Fortive Corporation (FTV) Earnings Call Transcript & Summary

Good afternoon, and welcome to Fortive's 2023 Investor Day. It's a pleasure to be in person in New York. So thank you all for joining. I hope you had a chance to enjoy our showcase today, really highlighting innovation at Fortive. Leveraging the Fortive Business System to drive more profitable growth across all of our operating companies. And in case you missed it, the showcase will remain open during our 20-minute break. So we invite you if you haven't had a chance to go through that. For those of you who are joining via our webcast, welcome. And today's presentation can be found on the investor portion of our website. Today's presentations do contain forward-looking statements, which are subject to a number of risks. And actual results may vary for reasons that we cite in our Form 10-K and other SEC filings. These forward-looking statements speak only as of the date that they are made and we do not assume any obligation to update them. Our outlook for the second quarter and full year 2023 remains unchanged from what we communicated in our first quarter earnings release just a couple of weeks ago. To recap, for the full year, we expect revenues in the range of $6 billion to $6.1 billion, adjusted operating margins in the range of 25% to 25.5%, adjusted earnings per share in the range of $3.29 to $3.40 and free cash flow is expected to be approximately $1.25 billion, representing greater than 100% free cash flow conversion on adjusted net income. So turning to today's agenda. Our presentation will address a number of key topics, beginning with an update on the company's strategy by our President and CEO, Jim Lico. Following Jim's section, we'll hear from Kirsten on how FBS is unlocking even more customer value and value for Fortive. Before Stacey and Pete will share some important updates on our people strategy, our sustainability efforts, and then we'll get a chance to take our first Q&A session before we go to the break. Following the break, Tami and Olumide will walk through their connected workflow strategies and the outlook that covers our 3 segments in more detail. Before Chuck wraps it up with our financial outlook. And we'll come back together for a final Q&A session, and we will end promptly at 4:30 p.m. I'm excited about all that we have to share with you today. So with that, let's begin. [Presentation]

Ladies and gentlemen, please welcome to the stage, Jim Lico.

Good afternoon. I want to thank everyone, and welcome you to our conference here, and welcome everybody who might join us virtually. Hopefully, for those here in person, you had an opportunity to go through the innovation showcase. I think there's nothing better than the opportunity to sort of see our products in both hardware and software and our services to really help bring our connected workflow strategies to life and certainly bring the conversation that we're going to have with you for the next few hours to life as well. As you just heard from Elena, we feel good about how things are going right now and shaping up for the quarter and our outlook really for the remainder of the year. And I would -- if I had one word for it, I would say consistency. All right. Our key themes, and we're certainly going to have a great opportunity to talk across a number all of our segments, but I think the key themes for today are really for. One, we want you to get a sense of how we've transformed this high-quality platform and with high-growth businesses with wonderful opportunity for profitability both today and tomorrow. How the connected workflows are aligned to key secular drivers in growing markets, and you'll hear today from us that we've expanded our served market now from the roughly $40 billion or so that we've talked to you about in the past, to now $60 billion worth of served market. You'll hear from Kirsten and throughout the segment presentations, how FBS continues to be a core differentiator and how our relentlessness around that continues to drive great results. And then finally, how our disciplined approach to capital deployment has enhanced earnings significantly and free cash flow, but we'll do that from an inflection point in which we're from great strength and will continue to accelerate in the years to come. Our strategy of who Fortive is today is really one of high quality and high growth. Our 3 segments, and you'll hear the segment presentations today will represent roughly about -- with these 5 workflows, which are roughly about 85% of our sales today and represent the majority of where our capital will be deployed in the future. I won't get into the details of these connected workflows, but you certainly can see -- you certainly saw a number of those examples in the innovation showcase. They really over the last 7 years, we've articulated this portfolio strategy that helps build a more resilient, less cyclical, more durable business that's capable of outperforming across a broad range of financial metrics, and you see those on the slide. These customer-facing workflows really come down to really very simply to connected workflows that really help our customers drive safety, quality and productivity in facilities such as commercial buildings, industrial plants, hospitals and engineering labs. It's that simple. And as you listen to the presentations today, I'm confident you'll hear the connective tissue that represents the number of things that we're doing throughout our businesses. The innovation showcase, obviously, continues to build on that. And if you didn't get a chance to do that beforehand, as Elena said, we'll have a break where you have an opportunity to go through as well with our teams. We don't talk enough about culture, but our shared purpose is really what guides us, first and foremost. Our operating businesses. We operate in a very independent operating model, which we believe drives superior customer satisfaction and accountability in ways around our financial results and second to none. But it's really that shared purpose that so many of our operating companies think about. Essential technology for the people who accelerate progress. And what that really means to us is that we want to be in businesses where technology can be differentiated, where customers appreciate it, and we can expand our businesses through creating more value. And the people who accelerate progress are the secular drivers of businesses with customers who are doing important things around the world, and those important things are driving growth. Our core values are the foundation of that, and you can read them on the slide. So the most important part of our core values is that we live them every day, and we use metrics, quality, delivery, cost and innovation, to make sure we're making progress across those core values on a daily basis. It's a critically important part of our culture because that, combined with FBS is how we differentiate ourselves in terms of creating value in our businesses. And Stacey and Kirsten will give you a real sense about how the process of FBS and the people strategies, build on the talent in order to build our culture around these core values and our shared purpose. We're really about creating a premier company. And I sort of think of the slide and thinking about hardware advantaged brands and exiting some cyclical businesses is almost Fortive [ 1.0 ] kind of in the 2016 to 2019 time frame, where we were really implementing the first part of our 10-year strategic plan that we created at the start of Fortive. And that was really setting us up to start to build our acquisition strategy around connected workflows and around adding recurring revenue, software and really unleashing FBS, particularly in innovation, where we drove our innovation capability, specifically at more growing aspects of the business to transform our business from a growth perspective as well as from a durability perspective. And that strategy has been consistent from day 1, which is applying our workflows to large and growing markets, one where we can expand our market positions where we can leverage our innovation capability. We can utilize M&A to accelerate strategy because that's where the best long-term returns come, ultimately, using the power of FBS to drive continuous improvement in what we do and reinvest that to continue to build the flywheel of growth and profitability. As I said before, we've expanded our TAM now. Our served market today, our total addressable market, if you will, is $60 billion, mostly focused on these 5 workflows that you're going to hear so much about here in the coming hours. And we've transformed our portfolio considerably. We've really continued, as we said, we've deployed about $7 billion of net capital during that transformation at the start of Fortive 2.0 around those connected workflows. Today, 40% of our revenue at Fortive is around that $2.5 billion of acquired revenue. To date, we've improved margins by 1,000 basis points in those businesses. We've been able to apply FBS not only on the cost side but on the innovation front and the commercial capability to really continue to accelerate those businesses that we've acquired to make them part of the Fortive family and deliver superior results over time. In those 7 years, we've continued to -- now we've doubled our core growth rate. We'll have a number of metrics that you can see our gross margin expansion and operating margin expansion. And today, we have high single-digit returns cash on cash returns, accelerating into the years to come. That really provides increased durability and the increased durability is not only on the software side, but also on the hardware side. On the left side of this pie is really the business we've acquired. So they didn't really -- they barely existed back in 2016 and are now half the size of Fortive. Higher recurring revenue, durable revenue growth from the standpoint of software and services and data businesses. And we've continued to improve the durability of our hardware businesses through our innovation capability centered around the secular drivers that you hear so much about today. I won't steal the [ funder ] of our segment leaders. There's a lot of great stuff we'll talk about relative to this. But if you think about it simply as -- the world is automating and digitizing and we're playing across our segments and that great trend. We continue to see the energy transition as an opportunity. And you'll hear about that in many ways. And then finally, productivity growth. Every organization from manufacturing plants to commercial facilities to hospitals is really looking for more productivity, maybe because of the labor shortages, maybe because of the nature of those industries. And our solutions today are providing more productivity growth through the solutions we have today and the innovation that we're creating for tomorrow. And it really builds on our financial capability. You see here on the slide the -- our performance since 2019 across a broad range of metrics, good, very strong growth, obviously, great gross margin expansion in an era of supply chain challenges where most people we're degradating gross margins, we've averaged 75 basis points of gross margin expansion every year. That's translated to good operating leverage with better operating margins and obviously continue to grow EPS on a constant basis. And we're really proud of that work, and we think we feel stronger that we can continue to do that in the future, but we also see the power of how that -- how cash flow is improved. We're incredibly proud of the fact that our working capital today as a percent of sales is half of what it was only 4 years ago, allowing for us to run our businesses in a very, very low capital-intensive way. Our free cash flow is up 90% a year in that time frame as well. And today, we're -- from a free cash flow margin perspective, we're getting 50% more cash from a dollar of sales than we were just 4 years ago. A real emphasis on the compounding power of our acquisition strategy. And just as important is how FBS can improve free cash flow, not only in our hardware businesses, but across the portfolio. And you'll hear a lot of examples of that, how FBS is continuing to do things even in our software businesses that might be negative working capital to continue to improve their free cash flow beyond just their earnings growth. And that really gives us an ability to continue to leverage the power of FBS. It's a core differentiator. And we talk -- a lot of times when we think about the tools of FBS and that's an important component. But quite frankly, most people have the tools. What's critical to what we do today is our culture and the cadence in which we do it. The culture of 18,000 employees around the world who understand how to utilize our tools and understand the cadence of how to use those tools. The application of FBS is the most important part. And it's that culture of continuous improvement of high expectations in humility that you'll hear so much about with Kirsten's presentation that really give you a sense of how we continue to build that culture in the company. And then the cadence, the frequency in which we do things. It's not just quarterly, it's not just monthly, it's not just weekly. It's daily, it's hourly. And by doing that, we get more cycles of continuous improvement. We get more cycles of problem solving. And by doing that, ultimately, we see better results. And that really creates the flywheel, the Fortive formula for value creation starts with our strategy and how we continue to build strategies that yield better growth converting that revenue to earnings and earnings to free cash, which ultimately allows for us to deploy capital and give us the degrees of freedom and capital allocation that allow for us to accelerate strategy and then ultimately use FBS to create even greater momentum through continuous improvement, not just on the profit improvement perspective, but also on the growth and innovation front. You certainly saw that in a number of -- in the innovation showcase today. We're really proud of the work that we've done to get this flywheel going. But as we'll see in a minute, that flywheel will continue to build and will continue to create momentum in the years to come. We've reviewed this with many of you over time, but it's probably worth talking about is our acquisition. How we think about acquisitions. I won't read every bullet point on the slide. But safe to say that our acquisition discipline is really focused in 3 parts. One, do we like the market? We do a lot of market work, and I'll show you in a minute how that translates to our funnel, but we do a lot of market work to understand the secular growth drivers, understand how it's connected to our workflow strategy to make sure that the technology can be differentiated. That important point to our shared purpose. Then we look at the companies and there'll be a number of companies in the market, we ask ourselves what's their market position? Is it strong? Do we see above-industry growth? Does it have competitive advantages typically seen in high gross margins. They have a good talent base that's additive to Fortive. If we like the company, then ultimately, we say, can we create value, which obviously a critical part of how FBS is to play. We want to make sure it's accretive to our growth profile. We want to make sure that on those bolt-ons, we have a good mid-single-digit ROIC in the first couple of years, make sure that within 3 years, we're at double digit. And on those deals that maybe are a little bigger or maybe a little bit closer to our adjacent markets within the connected workflows that ROIC might move out to 5 years. And it's that combination of work we do, market company value creation, which drives our acquisition strategy. We wanted to give you a little bit more of a peek into what that really means and how we execute our consistency across our businesses and across our segments in terms of our M&A playbook. You'll hear about the markets a little bit more. But as I said, we're now at a $60 billion, $60 billion TAM, about half of that in iOS, the other half in PT and in health. We have a very active pipeline, around 1,600 companies that sit in that pipeline today, about 300 that get strategic stringent evaluation. Likely we're cultivating in some way, those businesses typically. We're looking at a 50 to 100 on a pretty regular basis. We're doing rigorous due diligence and ultimately going to a decision probably somewhere in the neighborhood of 15 to 25 a year. So when we say we're busy, that's what we mean. We're actively cultivating the funnel. We're actively looking at markets to see what markets we want to be in or generally adjacencies to the markets we're in today, almost always that way. And then how does that translate from the kinds of deals in terms of size. Most of them are bolt-ons. The Triangle really says most of them are bolt-ons. There's a few less that are additive to our connected workflow strategy, really saying that the 5 connected workflows that are in our business today are going to see most of our acquisition capital. And then finally, a few large unique deals that may happen every once in a while, maybe every 3, 4, 5, maybe even 10 years, every once in a while. So that's really when we talk about being busy and when we talk about what we can do from an M&A perspective, this is really the framework by which we do our playbook. And that really, I think, gets us to where we see the future. The power of our culture, the power of our business system, the disciplined M&A approach, we believe very strongly, gets us to about $4.50 of EPS in 3 years and about $6.75 of EPS in 5 years. We felt we owed it to you since we gave you a few of these views a few years ago to update that. Chuck, in a little while is going to talk to you about how we've done against the report card of what we talked about a few years ago. Teaser, we did very well. But we really feel strongly about the strength of the portfolio and what we're doing here from an EPS perspective, but even more importantly, from a cash flow perspective. As we said, we think by -- within 5 years, our annual free cash flow will be close to -- a little over $2.3 billion, giving us tons of flexibility in terms of what we want to do from an M&A perspective, tons of flexibility, quite frankly, in what we want to do from a capital allocation perspective. We feel really good about the work we've done thus far to get us to this point, but we feel even better about the work we're doing and how that sets us up for these kinds of targets. And then finally, it really is about evolving to a premier company. We know that we -- over the last 7 years, we've made good progress towards this goal. We also realized in our deep belief and continuous improvement that we're not there yet. But we're endeavoring to get there. And maybe we never get there. But what we know to be true is that we're going to make considerable progress every single year. Accelerating our progress is our theme durable high-growth free cash flow compounder is our goal. We're highly confident we're going to continue to make progress across this. And the targets that I just showed in the previous slide are the targets that you can hold us accountable to. And we feel very comfortable with that statement. Having great strategy is wonderful, having a world-class operating system in which to build on is fantastic, but the best part of what you're going to hear about today is our team. And I think when you finish the day, and we'll have Chuck wrap the day on the financials, but as you go through the day with Kirsten, Stacey, and Pete, you get an enterprise view of Fortive. And what we're doing relative to FBS and our people strategies and the significant progress we've made on sustainability. Then we'll dive deep into the segments. Tami, who's doing double duty now and Olumide will review with you the wonderful progress that they've made in their businesses and the wonderful opportunity that is ahead of us to make great progress for Fortive in the years to come. And as I said, Chuck will wrap on that to really give you an opportunity to really see how that manifests itself, both past and present and future relative to our financial performance. I couldn't be more excited to have everybody here. Thanks for filling the room. We are incredibly excited to be in New York and be in person for the first time since 2019. And I hope when we come up here for the closing remarks, you're as excited as I am about the future. With that, let's go to a video. [Presentation]

