data analytics opportunities. When we look at new software opportunities either to add into existing workflows or to expand our presence in workplace. We are absolutely looking for those data and analytics opportunities. Justin, who leads our Environmental Health and Safety segment, he can actually jump in here and talk about examples of where we've seen that across iNET and Intelex as well.

Yes, we've being employed using the Fort. So the Fort is co-located with Industrial Scientific in Pittsburgh, and it's been wonderful to plug into the power in that group. And it's really -- there's a mutually beneficial piece here where we get the experience of Israel and the team at Fort across not only customer-facing applications of data and predictive analytics around hardware, but churn being able to detect churn. We've done a couple of projects with Intelex where we've looked at data coming in from customer behaviors and been able to find churn much earlier, potential churn much early in the process that's really driven strong results on that. And so it's exciting.

So Justin, maybe we can exactly maybe we can -- maybe we can just dive into Industrial Scientific and maybe talk about a specific case study. So for those on the call, Industrial Scientific makes portable gas detection devices. It was at an IoT pioneer creating interconnect device over 15 years ago. But in 2019, you guys acquired SAFER Systems, the software company for modeling and responding to chemical releases. So adjacent, good customer overlap. So what were 1 or 2 tactics you used to leverage the Industrial Scientific installed base in this case?

Yes, we were really -- so we'd love to say for the product is fantastic. The team is amazing, and it really extended our ability to not only protect people inside the plant, the workers inside the plant with the communities that surround petrochemical production sites and other customers. There were really 2 simple things, I think, that Industrial Scientific was able to bring. One was a the customer list, right? We have -- with iNet going through the Hardnox 15, 20 years ago of launching a bundled hardware, software service combination and selling it as a service, which we've been doing for almost 20 years. It was -- we had the chance to do that. We had master service agreements with many of the largest companies in the world. And so that was -- that created an instant ability for us to go and extend our solution set with SAFER. The second thing that I think we oftentimes forget to talk about is the geographic reach. When we look back at SAFER 4 of the 5 largest deals that we've signed since we've owned them over the last 2 years have been outside of North America. So just simply the fact that we have offices in 20 or so countries around the world, gave us a great launching point. We've seen that with SAFER. We've seen that with Intelex as well, but just extending that geographic reach as other parts of the world is -- I would hit on those 2 points as being some of the things that we were able to do it quite out of that.

And how do you decide on joint sales goals versus sort of cross training the Industrial Scientific sales or to sell software? How does that work?

I think that's -- so one of the fundamental things that is important to understand about how we have built out AHS is the power of the backbone of Industrial Scientific, where we look at a small portion of the business is still book and trade visit, where we ship products that are bought through distribution, but then another part is selling upwards into the higher levels of the organization from an enterprise view. We expect our sellers, our account executives to be capable of selling broad solution sets kind of at the level of purchase and at the decision-maker that they're calling on. And so when we look at how customers are buying gas detection programs overlaying that with SAFER, it's very different from how companies are buying enterprise software, EHS systems like Intelex. So I always use the phrase centers of gravity. We have these very strong centers of gravity with Industrial Scientific and iNet that are driving kind of on-the-ground workflows. And we kind of take things like say worth looking at that and we can drive those in and expect the seller to be able to get that decision maker and drive cross-sell and upsell at that level. And then at the enterprise software level, where we're doing things like partnerships with other organizations that are in enterprise, we want to be able to have our sellers impacting that from a decision-maker standpoint.

Got you.

We'll supplement them with technical application support as well, but it's really around those centers of gravity.

Got you. So the next question is going to be for Read just focusing more on strategy. So Fortive is targeting low double-digit organic growth from software. So the strategy is not all about M&A. So how do you scale organic investments to the market opportunity? What are the metrics that guide the decision to move R&D spending up or down? And within that, how important is new product development to that double-digit growth target?