Ladies and gentlemen, please welcome Kirsten Paust.

Thank you. I'm excited to be with you today to share what is so unique and special. It is our business system. It's how we go about driving improvement in our businesses consistently with rigor, with discipline and how we develop our people. I hope what you saw in that video is how critically important Kaizen is not just to delivering sustained results in our businesses but developing our talent to the engagement of our people in the way that we show up every single day across our hardware and software businesses across the portfolio. As Jim shared with you, the whole foundation of our Fortive Business System and the ability to drive impact is because of our culture. Our culture is the way that 18,000 people across our company show up each and every day with a mindset that we can do and be better. That is what pulls these best practices, that's what pulls Kaizen and allows us to drive this improvement consistently across our portfolio. Our culture is reinforced and strengthened by the rigor of our operating [ cadence ]. Jim shared with you that at Fortive, we don't make the year. We make the hour, the day, the week, the month, the quarter, the year, that mindset is driven into every single operating company in our portfolio through our operating cadence. This is how we consistently operate our businesses with high expectations and a focus on relentless execution. Our operating cadence and our ability to achieve those results is powered by our tool set. And yes, Jim said that you can find a lot of these tools out in the public domain. We've spent a lot of years through a rich foundation strengthening these, leveraging internal and external best practices and rolling them out across our company to deliver results. What I'm going to do for today is take you through this model and help you understand what distinguishes Fortive. A lot of companies will tell you that they have a business system. What I hope you take away from today is just how unique and different what we have and how rigorous and disciplined it is in our application across all of our businesses, hardware and software alike. To get us started, I want to spend a little bit of time on culture. Everybody says they have a unique and differentiated culture. But I want to help you understand what underpins our culture. You saw in that video, Kaizen is our way of life. To be our way of life, we have to live it every single day. 18,000 employees have to drive for improvement. And the way that we do that, it starts with a culture of inclusion. The very foundational principle of Kaizen is that there is no hierarchy that everybody's ideas and contribution matters and pursuit of better results. We live that in the Kaizen events that we hold across the company. In order to show up in those kaizens with a belief that we can do better, we have to have an open mind. We have to be open to learning, receptive to thinking that there's a better way. We call this humility. The ability to acknowledge that there might be a better, faster way that we can achieve something. We combine that humility with high expectations, which drives us to figure out how to achieve even greater performance than we've been able to do in our past. We set our sights high. We focus on relentless execution, and we go after what others might think is impossible. One of the things that I think is so core and fundamental to a powerful business system is transparency. You can't improve something if you aren't willing to acknowledge that you have a problem or an opportunity. You have to be clear, focused and honest about what's happening in a business. That's who we are at Fortive. And that comes together to create the powerful culture that underpins our business system. I want to bring your attention to the chart on the right. because what is unique and different about us is how we compound improvements over time. A lot of companies will say they do kaizen. I wish I could actually have you in a Kaizen environment and show you the power of what we do and what's unique. But the value comes off of sustaining what you do in Kaizen. It's not a week of activity it's a week of progress on which we continue to build because we have a very rigorous process of ensuring that what we put in place during that Kaizen event sustains. We get the outcome. We get the performance in the business. We do additional Kaizens on top of that. And as you can see, as this chart illustrates over time, you get that compounding effect of those improvements. That is the real power of FBS. That is the culture that distinguishes us as Fortive. These things are all reinforced with our operating cadence. How we deliver our numbers consistently across our portfolio of companies, whether they be in health care, in hardware or in software. The way we operate our portfolio of companies is consistent. What this allows our leadership to do is to understand proven best practices over how we operate the business so that the most precious resource we have, the creative capacity of our leadership can be spent really striving for growth, overcoming those challenges that every business has. Our operating cadence starts with a standard strategic planning process that we drive in the company. That establishes clarity of what game are we playing and how will we win? With that clarity and initiatives focused in our businesses, we drive that into execution through something we call policy deployment. Policy deployment establishes a rigor and rhythm in a business for executing against your strategic initiatives. Our company's structure teams around their policy deployment, they come together on a monthly basis to take stock of where they're at and to figure out what is a team they're going to do to accelerate their progress. We have the saying in our company that our objective is to make more than a year of progress in a year of work on our strat initiatives. It's a mindset. It's a culture. How do we turn our strategy into reality. You'll hear this repeatedly throughout the day that FBS is dependent upon the quality of our people and of our teams. We are purposeful about building the capability of our teams and of our individuals. And you can see it on here through our organization and talent development processes. We are committed to delivering our financial commitments that we've made. We do that through our operating reviews. This is where our businesses come together, they take stock relative to the targets they've set in the business. This is where we really embrace and engage problem solving to close any gaps and to figure out where we can accelerate faster progress in our businesses. And finally, in the innovation showcase, I hope you've got a view to this, lean portfolio management, how we prioritize and develop the products that are in our portfolio, how we drive greater returns from our R&D investment, and how we make this space to do the early innovations that will deliver unique and differentiated value to our customers. You bring all this together, and this is how we consistently operate our businesses across the portfolio. We don't have to reinvent this when we acquire a company. We have the power of this from day one, and what we are able to do is focus on driving outcome and results through it. Before I jump into walking through a couple of examples of our tools and the power and impact they have across our portfolio. I wanted to share a little bit of the evolution of the Fortive Business System. I'm very fortunate in that I've been part of this journey since our very founding of Fortive, as you can see on here in 2016. We started this company with a very strong and proven business system. But just like we fundamentally believe in the power of continuous improvement to accelerate and drive improvement in our businesses, we believe in it, too, in our business system. And what we've done over the last number of years has really evolved this business system to meet the changing needs of our portfolio and to adjust to what the markets and technology enables us to do. One of the big objectives we had in Fortive was to really unleash faster growth. You saw out in the innovation showcase a lot of wonderful innovations and what our operating companies are doing. We have built a proven tool set that has enabled them to do that around innovation and managing their product portfolio. You see that on here in the work that we did in 2018 around Growth Accelerator and the launch of Lean portfolio management in 2020. We also continue to evolve the core of our tool set, taking advantage of new technologies and understanding the changing portfolio. When we founded Fortive in 2016, we had a couple of tools around software. We now have a very robust and proven tool set for driving net dollar retention and for really driving improvement in software development. That is where we can drive efficiency and productivity in our software businesses in our portfolio. Core to all of this is how do we continue to evolve how we build our people and teams. How do we ensure that they are immersed and understand FBS. And for us, we just don't expect our leaders to know these acronyms and be able to say the words. We expect them to be able to coach and most importantly, to be able to teach. The leaders of our businesses can teach and install these tools, and that leading from the front is what sets us apart and how deeply engrained this is in our culture. One of the best examples to get us started on the power of FBS and the evolution that we've been through is on a very popular topic, which is pricing. We have, for a very long time, had in our portfolio a tool set called price leakage. What that allows us to do is to create a price waterfall that helps the business understand where are the leaking price. That comes through things like price discounts, freight, other things that we may give away to the customer or that deducts from the price that we're able to capture. That has been a critical part of our tool set. We've delivered results from it. But we've also built in the last number of years, a tool set around how do we really understand the unique value we bring to customers and how do we adopt pricing models in recurring revenue businesses and in our hardware businesses that aren't recurring, that allow us to capture that value. You see that on here is our value pricing tools. The powerful combination of the 2 of these has resulted in year-after-year growth in price realization that we have delivered as a company. You can see in here of the companies that have adopted these tools, we see 750 basis points of improvement in software and over 900 in our hardware businesses. This is the power of FBS. Another place where you see our tool set evolving and bringing tremendous value to Fortive is in innovation, how we deliver value to our customers. I hope you had the opportunity to spend some time on this out at the innovation showcase. But if you didn't, all you had to do was look at the products and services that were being showcased out there and all of them from the Tektronix 2 to 6 series to the Accruent software of lease management. All of those have been impacted and driven through this process that you see in front of you. This set of tools allows us to deeply immerse ourselves and understand our customers' challenges to innovate and come up with new and innovative ways to solve those challenges, it brings efficiency and prioritization to how we develop those and drive them through an efficient and effective R&D engine to how do we most effectively commercialize them in the market. This model of how we drive innovation is fueled by something we call the Ford, which is a centralized group that specializes in AI and machine learning and help supply those technologies and innovative new offerings that are being built across our operating companies. You can see on here the impact this has had from driving above-market growth rates in our companies to allowing us to accelerate our delivery of those products and services to our customers, to freeing up capacity so that we can put more of our engineering and resource effort into that early-stage work of uncovering new innovations that will bring even greater growth in the future. This is the power of FBS applied to product development and to innovation. Another powerful example of our tool set that underpins our ability to bring value to our customers is how we develop software. When we formed Fortive, we had a fairly basic set of tools around software development. Not all that tested and certainly not at the scale that we now have software in Fortive. The evolution of our portfolio required us to build out a set of tools in FBS that would really harness the investment and capability of our software development engines to develop and deliver more value to our customers. We now have a very robust and comprehensive set of tools here that span from how we help teams adopt agile practices to accelerate their delivery of features that matter to customers, to how we harness what I talked about with the Ford of AI and ChatGPT to automating parts of the software development process, as you see on here into the agile DevOps tools. They drive significant improvement in quality to our customers. They allow us to get out more value to our customers more quickly, and they reduce the costs under which we can do so. This is the power of FBS. I want to also help you understand some foundational tools that are broadly used in our company and one the best places to see them at work is in working capital. We have a tool set in the FBS toolbox called daily management. This connects back to what Jim shared around the discipline and rigor with which we drive results. Daily management is a tool set, but it's also a mindset and a philosophy. That we are focused on relentless execution to a target. We set our sights on something we're going after. And we put a set of standard work and structure in place that teams use to manage delivery to that target. We all know that things happen in the course of going after these targets. And what daily management does with the team is it brings them together, not always daily, but in a lot of instances, daily, but it might be weekly to take stock of where they are, but more importantly, to figure out what needs to happen to allow them to achieve the results that are expected in the future. If we are off track, it brings to bear rigorous problem solving. Where we get to root cause on why aren't we achieving at the level we need to, what needs to change to get us back on to the right trajectory to accomplish the outcome, those high expectations that we're after urgency, accountability and ownership. This is what is our culture at Fortive and allows us to deliver. If you were to walk through our operating companies, hardware and software, you would see daily management being used in managing working capital. Whether it's how we drive rigor around collections and ensuring that we're hitting our targets there to how we manage inventory on our manufacturing floors, you would see this rigor around targets and team showing up saying, if we aren't achieving it, what needs to change, who owns the actions and what are we doing about it. Chuck will share more of our working capital performance you saw in Jim's presentation it is an outstanding place to see the power of FBS and the financial returns that we have generated. Finally, let's take a look at our roots. The roots of our business system come from our manufacturing environment. We have learned in that environment that the rigor around standard work around a set of principles by which we operate all of our manufacturing plants can yield tremendous results. They have allowed us to deliver strong results through a challenging couple of years. The resiliency with which we have operated is due to our business system and the way we go about this. But what I want you to keep in mind as you look at this is these lean principles, we call that lean conversion applies broadly in our company. Everything is a process at the end of the day, and every process can be -- can benefit from better flow, better standard work, what people need at the point of the work being done and a clear scorecard of are we winning or losing. Our lean practices and fundamentals underpin the way we approach continuous improvement and the rigor with which we apply it to every business process. You see on here a call out relative to how we consistently that compounding effect of results in our manufacturing environment continue to allow us to drive improvement in productivity, a reduction in costs and increase in our inventory turns. This is the power of FBS. At the end of the day, FBS is all about 18,000 people showing up with the belief that we can be better that with discipline and relentless focus on execution, we will outperform. We have a proven set of tools in FBS, we have a set of fundamentals. While I didn't -- wasn't able to go through them all with you daily management that I shared as one of them. We have an expectation that 18,000 employees all know and live these fundamental FBS tools across the company to drive impact. We have proven the application of FBS to growth and innovation and how we accelerate our ability to drive growth in our businesses and how we bring productivity and cost reduction to any business process through our lean tools. All of this is enabled by our people. It's all about leadership at the end of the day. It's about leading through example. It's about building capability in our talent. So with that, we're now going to transition to a conversation about talent and how we truly drive the adoption of FBS through our talent and people strategy at Fortive. Thank you.

Good afternoon. So wonderful to see so many faces live and in person. It's not very often that we get together with such a big group these days. So delighted to be here. And importantly, delighted to share with you how we build talent, culture strategy to ensure that we make and deliver on our commitments with customers and shareholders each and every day. And of course, within the context of what I'm here to talk with you about I get to talk about the people who make that happen, which is pretty special. Hopefully, you were inspired and impressed by the group of people that you interacted with through the innovation showcase. I know we certainly are and that's a reflection, of course, of people who have been with the organization for long periods of time and people who are new to the organization and bring in unique capabilities something new, something different that's helping to not only enhance but accelerate our ability to meet results. When we started Fortive in 2016, we built on a strong foundation. That was a foundation that was built on our shared purpose that inspired us to accelerate progress in the world. It's a pretty incredible thing to do. Our shared values and of course, this deep belief and better. Building on our strength, we've continued to evolve not only our scaling capability, but of course, how we think about some of the pieces that are core cultural talents many of which Kirsten shared with you, inclusion, high expectations, transparency, humility, ongoing learning and a deep commitment in sustainability. With the same operating cadence and rigor that was described within our business context, we lead and manage our people strategy and execution each and every day. If you were to go into one of our operating companies, you'd see clear visual management on how we're approaching staffing internally and externally. With that same notion of solutioning in the moment and solutioning with daily management with that high level of accountability with leaders showing up with the passion and commitment to deliver distinguished results. You can see through some of what I have up here on the screen that we've really made fantastic and strong and consistent progress in many respects across these cultural dimensions at Fortive. We've recruited, we've developed, we've retained fantastic leaders as represented on the screen with our leadership effectiveness, which is now best-in-class top quartile performance. Those leaders have set big expectations for our people every day. That's created new and differentiated career experiences and growth opportunities and a career trajectory for our people and teams that I think is really differentiated in the external market. These folks have high visibility, high-impact roles. Oftentimes at early points in their career -- of course, with this notion of inclusion, you're oftentimes on quite a mix of -- or with quite a mix of folks with different levels of experience and tenure with the organization in a Kaizen events. Not only is it a great opportunity for learning, but it's also a great opportunity to develop sponsorship and mentorship as you think about developing careers. In an increasingly complex environment with enormous talent constraints that we're always working through and I know many of you are as well. We've developed this dynamic people strategy, and we've delivered on it consistently in a way that's fueling results today and positioning us to continue to deliver tomorrow. We do that through these cultural talents around high expectations, continuous learning, humility. Our people stay here because they're energized by the opportunities that exist to have big impacts in small ways and in big ways. And people who want to have outsized impact within our unique operating company structure has the ability to do that. They have the visibility to do that and they're empowered to do just that. Kirsten walked through many of the leadership development experiences that we have. One thing that we've also done in the last few years is really get to a point where we have digitized and made available FBS fundamentals and tools, learning opportunities for all our employees around the world. And so I think about this like democratizing and providing the skill development that's necessary to really fuel your career, apply those in kaizen and see not only business results, but great opportunity. It also allows for our talent to be fundable across operating companies. Many of us here today have been with the organization for many years, and we've had the opportunity to work across different operating companies, in operating company roles and corporate roles. And that's a core tenet and will be a core tenet to how we develop great careers with great people for the future. Let me make this a little bit more real for you. So you see behind me a couple of things. Our internal fill rate, which is really us filling roles from within our existing team has historically been a core component of how we think about culture continuity, application of FBS and of course, importantly, results. With the transition in our strategy as we stood at Fortive, we aligned our people strategy to ensure that we were going external and bringing in different skills, different capability, in some cases, better athletes than we had before to accelerate what we wanted to do. And of course, it was an imperative as we thought about our acquisition strategy in ensuring we have the talent to do just that. What you're now seeing in 2022 is our internal fill rate beginning to increase again. And that's the result of people moving into their second or third role after joining Fortive. And we would expect to see that continue to improve and grow as we think about creating this balance between creating great careers, ensuring people stay and are retained for continuity purposes, but importantly, continuing to infuse new and different and differentiated capabilities for the future. It's enabled us to deliver 4x the talent in health care and software. And I think importantly, because of that external recruiting perspective, we now are seeing tremendous results from a diversity and inclusion standpoint, improving on multiple dimensions of this in so many ways now at a benchmark level. Let me maybe be a bit more specific about this and bring this to life for you. What does this look like within our 18 different operating companies and our 18,000 folks? I thought a couple of examples might be helpful here. At Advanced Sterilization Products or ASP of course, a newer acquisition, a number of Fortive leaders moved into that business and a number of different functional areas, spaces and places. We also recognize that we needed to build a bench of talent within the health care industry. And so rather than focusing exclusively on these internal moves, we intentionally went to the external market to bring in great products, great commercial talent across the business and it's delivered the strengthening of bench that I referenced in so many ways and again, strengthened leaders there. On the opposite side of the spectrum, but all very important to our talent flywheel, we have Tektronix. It's a business that's been with us in our portfolio for quite some time. It's also a wonderful highlight of the legacy and the great work that Tami Newcombe did at Tektronix, where tech is a known exporter of terrific talent in fact, I can't think of a business within Fortive that hasn't been the lucky recipient of people that have been through multiple roles at Tektronix and have been exported into other operating companies to ensure they can take the next step within their career, some of which are in the room today. It's the consistency in which we can do this, both with mature companies, and with new companies and our ability to think about this balance between internal and external and how we bring new capabilities into the organization is important and how we think about the flywheel, the culture continuity, as I said, and importantly, business results. So as I close, a few final thoughts. We feel confident in the work that we've done around our people strategy and execution with strong and sustainable improvement across culture, across our capability and, of course, our talent. Our ability to accelerate careers uniquely positioned and fueled by the Fortive Business System. In addition to great career opportunities, helps us to deliver better outcomes for customers and better results for shareholders. In an increasingly complex world with talent constraints, this dynamic and agile people strategy is fueling results for today and for tomorrow. I appreciate your time today and look forward to questions later. We'll be transitioning to talk more about sustainability and the importance of that, obviously, to the global communities in which we work and live we'll get started with a video. Thank you. [Presentation]

Ladies and gentlemen, please welcome Pete Underwood.

Thank you. Thank you. Well, good afternoon, everyone. I'm Peter Underwood, I'm Fortive's General Counsel, and I have the privilege of leading our sustainability effort. I'm excited to talk to you today about some of the things that we're doing to make the planet a better place, to make our company more valuable. I want to leave you today with a better understanding of 2 things about Fortive. Number one, how sustainability relates to Fortive's business strategy; and number two, how our culture of continuous improvement and the rigor and power of FBS have led us to make extraordinary improvements and progress and how they drive our ambition to do even more in the future. From the standpoint of strategy, the primary way that sustainability attaches to Fortive's business strategy stems from our strategic decision to align our portfolio in markets with strong secular growth drivers. You heard Jim talk a little bit about this, this morning and you're going to hear a lot more about it this afternoon. But a lot of these secular growth drivers that we talk about have their roots in sustainability. And by aligning our portfolio to take advantage of that, we are able to harness these tailwinds of sustainability across almost all of our workflows. Perhaps the best example is our EHS workflow, where our operating companies, Industrial Scientific and Intelex are taking advantage of the global trends of digitization and the emphasis on workplace safety to provide hardware and software solutions to their customers to allow their customers to manage workplace safety and workplace incidents, and to allow their customers to gather and analyze emissions and other environmental data so that they can pursue their own sustainability objectives. You can see it in the perioperative workflow where the global trend around aging population and the corresponding secular driver of the need for patient health and safety or you can see it also in the connected work -- connected reliability workflow with the transition to renewable energy and the focus on energy efficiency, which are driving growth and profitability for our company. All told, currently, over 60% of the revenue that Fortive generates is derived from the sale of products and services that contribute to sustainable outcomes for our customers, that are aligned to the UN sustainable development goals, that are backed by these sustainability megatrends and that are enabled by our strategic positioning in these markets. We expect that 60% number will do nothing but grow over time as we think these megatrends are here to stay. So in addition to that positioning, you heard Stacey just talk about this earlier. Our business strategy is great and having conviction in our strategy is even better, but if you don't have the culture and the people in your organization to execute on that vision, you may have an issue. Thankfully, for us, for Fortive sustainability and who we are as an organization mesh almost perfectly. You heard Jim talk earlier this morning about our shared purpose, essential technology for the people who accelerate progress. That means that we are a company of problem solvers. We're a company of engineers. We're a company of thinkers and innovators. We're a company whose goal and objective is to provide solutions and innovations for our customers so that they can go out and make progress in the world. They can move the ball forward. And since so many of what of the progress, so much of the progress that our customers are seeking today revolves around solving some of the world's largest sustainability challenges, we are filled with just the kind of people that can help them do that. So with that discussion on strategy, I want to turn a little bit to the evolution of our sustainability effort just like everything else about Fortive, our sustainability effort can be characterized by continuous improvement. When we started as a public company, we started with a strong foundation of operating companies who are doing great things in the world and great things for their customers but we recognize that we needed to make progress. And so we did things like applying FBS tools to our processes. We refined our sustainability governance structure to make sure that we were aligned with our goals and objectives with our Board of Directors and with our operating companies. And then we executed. This relentless execution and focus is apparent now in the improved quality and content of our sustainability reports, the next one of which, by the way, will be out next week, June 5, on our website. You can see it in our step-by-step alignment to recognize reporting standards, which provides us with the transparency and the clarity to allow our investors to evaluate our progress and hold us accountable for our commitments. You can see it in the significant number of awards and recognition that we're getting from outside providers, you can see it in the increased scores that we're getting from ratings providers, whether that's our improved scores in CDP or our current AA leader rating from MSCI which is recognition of our leadership position in sustainability among our peer group. But perhaps most importantly, you can see it in our increased ambition. We've joined the UN Global Compact. We've aligned to the SDGs and we are increasingly putting out stronger and stronger public sustainability goals so that we can hold again ourselves accountable to what we want to do to make the world a better place. So where are we today? So where are we today? I want to start with this idea that we have 5 pillars on which our sustainability efforts rest. We talk about all 5 of those pillars in our sustainability reports, we will again in the next one. I don't want to spend a lot of time on all of them. But I do want to point out a couple of things we're doing in a couple of these pillars because I think they're illustrative of the type of progress I'm talking about and relentless execution. I'll start with our pillar on protecting the planet. This was the place that we announced our very first public sustainability goal back in 2019. It was an intensity-based goal to reduce our carbon emissions, and it was a goal that we met well ahead of time, and we announced another carbon emissions goal at our Investor Day in 2021. An absolute reduction goal of our Scope 1 and Scope 2 carbon emissions by 50% by the year 2029. That's a goal aligned with the science-based targets initiative. It's a stretch goal. What did we do to reach that goal? Like we do everything else, we applied the rigor of FBS. We established KPIs. We put together standard work so that we can gather the information required that underlies those KPIs. We used Kaizen for our environmental impact assessments. We use Energy Kaizens to discover and uncover GHG emissions reduction projects. And we standardized the GHG project design into our budgeting process. In other words, we standardize around FBS and the way we operate so that we speak a common language with our operating companies and so that we reduce the friction for them when they go out to try to execute against this goal. This combination of the use of FBS plus our use of the sustainability -- of the Intelex sustainability management tool has allowed us to achieve already a 20% absolute reduction in our carbon emissions from our 2019 baseline. And that is even giving effect to the tremendous organic growth and financial performance that we've had in that period. So we're well on our way. We're excited about and confident about our ability to hit that goal timely. We're not done. We recognized more to do with respect to protecting the planet. And so today, we are announcing that we have a new goal. We intend to reduce our overall water usage in Fortive by 10% by the year 2029. And we've done extensive work to understand where our water risks are the highest, and therefore, where we can have the greatest impact with conservation measures, we intend to focus our efforts in that area. I want to briefly also talk about responsible sourcing. This is another one of our pillars and another place where we've made great progress. As you know, we're a large and complex company with multinational opcos. And as a result, our supply chains can be large and complex. We long ago recognized the need to have to apply FBS and to have a risk -- supplier risk management tool that can help us mitigate those supply chain risks. And we have that proprietary FBS oriented tool and we have for many years. But in recent years, we've applied sustainability-related criteria to that supplier risk management tool to allow us to identify those suppliers that are the highest risk from a sustainability perspective so that we can ensure no human rights abuses like forced labor or trafficking exist in our supply chain. We use that tool to identify those suppliers. We put them through a rigorous sustainability audit with the goal of achieving 100% of those higher-risk sustainability audits every given year. We're also leveraging our purchasing power to give diverse suppliers a greater chance to compete for and to win our business. To hold ourselves accountable there, we've established a goal that we will spend at least $100 million annually with diverse suppliers by the year 2025. That number represents 10% of our current spend in North America and about a 25% improvement from when we started this program in 2020. It also has the added benefit of more localized supply chains and in giving us even further supply chain risk mitigation. Before I close, I want to say something about our 18,000 employees whose spirit of generosity and optimism animates our company. We do a tremendous job of giving back to the communities, and we do that primarily through our Day of Caring. We started the Day of Caring on our inception. We've run it every year since. All told, we've contributed over 150,000 hours of community service to over 150 communities worldwide. We're incredibly proud of that work. We understand the position that we're in and the responsibility we have to give back and we believe strongly that we're doing a great job at it. So to close, we have the strategic positioning to capitalize on the sustainability megatrend. We have the mandate given to us by our shared purpose to innovate for our customers to provide solutions to the world's greatest sustainability challenges. We have the ambition through our culture of continuous improvement to set the bar ever higher. And we have the tool set in FBS to allow us to achieve those objectives. We're excited to continue on this journey and to continue to provide both value and impact to all of our stakeholders in the years to come. Thank you. I invite the rest of the team up for Q&A. Thanks.