Yes. Absolutely. Thanks, Andrew, for that question. We are absolutely looking to drive growth in our software investments and kind of the data analytics. And we're looking do that both organically and inorganically, as you said. I'll talk about a couple of things. One is the investments and the focus we made on this is a priority across Fortive. So we often talk about our FBS toolset. And historically, we've talked about the operational -- a lot of the operational elements of that toolkit in helping our businesses grow their -- further cash flows. Over many years, that toolkit has also evolved with a -- with an arsenal of growth tools within our FBS portfolio and a set of tools focus around innovation and new product introduction within FBS. I alluded to or mentioned before earlier in terms of helping our companies think about and invest in artificial intelligence, machine learning within our Fortive Business System or FBS. Toolset, we have a number of tools around portfolio and product management and around innovation and driving innovation with rapid growth methodology. So one thing I'd say on this question is innovation is a critical focus for Fortive and investing where we can find growth and bringing the tools to our operating companies from the Fortive level, it's critical to us. How do we decide where to do that? It goes back to the market work we do and the opportunity we see. We look for software opportunities and workflows that have opportunity to grow into those markets. And we fund the R&D to do that. So if I think in our software portfolio, in a company like Accruent, we all know that there's massive change going on in the workplace environment. Hybrid wear, power offices, office spaces are being reconfigured. Accruent is very focused on this rapidly evolving and growing space agility landscape. And we are investing in product development, new product introduction in that space to capture and capitalize on an opportunity where we see it. In our Gordian business, which focuses on the construction and preconstruction software workflows and data workflows. There is an enormous opportunity around data to help owner operators who are building, remodeling, renovating, upgrading facilities as a result of this to know what action cost where and how to best get that on and Gordian is innovating rapidly in that space. So I'd say the innovation focus is primarily within Fortive. The availability of dollars of R&D investment to do that where we see that market opportunity is there. And the tools through all the things we've learned over decades to help our companies really drive that innovation efficiently are getting more robust every day. And Justin, you may have to hear about how we think inside with Intelex and ehsAI, for instance?

Yes. I think this touches Andrew, on the companies we buy, right, as we look at our M&A road map, a major part of how we're viewing the businesses the require is, what is the scalability of the product to get scale on the R&D investments. And you can look at the 2 examples, Intelex is one. One of the major factors we loved about that business and so love is the ability to extend other workflows quickly and really scale that platform. And so we've seen benefits with ESG. The recent launches we've had with deepening our ESG offerings quickly. ehsAI, E-H-S-A-I is another example where a company that's really optimized around driving complexity and efficiency into the regulatory and permit -- the permitting process. We're applying that and selling that in the EHS space. But the core technology behind that is -- we're going back to the Fort, we're able to kind of deposit that into the armory there and extend that technology in a very scalable way to other companies inside of Fortive. So it's a very getting that scale on the R&D investments is critical.

Maybe I'm going to jump to Justin and talk about Intelex and this new product. If you have for history, so I think it is new product for ESG and it's for corporates to collect measure and report and ESG metrics and also prioritize efforts for the biggest impact. So a, maybe you could just tell us more about the product; and b, just for this particular product because I think it's so interesting. So how do you go like the process from idea to generating sales? How does it work for a product like that? Because I think at least the concept we can all graft, but how do you sell it?

Yes. So one of the things I will say, we have been doing sustainability reporting for years in Intelex. And this is one of the things I've spoken often about the vision that we have that we're dedicating our careers to eliminating depth in the job by 2050. And I see years I've been saying ESG is going to be -- when we look back in 29 years, this will be one of the things that we will point to that says this elevated the expectation of workplaces and companies around the world. So we are very excited about this. We have been very excited about this, and we are in a great [ph] position -- we have been impacting it. We're in a great position to do more. To your question, we've been doing sustainability reporting for years. We've seen 2 massive changes recently. One is the maturity or the -- just the knowledge of the decision makers, the maturity of our customers has gone up exponentially; and the second is the demand. This year, we've had about a 1,600% increase in ESG mentions in our sales from customers. It is something that is very heavily on our customers' minds. A big proportion of what is done in ESG is handled by the EHS world, right? When we look at the functions that we drive in the organization, so much that comes from EHS. So we had always been focused on kind of the disclosure and reporting piece and the gaps we saw in the market were really around better understanding of risk and then better tools to drive actions because that's really where ESG is. It's that overlay of disclosure, risk and action. So we've been strong in disclosure. We spent time over the last year very aggressively building on our capability to drive actions in the business and track them and make decisions between projects, get out -- drive better outcomes from an ESG standpoint. And then really connecting into the understanding of risk in the organization, we have remarkable access to the internal risks of the company with our EHS software and the processes we see and drive. We recently launched a partnership with a company called Datamaran that -- it does materiality and external risk. And so linking that in really helps us complete that view on risk. And so we are really trying to drive ESG as somebody that is driving outcomes in the business to fully realize that the standards that companies are setting and the goals they're sending is going to require that this is a very deeply embedded process in our customers' operations. And that's where EHS, what Intelex does, what Industrial Scientific does in our other businesses, we see that linkage and we're really connecting those dots to drive those -- the workflows that enable those kinds of outcomes.