All right. So as a reminder, this will be our first Q&A session with our first half presenters. So who wants to open it up? I see Scott Davis, front row. First hand up. Here comes a mic.

Hello. Thanks for doing this, folks. It's been a while. I appreciate it. Trying to get a feel for what traction was lost or not lost during kind of COVID as it relates to Kaizen. And are you now kind of playing catch up, if you will? And where are projects really focused? Is it similar pre-COVID? Or is it more sales marketing, stuff like that?

Well, maybe we'll start, and I'll give to Kirt. Number one, I would say, we were incredibly proud of the virtual efforts that we did during COVID. But I think we all know and in-person Kaizen activity is much better than virtual Kaizen. So we've really accelerated. I think we had a record quarter in the first quarter of this year in terms of the number of events we did. And quite frankly, there were big events, too. So I think in that standpoint, that's kind of a little bit of the history and maybe talk a little bit about what we've seen in terms of balance.

Yes. I think it's important to remember, right, we continue to manufacture and keep those facilities up through the pandemic A lot of our tension there was spent on managing our spikes and bar rooms daily management to weather through those conditions. I think Jim has stated it well, we brought Kaizen back with rigor to in person. So we'll have our biggest year ever on sort of Kaizen activity, certainly since the pandemic. We actually did a lot of growth and innovation work through the pandemic virtually, but we have found that there is power in being together for collaboration for creativity. And so I would say the work has continued, the intensity has gone up. And we've also brought a lot of our daily management that had to exist virtually back to physical spaces where teams can do more real-time problem-solving versus having to engage somebody in a Zoom or a Teams call in order to get an answer or to move things forward. So acceleration and speed with which we can do things and a rigor of Kaizen that in-person allows us to accomplish.

Okay. And just as a follow-up, I'm not familiar with the term lean portfolio management, maybe I should be, but I'm just not. Is it -- is 1 way to think about it kind of like an 80-20, is it a simplification and as it relates to SKUs? Or is it maximizing kind of the product mix around pricing power and margin other things. Just maybe if you could dumb it down a little bit for us, it would be helpful.

Yes. So it's all of the above. So the foundation of lean portfolio management is, remember backed operating cadence, our strategy. Now do we drive our strategy into the product development decisions we're making informed by some of the things you brought up, the 80-20 in terms of where you're making your money, your profitability of your customers, what does sustainability -- sustainment of a lot of the products that might be getting older SKUs and the support that they require taking a critical eye to those. What lean portfolio management at its core does for our leadership teams consistently across our hardware and software businesses is it requires prioritization and relentless choice, right, relentless execution of choice relative to strategy and financial performance. Where are we putting our attention in energy? Is it yielding the financial outcome that it should for the investment we're making in product. That's what lean portfolio management does. It's done with a monthly cadence in our businesses.

Scott, I would just add that when you think with that frame that Kirsten has in her slide of Dream, develop and deliver was that -- it's really end-to-end product development process that we would have. And that came from the prior -- in our prior lives in Danaher. What we've really changed is that dream phase. And as Kirsten said, the ability to do all those things, our partnership with Pioneer Square Labs, the work we've done -- the work we've done with benchmarking a number of companies, technology companies, software companies in the early days of Fortive has really, really made the whole process great, but it's really helped us be incredibly more productive, but using experimentation to really deliver some real great innovation, some of which you saw out on the floor or we'll see out on the innovation showcase if you haven't had a chance to walk around.

I see. So Andy, we'll take Andy, and then we'll go towards the back.

Maybe this question is for Stacey. Like how long does it take to teach FBS in the sense that like when I step back and I look at the 3 segments, right, you have a big amount of external fill in ASP. And so from the outside, we see a little bit more margin variability in AHS over the last couple of years. And so it's just interesting to notice that it seems like that business maybe has had more external higher. So does that mean that maybe there's more opportunity as you go forward in the overall segment, given there's more external and now those people kind of mature in their roles, if you.

Well, first of all, I've been with the organization for almost 18 years, and I'm still on my learning journey. So I don't know how long it takes to learn because it doesn't end. And so that continuous view to something always getting better and the way in which we think about both the learning and application of FBS is a really important part of the culture and a really important part of that relentless view. In terms of ASP specifically, I think it's important to note we infused that organization with a number of people and leaders across Fortive, and they were the recipient of that. Kirsten and her team as well spend a lot of time within the business, working to install and deploy tools, helping to coach and guide teams and then, of course, being available for phone a friend when the there's a particular opportunity to have bigger impact. I do think that as we now begin to focus more on internal promotions, we'll see more pull-through and more impact within that business just based on people understanding and seeing the real impact of Kaizen and of course, the power that, that can have.

And Andy, maybe just I think a good example is, obviously, the pandemic had more to do with the top line than anything else. But one of the things that the team did a great job of, I think we've reduced working capital in that business, $80 million or something like that over the last year. So one of the reasons why the cash on -- cash returns are so good in ASP is the application of FBS that really happened in the working capital side of the business.

And maybe I could just ask about AI because it's the topic of the day. Like, so how has the Ford evolved? Or how is it evolving now? And how could it accelerate your strategy, particularly around things like incremental margin?

Well, I think one of the things we've tried to emphasize with everybody and one of the reasons why we've got the example of the Ford out there is that 5 years ago, we thought machine learning and AI was going to be really important to our solutions and also in the back office of how we drive productivity. So we've had projects for half a decade now that have been doing a lot of those things. A lot of emphasis on ChatGPT now and generative AI, obviously. And that's just going to accelerate some opportunities. We're doing some things in the FBS office to apply. I've always said that 1 of the great opportunities in the future is we do a lot of problem solving. And as AI continues to develop, it's going to improve our problem-solving capability. So I think those are just a number of places where we've seen so far. But I would definitely say we were together as a leadership team yesterday and one of the topics on the agenda was how we apply AI to more of our back office processes and things like that. So I definitely think we're in the we're in the early innings, we may be in the first or second inning of this opportunity for us. And the good news is we've been building our capability that we really started 5 years ago. This is not a cold start for us whatsoever.

Just to kind of connect it back to the lean portfolio management, they're an accelerant to what we can do in the Dream phase, right? They come to the table to bring those innovative ideas that we have that are fueled by machine learning or AI to reality much faster for teams, and that's how we leverage them.

All right. Julian?

Maybe just a first question around the workflows. They're broadly the same but with some tweaks from what you talked about 2 years ago at the Investor Day. So maybe help us understand kind of what changed. And also the TAM is substantially bigger. I understand inflation would push out any TAM, but it's probably a little bit more than the rate of inflation, what's happened there. So help us kind of understand that. And just in the very short term, I think, Elena, you mentioned the sort of guidance reiteration. So any color, Jim, on things like orders and just how you're seeing the environment right now.

Yes. So I would say, number one, Julian, I think we've gone over the last couple of years around a $40 billion TAM. So we're up at $60 billion. So as you said, it's really about the market work that the teams have been doing through our strategic plans. We have a disciplined process around adding available market to that, particularly publicly. So through the strategic planning process, we sort of validate those opportunities. And I think it speaks to the power of the workflows that as we do one thing, we see 2 more opportunities. And to the words around the workflows, I think we might have a word or 2 different, but we're really talking about the same 5 connected workflows. We'll certainly get into a lot more detail in the segment presentations, so I'll save that for it. You'll see a few other workflows on some of those slides, but they're really not the connected workflows. So the 5 that we really talk about and are 85% of the revenue base are the ones that we really believe have that hardware, software, data analytics opportunity that's well defined, and we have a good position in. So just to put some clarity around that. Relative to -- obviously, we affirm the guide today. And it certainly speaks to consistency, like I said at the opening. We'll get to the end of the quarter to give you every detail in every little place, but I think as we look at -- certainly look to the quarter and look out to the year, the things that we continue to talk about, and you'll hear in the segment presentations, but to bring back some of the things I said, our revenue growth continues to prove to be durable, software businesses continue to do well. Our recurring -- other recurring businesses are doing well. We think we accelerate in health care in the second half. So a number of those things are all going to be the things that are -- and then the backlog position that we have. All of those are going to be the same things we talked about of, that we've talked about several times. Those are consistent and embedded in the comments that we made about the quarter and the year.

All right. Next question, Deane Dray, and then Josh, you'll follow.

Jim, I want to go back to Slide 12 where you show the mix today and the increased durability. There's a big chunk, it's half, that you say are nonrecurring products. But I get a sense that you're selling yourself a little bit short there because a number of these have to be repeat customers, customers that would be buying the next generation oscilloscope. But can you maybe give us some more context of that because that's half the revenues, repeat customers and so forth.

Well, I think first of all, that chart had none of the left side of the slide a few years ago. So the first emphasis would be it's from 0% to 50% in a short period of time. So I think that's -- but specifically, to your question, you're exactly right. People are going to repeat buyers on all of the hardware businesses. They're in that 50%. We've attached secular drivers to those businesses, so they're much more durable. So as an example, as you mentioned, a Tek oscilloscope really applied to power challenges, Tami will talk about this a little bit. That's a real secular driver right now, and it's going to -- certainly, if NVIDIA's commentary yesterday about data centers is anything, it was a big customer of ours, that's just an opportunity for us. So you're exactly right. Those kinds of things -- the solar tools you see out in the innovation showcase, another great example at Fluke, where we're playing in into a trend that we think is going to be certainly sustainable through the macro environment. So yes, our intentionality was to, one, show the recurring side of it but also to talk about the fact that -- and you're certainly going to hear this in a few minutes -- is how well those hardware businesses are aligned with some really nice drivers in the years to come.

All right. Josh?

Kirsten, I wanted to follow up on your pricing slide. Some good detail in there on '22 but, with just so much of price inflation everywhere, maybe not kind of a perfect snapshot. Any sort of before-and-after time line that you can give us on how that management of price leakage and value pricing has trended over time?

Yes. We have delivered consistent price depreciation in our businesses. One way, right, as I emphasized that we get that, is through cutting off the leakages for the price that we set, so not giving it away in discount, et cetera. But there certainly has been a trend out there of gaining prices. We've seen inflation and interest rates, et cetera. But we have more than outperformed that in the price that we've been able to capture through really understanding the value that we bring to customers and pricing accordingly. And I would say it's been the last sort of 3 or 4 years of real focus on moving the price needle consistently year after year.

And Josh, I think when you look at our gross margins, right, 75 basis points per year every year over the last 4 years. I know that a lot of companies have put in a lot of price, but I'm not sure many of them have gotten that kind of fall-through on the gross margin front. Some of that is business model, obviously. Some of that is FBS. And the other part is the rigor and discipline around value creation that we've had on the innovation front that allows for us to maintain that price.

Is there sort of a framework that we should think about in terms of price cost productivity for Fortive over the last few years versus how you're thinking about it through the '28 plan?

Yes. I mean we've always been ahead -- we, I mean, historically have always been negative in material cost reductions every year. That's always been a tailwind for profitability. And we've been generally, I think, a little bit ahead of most, in the 1% to 2% price range. Without getting into too much detail about what '24 might look like, but we might get back into that range with maybe a little bit more price now. I think the opportunity now from a value creation perspective -- when we talk internally, we really talk about value creation and the opportunity. And as Kirsten said, some of the innovation work that we're really doing is really allowing for us to really capture more value with customers, and that manifests itself in better price.

All right. We have time for one more question. Joe in the right.

Kirsten, I just want to ask a little bit more about FBS. And if you talk about what are some of the common threads you hear from sort of acquired targets or people you brought into the organization where you're talking about you have common tool sets, these aren't unique tool sets, but they're applied in ways that have some unique outcomes for Fortive. And if you can talk what it is that you hear from folks who have come in where they say we're familiar with the tools but the way they're being applied is generating outcomes that are just different from what we've seen in other organizations.

Yes. I think we consistently hear about the rigor and the discipline with which we apply these things. That's not just an expectation, it's how we show up to help these businesses. So we're very purposeful when we acquire a company. We have something very unique to our company called immersion process that we run for newly acquired leaders in the company of how we bring them into an understanding. We have the wealth of our portfolio, right? You can go to another operating company and see the power of FBS. You can talk to other leaders. And we are unique in that we help each other across our portfolio, right? We call it wearing the Fortive hat. But newly acquired businesses get the benefit of all of that and their ability to adopt it pretty quickly. I would say that the thing we consistently hear, Kaizen isn't unique to us. And so we'll have companies that come into the fold that are like, "Well, we do Kaizen." Well, when we start to peel it back and we engage in Kaizen with them, what we realize is, well, they were doing Kaizen to come together and create a plan. We don't use Kaizen to create a plan. We use Kaizen to create impacts, to actually move things, to create value out in the marketplace for customers, to test new ideas, to come up with innovative new solutions. And the thing that we consistently hear back is, wow, the depth that you go to and the getting to actual impact and results and ensuring that we compound that over time is unique to us, and we help acquisitions come up that learning curve and get to that point.

And the sustainability, right? I mean the 30 -- one of the things we have is a very disciplined 30-, 60-, 90-, 180-day sustainability look-back on the Kaizen event itself. And so it's not just -- a lot of companies will get the benefit, even ones that have maybe evolved a little bit will get the benefit from the Kaizen. But as Kirsten said in her presentation, that's good, but if you don't sustain it, it's kind of a waste of a week. So at the end of the day, it's about sustainability. And the disciplined approach we have around sustaining those improvements is really where, in many respects, the secret sauce is.

We recognize great performance at the time of Kaizen. We have a joke in our company, we have a cardboard trophy. It's actually not a joke. It's a reality. We give a cardboard trophy at the end of a Kaizen. Why? Because the real testament of success is sustaining those results over the long period, to make the improvements we made, the way we operate and how we deliver results. We will issue the final trophy at the 90-day or whatever that mark is that we agreed to. We care about sustainment tremendously in our company.

Pete, you have...

Well, I'll just say, as I think it beats mentioning that, yes, there are a lot of foundational tools that are out there that are similar to other foundational tools, and the way we apply them is very different. But there are also a lot of tools that have been built and developed over the years by the teams that are fairly proprietary in the sense that we take things like growth accelerator, so we take programs and we build on top of existing FBS tools. I mentioned in my conversation of our supplier risk management tool, that's something that we would consider a proprietary tool. It's been built with -- it's now a part of FBS, and it's been built with FBS processes. So I just don't want to lose the idea in here that there is actually -- yes, there's -- yes, everybody does Kaizen, everybody has an X Matrix, whatever you want to say, but there's a lot of pretty unique tools in there as well.

Talk about the guy who defends that on a regular basis.

It's our intellectual property.

Thank you all for your participation. We're going to come back at 2:45. You can enjoy the showcase, grab a beverage, and we'll see you back here in a few minutes. Thank you.

Thank you.

Thank you. [Break]

Ladies and gentlemen, please make your way back into the room. We are going to begin in just a couple of minutes. Please make your way back into the room. Ladies and gentlemen, we are going to be starting in 2 minutes. Please make your way back into the ballroom. We will be starting in 2 minutes. Thank you very much. Ladies and gentlemen, please welcome to the stage, Tami Newcombe.