So maybe going back to Read. And just to the audience, I started to get some questions, but I just want to remind you that for those who are participating in the conference, and I know this is sort of more of an open call. But if you are participants BofA conference, you can access that iCast software and you can type in your question in the Veracast app actually made it a lot more convenient for us to get questions this way. But -- so use Veracast, ask questions and historically we have done a good job incorporating that. But Read, so also Fortive CEO, Jim Lico has said that Tritium software is to acquire the good ones. All are expensive, but some are well worth evaluation. So maybe it last year they recently closed $1.2 billion ServiceChannel acquisition as a case study. And we have been getting questions from investors on ServiceChannel. So the facilities maintenance space is one. Obviously, Fortive knows well through Fluke and Accruent. How did you gain real conviction on ServiceChannel's five-year revenue projections? And then I have follow-up questions as well.

Sure. Sure. Well, we are incredibly excited about ServiceChannel. As you know, we closed that -- we said we were close that acquisition by the end of Q3, we closed it at -- toward the end of August. We are just getting going with that team on 100-day planning, and we're more excited today about when we've acquired in ServiceChannel then even during the due diligence. Yes, Jim and I have spent a lot of time talking about good and great software companies and what makes the difference. I've been lucky enough in my career over 20-plus years. So I have worked with and looked at from an investment perspective, there are hundreds of enterprise software companies. And in that time, I have developed my own views on what separates good from great and what you need to do from a due diligence perspective to ensure your conviction there. And as I joined Fortive, I was thrilled to see the rigor and the kind of the robust thesis led diligence approach that has been a part of what I've done for the last 20 years that is also integral to Fortive and our teams that have a real muscle on capability around doing due diligence. I think in the case of ServiceChannel, it was critical for us to see always starts with market work for us, really understanding the market opportunity, the penetration of the opportunity, wide space remaining and ServiceChannel is a market leader in a market that has significant wide space potential range. So it's a relatively unpenetrated market, and you can build that up by looking at kind of the number of establishments out there, understanding through customer research, who is using what solutions, what appetite, what customer needs are there, does ServiceChannel map against those needs. So I'd say the first element of getting comfortable is really having conviction around that market, the growth and the opportunity. I think in the case of ServiceChannel, we also coupled that with deep customer work that showed a -- and deep product and technical due diligence that both showed a phenomenal modern products product was 70-plus percent Net Promoter Score, which is exceptional in the space. So product that customers love, but we also in our due diligence found to be very technically sound and sophisticated. And then I'd say the third key thing to get us comfortable with the growth is looking at what they were doing on new product introduction. We talked when we announced the deal, about offerings that have like Scout, which is the data analytics offering, which is adding more value to their existing customer base. We talked about their SC-managed offering, which is more of a turnkey service in addition to the software for customers that want to hit the easy button effectively on managing this. And both of those relatively recently launched innovations were already showing phenomenal traction in the marketplace. So I think all of those things got us very comfortable with the runway for ServiceChannel. And as I said, we're as excited today, if not more than we were in due diligence.

Got you. So how important just as we sort of think about the parameters of the software is net dollar retention, right? So ServiceChannel is in the 104% range. Let's say, they had the same total revenue growth trajectory about 101%. So how much does that call your view of the opportunity?

Yes. I mean net dollar retention is a critically important metric in software. As it often speaks to both the stickiness and the mission criticality of the product, we're offering that we're looking at. And also points to your ability to drive growth with customers who already know and revenue versus selling that new customers, which is also important. But -- so net dollar retention is a key metric we look at in all of our software businesses. In general businesses with strong net dollar retention or the potential for strong net dollar retention are quite attractive in that regard. It's always easier to sell something to a customer who are already knows and want to -- than to sell to a net new. Now different software models, different business models have different net dollar retention opportunities. I think we're excited about the ServiceChannel opportunity not because it's a 104% or if it were at 101%, but because we think it can go much higher as evidential to go much higher than that. This is a place where we have sharpened a lot of our FBS tools to help our companies drive net dollar retention. Looking across our software portfolio, there are a number of product lines within our businesses where we have net dollar retention in excess of 110% or 115% sort of clearing has several of these businesses. So I guess, Andrew, a little bit of a long winded answer to the question, which is yes, net dollar retention is an important metric. Most important to us is the potential for high net dollar retention, not necessarily absolutely place the company is starting from because we believe with our FBS tools and offerings that where we see a business that should be able to drive high net dollar retention. Even if it's lower than it should be in a diligence construct or when we see in diligence, we can get conviction that we can drive that.

Just a follow-up because you brought up here, that's a very interesting question. What's sort of the easiest lever you can pull in your FBS toolbox. What's the easiest, most obvious thing you find to get this net dollar retention 110%, 115%, like what really works?

Yes, in net, there are a number of constituent parts around here. Justin speaking earlier led to tools around churn reduction and really deeply understanding customer health and having a customer success capability that can predict and save of churn. But on the growth side, right, so that's not losing customers out of the bucket. But you have those customers disciplines around pricing around the annual or contractual renewals at the end contract terms as well as understanding in those workflows where NPI, where a new product introduction, where additional modules are going to drive additional opportunity to create value with those customers. I think all of those levers are at play. And the fingerprint of or the prescription for any particular company as to how to maximize it's going to be a little bit unique to that company.

So it's just sort of going back to this traditional focus on the voice of customer that you sort of drive throughout your business model.

That's right.

That's fascinating. So for '21, just finishing off with ServiceChannel and -- so you sort of said we'll have $125 million in revenue, single-digit EBITDA. But it does have 25%-plus revenue growth and 6% incremental margins. So the 40 bps buying at the tipping point of profitability, is that by chance? Or is that somewhat of a sweet spot for you guys to enter this opportunity?

Well, we've talked a lot over the last half hour about what we're looking for in our software businesses. And so the first thing I'd say is, as you just mentioned, as Jim talked about, we're looking for great software businesses. We have a lot of flexibility in where we deploy capital across a range with software business model maturities, ServiceChannel, as you just pointed out, was at a cost of profitability, a very rapid growth. And we believe over time, we would be rapidly growing both the revenue and cash flows of that business. Intelex and EMV businesses that had a similar profile, right, at the time of acquisition, where -- sorry where we've had some opportunity to drive profitable growth. At the same time, Gordian and Censis other software acquisitions are already very profitable, right, at the end at the time of our acquisition. So I'd say, yes, the most important thing for us is our conviction around the opportunity, the value creation opportunity -- the market opportunity and the FBS value creation opportunity in our software businesses. And because of the experience we have, because of the tools we have, we're actually very flexible as to where we can deploy our capital across different maturity models, whether they're rapid growth on the customer profitability or more mature. And we will continue to maintain that flexibility and look for the places where we can most effectively deploy that capital and drive the returns that our investors demand.

Read, and I think the next question -- the next follow-up question I think I have for you is I think you're very, very uniquely positioned to answer it given your background. But how do you think about the trade-offs between -- and I think that's the question we got on ServiceChannel acquisition, frankly. So how do you think about the trade-offs between margin and growth for software, particularly SaaS, right? Because pure-play software companies generally have a hefty growth bias and they can actually can get away with it because, right, we're covering our industrial software companies, and it's just fascinating just how single investor is just focus single-handedly on just 1 metric, right? It's like some form of your bookings or something like that, right? But Fortive is an industrial form and clearly, investors care about return on capital, margin expansion, right, that sort of part of the promise to the investors. So how do you sort of manage these KPIs, right, to have the software business where historically, the focus is on growth inside a company where there is a lot of focus on margin and frankly, a spectacular track record of delivering aforementioned margin for decades and decades, so.