Welcome back. Thanks for coming back. It's wonderful to see a few familiar faces in the audience with us today. As Jim shared, my expanded role includes the leadership of the Advanced Healthcare Solutions segment. Prior to Fortive, I worked in the enterprise networking space, where I had the opportunity to engage with a number of CIOs in the largest U.S. health care organizations. So as I've been accelerating into my Q3 start, I've already started to see a few connections from my prior experience. AHS holds leading positions in the attractive health care markets. Our solutions enhance productivity and safety. Simply put, AHS is making a meaningful difference in patient care delivery. We have a deliberate focus in 2 workflows. The perioperative loop Jim highlighted as one of our 5 connected workflows. This is the workflow between the operating room and the sterilization department. We're going to spend some more time in this workflow today. There's another workflow in AHS. It's the biomedical safety and compliance workflow. Here, we are a leader in ensuring life-saving medical equipment keeps our patients and health care workers safe. The 2023 outlook for this segment is $1.3 billion, mid-20s profit and 70% recurring revenues. The secular drivers we see around us, it's an aging population. It's a shortage of health care workers and a very complex health care system. So let me share the progress on how we constructed this segment. So we started with our end goal. We wanted to be in resilient markets. We were looking for businesses with high recurring revenues and strong margins. The starting point back around 2017 was $170 million no recurring revenue and only about $1 billion in market runway. The Landauer acquisition gave us a leading position in quality assurance devices and dosimetry. It was margin accretive and started our recurring revenues. The next 3 acquisitions created the perioperative connected workflow. ASP is a pioneer, a leader and an innovator in low-temp sterilization. The majority of ASP sales are recurring consumables. Censis complements ASP. It's a software platform that digitizes and automates the tracking of all the surgical instruments in a hospital. They're working with the same persona in the SPD. They've actually had a long-standing relationship with ASP. Next, Provation provides a clinical workflow automation. It's really a -- it's domain knowledge that they've accumulated over the last 2 decades that they provide to nurses and doctors to increase their productivity in a specialty procedure. Today, AHS is poised to take advantage of what we see as a mid-single-digit plus marketplace with a $10 billion runway. And we're not slowing down. Our strategy builds on these leading positions. Our customer success teams and clinical education teams are working with customers to increase their utilization. Customers use the product more, they understand the features. This allows us a very natural upsell and cross-sell opportunity. There's also an expansion opportunity that exists with our existing solutions. How do we open doors for each other to introduce new customers? ASP's strong position in the SPD will benefit Censis. Today, only about 50% of the hospitals in the U.S. use a platform that is automated for tracking of surgical instruments. The other half are still doing it manually. It's a great opportunity for the 2 of them. Innovation. You heard from Kirsten, we know the FBS growth accelerator works. And we have a proven set of tools and a strong funnel here to create more customer -- create more value with our customers. But we can accelerate, we can also accelerate through partnerships, partnerships that are complementary from a technology and a go-to-market. The takeaway here is we have multiple growth vectors for us to capture our unfair share of this $10 billion market space. Let's explore deeper the perioperative connected workflow. So there's 2 different personas in this workflow for us. ASP and Censis create value for the sterilization process department. But these 2 settings meet in the surgical procedure. And that is where Provation enters the picture. But as I've stepped into the role, I've had a lot of time with customers already. It's been fantastic. And I wanted to hear from customers directly, like what is the competitive differentiation? What is this that you see in ASP? And there were themes that I consistently heard. ASP is recognized and known as a pioneer in low-temp sterilization. They also talked a lot, and you may have seen it out here in the innovation showcase, the all clear software that rides on that STERRAD machine that allows for software upgradable processes they can add to the machine. The only one in the industry that can do that. So ASP is constantly working closely with the OEMs of the devices that go in there. And when they know they have a better process, customers can take advantage of that upgrade path. They also talked about their service technician from ASP. They referred to it as my, my technician. You know that customers have a lot of passion when they speak like that. And it's because the service technicians, they know these solutions extremely well. Our portfolio is focused and they build lifetime relationships with customers that can help us on-site drive that education and that utilization. Now the intersection with the Provation in the operating procedure. This software focuses on the clinical workflow and anybody who got to talk to the team over there Provation knows it's much bigger than just a cloud offering. It's the knowledge base. It's the intelligence they've accumulated over a couple of decades that they can deliver directly to nurses and doctors through this platform. Now my expectation is this platform is an 85% recurring revenue in this perioperative workflow. And across this workflow and these acquisitions, we are leveraging FBS to go faster. I'm going to show you 3 stories. So ASP is well positioned for growth as elective surgeries recover this year. Despite the macro challenges that we've had the last few years, we've continued to make significant progress. ASP is expected to deliver mid-20s profit margins in the second half. And for this year, we'll be a high single-digit ROIC. As I've stepped into the role, my confidence is very high that our thesis is still intact. ASP is a leader, a pioneer and an innovator in this space. The market has strong secular drivers. Just this year, in the United States alone, more than 350,000 people will leave surgeries and end up with infections. There's still more work to be done. And I'm ready to get started and show up all this great work at ASP. Censis. Cloud-native products used to track surgical instruments across the entire hospital environment situation that they had. Getting to revenue means installing and getting a site up and going. And their sales team was outpacing their implementation team. So they are at the crossroads. We could add more people or we could take the mindset that a process that has worked for years could even get better. And this is where this culture comes in of believing you could find another way. The Kaizen results, you see them here in the chart. Site implementation, the jump-off point or JOP started at over 400 hours. And over a series of days, this team pushed and figured out how to do it in 150 hours. This allowed the Censis team to realize a 20% increase in their speed to subscription revenue and they're continuing to go after that customer white space and add more orders. Provation. They've launched the Apex cloud like every SaaS company before Provation, they have the challenge of getting their really happy customers that have their on-prem solution moved into the cloud and they had to figure out how to prioritize where to go first. So the team used value stream mapping, customer segmentation and creating unique value props as they prioritize those that would move to the cloud. From the first members, the health care institutions that have-cloud strategies to the laggards. Now the win-win here is those customers that we move to the cloud get almost a continuous delivery of innovation. And for us, it's increased revenues and margin expansion. So I've shared a few ways that FBS is helping our acquisitions in the perioperative loop workflow go faster. So this segment was built for durable growth and margin expansion in the resilient health care marketplace. We're executing on our growth strategy, to get after this $10 billion market runway. We plan to bolster our workflow positions. We have several options to accelerate our strategy. Continuing to drive productivity and safety. How do we get it done? It's through FBS. I'm energized about the opportunity ahead for all of us. We have strong secular drivers, truly meaningful work in the evolution of patient care delivery. If you've been in hospitals lately, it's not getting easier. It's more complex and they have a shortage of people. We're going to execute on our value creation formula. My expectation is this segment will be $1.7 billion and 30% profit margins, and I look forward to sharing our progress along the way. Thank you. Before we transition to Precision Technologies, I want to share with you how electronics and sensors are changing the world. [Presentation]