Yes. Well, Andrew, I think underneath that question, that growth versus profitability trade-offs. Today, we talk a lot about the rule of 50, the rule of 60 and thinking about adding up growth rate and cash flow margin percentage as a metric. And that presumes that it's always a more, right? I think what we found with our businesses, with our FBS tools, with our ability to help improve the operations of these companies that we're trying to drive the end, right, with tools that both drive growth but also disciplines that allow us to drive that growth efficiently and generate cash. I think where we are clear investment returns to driving growth in the near term to drive cash flow in the longer term. We're going to be smart and intelligent about those opportunities and make sure as we have -- as we talked about with businesses like NOX, like Gordian, like ServiceChannel that we're funding the R&D to capture that market opportunity. But we're always going to have a focus on are we doing that as efficiently as possible. Are we generating the right return profile in both the short and the long term along the way? So we do think about that. We do think about the trade-off between growth and profitability, but I'd say we also don't view it as a hard or, if you will. I think we challenge our companies do better.

So I guess next question for Justin. Just going back to Intelex, which you bought in 2019, right? So you do have a track record here. So and just for folks on the line, Fortive acquired it for $570 million, and I just remember sort of the pushback on the multiple back in that from some of my peers as well. But what are the ways that you use the Fortive business systems to improve results at Intelex?

Yes, it's interesting, Andrew, I had such a great lens into FBS, having led Industrial Scientific for 7 years. And think we were pretty good and hearing about FBS and being a little bit skeptical about where it was going to help Industrial Scientific and coming into Fortive and just seeing this relentless focus on continuous improvement. And I like what Read said before about there doesn't necessarily need to be a hardware. There are across whatever dimension of performance we are looking to drive FBS helps us to do that. With Intelex, I think the experience I had with ISC helped a bit with Intelex. And so one of the things we wanted to do is to get an early win. We were not happy with the win rate of Intelex when we acquired it. We knew we had to do some work on it. And so within 6 weeks of acquiring Intelex, we had a win rate kaizen, a problem-solving kaizen and involves the commercial team, and it was remarkable. We had not only great performance from improvement in win rate, but the -- just the champions we were able to create, the internal champions that really were able to go back in the organization and say, hey, folks, this is all those probably the little things in the business that you want to help drive better and the problems you want to fix what a powerful tool set to do that. So when I look at Intelex and where we've taken FBS on this journey and it's a journey for every company. We have focused a lot of the energy on the growth elements. Read talked about some of this pipeline creation deal velocity. We've made dramatic improvements in the last 2 quarters on deal velocity cutting weeks off of deal cycles. From a pipeline generation standpoint, last summer in 2020, we had a big focus on pipeline creation and from lead gen and so I think the big headline for Intelex with FBS is rapid adoption in growth tools. And so it's been really good to see how this relentless focus on continuous improvement has helped drive performance.

Got you. And Intelex, as I recall, was going through a license to SaaS transition. So what was the best mix 2 years ago? And where are you now? And yes, what are the tactics you're using to drive SaaS adoption side Intelex?

Yes, we -- so Intelex went through its SaaS transition. It set up back in 2015, executed it on the crossover into 2016. And so much of the -- when we acquired the business in mid '19, much of that was behind it. If you look at kind of a mix of ARR on SaaS versus non-SaaS in the last 2 years, it was about 20% when we acquired the business, it's down to 10%. Now we'll be well under 10% by the end of 2022. And there's -- I think it's a very different conversation today than it was even 5 years ago; we've seen this with Industrial Scientific as well. But even some of the industries that have tended to be a little more skeptical of SaaS and cloud are adopting it readily and seeing the benefits of that from an infrastructure standpoint. So it's a very small portion of our business. It certainly is almost nothing in terms of bookings right now.

Got you. Sorry. So a question from the audience for Read. How would you characterize the funnel as far as the mix of software versus hardware, which workflows are you seeing the most opportunities in? Are there a lot more potential sellers trying to transact this year for tax reasons?