The future is bright in Precision Technologies. PT is in the center of the proliferation of electronics and sensors enabling a more intelligent and sustainable future. We're enabling renewable energies. We're enabling faster connections to more power-efficient data centers. We're enabling massive compute for AI and augmented reality. We're enabling electrified mobility. And we're enabling a better quality of life with robotics, medical devices and remote surgery. Our focus remains on 3 workflows, product realization, sensing technologies and energetic solutions. The product realization workflow today is synonymous with Tektronix, a global leader in the test and measurement of electronics. Tech is well positioned to capitalize on the $1 trillion semiconductor market that is expected by the year 2030. We see, I think all of us see the electrification of almost everything around us. Sensing Technologies Group, sometimes we refer to that as STG, includes trusted brands with know-how, application know-how and domain expertise to enable their customers that live in regulated and critical environments. The sensing companies, they have passed the test of time. They've proven resilient and they are significant contributors to our free cash flow. The PT financial outlook for 2023 is $2.1 billion in revenue mid-20s profit and 24% recurring revenues. The 3-year CAGR has been a high single digit. Now with COVID behind us and supply chain more predictable, knock on something, I expect PT growth to normalize to a consistent mid-single-digit grower. In PT, we enjoy a globally diversified customer base with no market more than 20%. Directly or indirectly, many of the opcos in PT are exposed to government stimulus plans and reshoring. My goal over the next 15 minutes is to bring to life our proven formula for profitable and durable growth in this $20 billion market space. We've got a proven formula. And this proven formula has been delivering profitable and durable growth with expanding margins. We're winning in our core markets by expanding in the product realization workflow, going into new end markets, adding sensing modalities and geographies. And we can bolster our positions, partnerships, complementary technologies and go-to-market synergies. We are leveraging AI and ML in the innovation work that we're doing. The Fort has been spectacular in helping us think about how do we take the data that we uniquely know and be able to deliver faster insights to our customers. Our flywheel is accelerated by FBS and a continuous improvement mindset. We have multiple years of price realization, exceeding our targets, and that will continue. And we have a large manufacturing footprint, lean and continuous improvement in that environment is very important and will continue. So now I'd like to explore the product realization connected workflow, 1 of the 5 that Jim spoke of earlier. So in product realization, we've been working to diversify across the workflow and across the end markets. Our goal is to deliver consistent growth in revenue and margin. In the workflow, Tek's routes are instruments with an advantage in R&D. But we have a new persona, the engineer that's come out of school in the last decade. That engineer wants our hardware advantage and our performance, but easier to use tools, easier to program, open source, Python and cloud. Automating testing with software solutions by providing access to our great hardware. That's how we work across the workflow. In addition to workflow diversification, end market diversification, I talk about electronics being everywhere. Think about the shift from the combustion engine, not a lot of electronics to electric mobility. And that's mobility of everything, planes, trains, vehicles, bicycles. Think about factories that have been powered by humans that are now going to be powered by automation and robots. Our energy that has come from oil and gas and now from solar and wind. We have end markets that are shifting from no electronics to an abundance of electronics. So how do you scale to all of these new end markets, solve a common problem that's happening across all of them. That common problem is power efficiency. Within Tek's $13 billion available market, there is a multibillion-dollar opportunity growing at high single digits. This is the Holy Grail of solving for power efficiency. Everybody in this room wants your batteries on your devices to last longer and use less power. We want our electric vehicles to have more horsepower, but to also go faster. You heard from Pete, we want a more sustainable world. We want our factories and our data centers to use less energy. So the whole blue section on this slide are all the different end markets that are challenged with these power efficiency problems to solve for. And Tek has a unique, sustainable competitive advantage, a combo punch in this space. It starts with the portfolio of Keithley, precision power instruments and our high-power probes. Our new platform of oscilloscopes. We talk about the low noise and the frequency range. What that means to an engineer is they can see really small signals when they have these power challenges. And then there's these decades of measurement know-how that we can deliver out to our engineer in the form of applications. Solving the power efficiency problem is how Tek is scaling and diversifying across all of these new and different end markets. So let's hear from our customers. My first customer story is the block around testing electric inverters and motors. This customer is a recognized innovator here in the U.S. for electric vehicles. Their challenge is delivering the next generation of electric motor that has more horsepower and less battery drain. Those are in direct conflict. After an extensive evaluation, this customer has standardized all labs on the Tektronix solutions and expect to deliver breakthrough performance. My next customer is the wind generation. They design and manufacture green energy solutions from solar panels to EV chargers. Although this is a very different end market from electric vehicles. They have selected Tektronix and standardized on Tektronix through the entire workflow from R&D through validation into production. Great workflow story also tied to power. And my last story, it's a combination customer story, and I talked about partnerships to help us go faster. So this customer is a leader in semiconductor technology. And the technology that is enabling all of these end markets is called wide bandgap. And the commercialization of wide bandgap, we're on the cusp of that right now. It's fueling this $1 trillion semiconductor market. And so not only are we helping this customer bring semiconductor chips to market, we've worked with them to build out a developer kit that together, we can take out to our customers and allow our customers to go faster on their product innovation. So these customer examples demonstrate electronics everywhere are creating these power efficiency challenges and Tek can uniquely solve. Tek continues to increase customer value. The customer is in the center of every single thing that we do. Connect. Connecting to these devices could be a real challenge. Super high power, really small. And our probing technology, which you should have seen in the innovation center allows you to connect to either tiny devices or high power and it's the ASICs, which are application-specific devices that we custom design and patent that go into those probes. Our instruments, long known as a hardware advantage. On that piece of hardware is 75 years of know-how in solving measurement problems, we codify it and we deliver it as software. You can buy it on the scope together or you can upgrade afterwards for specific power applications or compliance applications. Test automation. That's a place that we're investing. That's where the next-generation engineer wants the capability to have Python scripts and open and reusable code. And our global service network, over 1,000 technicians all over the globe that provide OEM trusted quality in service to all electronic test and measurement vendors. Tektronix was one of the first to install the FBS growth accelerator back in the beginning, and we will continue to fuel that innovation. Here's a story about innovation. We saw the dream part of LPM, or Lean Portfolio Management. The first gate is finding a problem worth solving. And with some of the tools that Kirsten provided, we get 70 partner and customer VOCs. We learned that engineers wanted to take that bench top performance out to the field. They did not want the constraint of a lab, but they wanted the same great performance. They wanted the same great user interface, pinch and zoom intuitive. They also had new expectations for cloud collaboration and remote access. So the MSO 2 Series has doubled our served market for this class of instrument. The form factor can fit in my purse. It's battery powered. It's got the expected performance and usability of Tek oscilloscope and it still allows for the pinch and zoom iPad-like user interface. This also connects to TekCloud to allow for global collaboration. So innovation is core to how Tek is creating a future of profitable and durable growth in this market with a $13 billion runway. Speaking of cloud, it's a good shift to talk more about the proliferation of sensors. The sensing technology group consists of industry-leading brands, Qualitrol, Gems, et cetera, Anderson-Negele and Hengstler-Dynapar, they've been trusted for their applications expertise and their domain knowledge in regulated and critical environments, verticals. We are excited about the multiple growth vectors that we can capitalize on and take advantage in these verticals. I'll give you a couple of quick examples. The Sensing Tech group, they've come together and have an "In China for China" Strategy, where we transfer product over there, it's customized for China. It's manufactured, it's sold and supported in China. We've also come to market with our paperless process recorder. Just got FDA approval about a month ago. We've got 70 betas out there in the market. But this is how Anderson goes from creating a sensor that delivers data to actually collecting the data and delivering back customer insights, converting a manual process to a very automated process. And we will continue to expand. We have some great end markets today that we serve, but we still have expansion opportunity in both end markets and sensing modalities from physical to chemical and environmental. The business I'll highlight today is Qualitrol where the transformation of the electric grid is a long-term secular tailwind. So Qualitrol provides the world's energy grid with monitoring equipment and sensors to ensure the lights stay on, reliable power. Customers are adding massive capacity to support the demand that we've talked about for electricity and these new sources of energy. They had record demand and they had a bottleneck in production. They work with the FBS team for tremendous results. They've improved on-time delivery by 10%, and they've gotten a 70% capacity expansion without adding people and a 20% overall increase in throughput. FBS is how we execute to get to revenue. The future is bright in PT. We are well positioned to capture the proliferation of electronics and sensors. We are enabling an intelligent and sustainable future. My expectation is durable and profitable growth on our way to $2.6 billion and 30% OP. And I'm going to look forward to sharing our progress along the way. Thank you. I'm going to introduce the IOS segment in our next video. [Presentation]