Yes. I'd say our funnels -- we have a very disciplined process across all of our businesses to drive our funnel and make sure that we are on top of across our segments in IOS, AHS. So IOS our Intelligent Operating Solutions business is where businesses like food Intelex, ISC, Accruent service on Gordian set, our advanced healthcare businesses were ASP Censis, Fluke Health, and our Precision Tekt businesses were Tektronix and our Precision Tech, and our Censis Tech businesses as well as EMC, . So we have a standard work. We had talked about standard work at Fortive inside of all of our operating companies and at the segment level and at the Fortive level to drive a disciplined funnel process. There's clearly -- as we talked about in this call, a lot of activity in Justin's world around the EHS space, but there's also activity in our facilities vertical. We just did the ServiceChannel deal. Accruent has a lot of opportunity around the space planning and space and agility market, we talked about. And -- but rather than like I think those are emblematic of a broader opportunity across our funnels for our more traditional hardware businesses. Those funnels tend to be more hardware-centric and we will absolutely deploy capital where we believe we can create good synergy and good returns for our investors in our hardware businesses. For our software businesses, those funnels tend to be more software and data focused. And we're -- again, to the last conversation we were having, we're looking across that maturity spectrum. So early stage to a more mature -- more mature software companies. So I'd say the funnels are rich. There's lots of opportunity. There's lots of activity in the market, whether it's driven by potential tax changes or just other market factors. I think we're in a market where there is a lot of M&A opportunity available to us. And the important thing for us is being disciplined around our strategies, our workflows and our returns.

Got you. And for the audience, if you have more questions, just please ask them on Veracast. So a couple of more questions for me. We have, I think, a couple of minutes left. So as you've gained scale in software businesses, other to some areas of synergy, right, before it is a shared center of excellence is that path to create more shared coding, engineering pools?

Yes. I'd say where we start is sharing across the operating companies central to our model is the operating company and the enabling the operating companies to deliver on their missions and their strategies. And so what we're looking for and what we build at the center and within our FBS offerings are really capabilities that we can share out to the company, so they can drive their own strategies. Where we see opportunity and where it makes sense to is centralized, if you will efforts and the Fort is a great example of this. Artificial intelligence and machine learning is relevant to all of our companies. It is a very dynamic space and a very -- having the best talent there is critical. And so strategically, it makes sense for us to think about aggregating that and having an operation that can support all of our companies in that way rather than trying to source and distribute that talent out in a way that might be more subscale if we thought about it, operating company by operating company. So we do look for those opportunities. Again, we talked a couple of times about methodologies or FBS practices around churn reduction and customer health around demand generation on pricing. I think where we're really trying to drive that FBS is making sure that all of our companies have access to the best thinking and that we're sourcing the best opportunities around the system, but not necessarily aggregating a lot of operational activity outside of the operating companies themselves.

I'll just add one other thing, leading being responsible for a number of businesses. The other area that we get scale on is information security and just a hardening of the systems to be world-class at a global level in terms of information security. So that is a clear area, maybe not the sexiest, but certainly from the trust that our customers put in to us we certainly get scale and benefit by that business model.

So you know what, I'll squeeze 1 more question I have on 1 more minute left. So look, a healthcare IT, look, it's a top space, right? You do have sensors, but is there just less opportunity for software given the incumbents and regulated nature of the market?

Yes. I actually think there's a lot of opportunity for Fortive in our healthcare segment in software and in data analytics. I think Censis is a great platform for us around which to build. And we've talked about our focus on acute care on workflows in and around the perioperative loop and the sterilization with ASP. I think for us, what we -- where we focus is deeply understanding those workflows and spotting those opportunities, again, whether there are opportunities that we can develop and build organically, whether there are some earlier-stage opportunities or more mature software companies, I think there is opportunity there for us. And we just need to be very focused on the workflow and the customer value we're trying to create.

So now I'm right -- what I always admired about you guys is just how finishing, how was your time. We had right on top of our schedule, and you answered the question. With that, we are out of time. To everybody, thank you so much for participating. Read, Justin, really appreciate the time. It's a pleasure. I want to thank you for making yourselves available. And I think investors really enjoyed getting insight into your strategy of software, which I think is a very unique opportunity just to get Read from Fortive and obviously you guys are the leaders in the set time of strategy.

Well, thank you, Andrew, and thank you for having us. It's been a pleasure to -- for me as well, and hopefully, and I'm sure for investors.

Absolutely. Thanks, Andrew. Thanks, everybody. Thanks, guys.