Ladies and gentlemen, please welcome to the stage, Olumide Soroye.

Excellent. Thank you so much again for joining us. And I am so delighted to share the story of Intelligent Operating Solutions with you. And I do this on behalf of our team. I hope you had a chance to meet some of my colleagues at the innovation showcase earlier because this is their story. And I'm going to in the next 20-or-so minutes cover 3 things. I'll give you some headlines and a bit of a historical perspective on the IOS segment. Second, I'm going to take each of the 3 connected workflows that we focus on and give you a sense of the results and opportunity that we have, exactly what we do in those workflows and why we win. And I'm going to come back to close with our 2028 financial targets. So just to get started, what is IOS is a good question. And I think about 3 things about our segment that I'm most proud of. First is we are a scaled growth engine with a long runway ahead of us. We are $2.6 billion in annual revenues right now in pursuit of a $30 billion addressable market opportunity. Over the last 3 years, we've delivered high teens compound annual growth rate in our revenues, outperforming our markets, and we very much expect to continue to outperform. The second thing that is notable about IOS is a disciplined profit and free cash flow generator with expansion opportunity ahead of us in every single one of our workflows. We have 31% adjusted operating profit margins, and we continue to get better. Over the last 3 years, we've seen over 500 basis points of core operating margin expansion in the segment. We've also seen our working capital improved by more than 6 turns. That's almost 70% improvement in our working capital efficiency with the power of the Fortive Business System. And there's a long road of improvement ahead of us still. And the third thing I'll highlight is the fact that we've built with durability through cycle designed into the segment. Nestled in the IOS segment today, we now have over $750 million of sticky workflow software revenues. That's a rarefied group in industrial software. We have almost 1/3 of the segment that are now in recurring revenue models, and we have resiliency built in through diversification of the end markets that we serve, the use cases that we serve as well as the geographic markets that we touch. The strong alignment we have to circle the trends that you're going to have me -- you're going to hear me talk about are also elements of our resiliency as well as the backlog of orders that we still have in several of our businesses. The reason we achieved this result, and I highlight these 3 things, is we've built advantage positions in some large and growing markets, which I will describe to you. And secondly, we have a winning strategy, an extraordinary team and a ferocious dedication to executing the Fortive Business System to deliver sustainable outstanding results. So how did we get here? Where did IOS come from? I'm glad you asked. At the inception of Fortive 7 years ago, what we now call IOS segment really was Fluke, a $1.2 billion instrumentation business. What a fantastic starting point that has been for us. Over the last 7 years, we've dramatically improved this segment in 2 ways. First, we've transformed Fluke, and I credit our team at Fluke for this work. Fluke is now a faster growing, more profitable, more cash generative and much more durable business. And our team has done that by accelerating the pace of innovation. And it's not just innovation in our core markets through introducing new test modalities around acoustic and thermal but also through reimagining some of our flagship products from advanced calibrators, digital multimeters and bringing in new technologies around field sensing and auto testing into a lot of the customer bases that we serve. We now have over 1,800 patents in our Fluke business. But the team is also innovated to capture the opportunities in circular trends. A lot of the examples you saw today at our innovation showcase speak to the products we are bringing to help the solar industry and the electric vehicle charging station industry to perform reliably, safely and productively. And I'm going to come back to some examples of that, but just incredible acceleration of innovation at Fluke. The second thing our team has done to transform Fluke is really mature our go-to-market and our value-based pricing. You heard earlier Kirsten talk about the tools we've built and the mindset we've built around pricing. And really, we think about it as creating value for our customers to earn the right to capture price. And our Fluke team has captured more price, even setting aside inflation, over the last 2 years than we've seen perhaps in the history of the company. And this is a 75-year-old company. Our team has also done a great job at Fluke of relentlessly pursuing productivity and free cash flow improvements. Over the last 7 years, Fluke has improved their operating margins by more than 800 basis points. And they've improved their working capital by more than 3 turns from a very excellent starting point. So Fluke of today, and this year is a 75-year at Fluke, I am so proud of the work our team has done to position Fluke for the next 75 years of success with the same heritage of innovation driving the future of the benefits of all the electrification that you heard Tami talk about earlier. The second thing we've done, though, in addition to transforming Fluke is going from a single company to these 3 workflow platforms that are so exciting for us. And I'm going to come back and talk about each of those in some more detail. So I'll save that. But the 7 key acquisitions we've done have been crucial puzzle pieces to create the advantage position I'm going to describe to in the next few minutes. And in this process in the last 7 years, we've more than doubled the revenue of the segment. We've more than quadrupled our addressable market opportunity. We've more than doubled our adjusted operating profit. We've now ahead more than 1/3 of this segment in recurring models. And as pointed out earlier, even the portions we call not recurring are really, really resilient. And as I mentioned, we now have nestled in here an industrial software business that's fast approaching $1 billion in revenues. And I couldn't be more proud of this journey we're on. And the essence of what we've built here is what it does for us going forward, and it gives us a leadership position in these 3 workflows. And in each of the workflows, we're executing a consistent strategy. That starts from high expectations of durable growth, double-digit, I just said, operating profit growth every year. And that then feeds into a ferocious dedication to winning in our call with the power of the Fortive Business System. We have this $30 billion opportunity and through sales productivity, value-based pricing, focus in customer success, we capture more and more of that. We support that with our innovation in our products and our business models and feed the flywheel with our continuous improvement culture, cadence, mindset and tool set of the Fortive Business System. So let me now shift to taking each of our 3 workflows, and I'm going to give you a sense of the results and the opportunity we have in each one, where we play and why we win. The first one is the facilities and asset life cycle workflow. And this workflow, we now do about $650 million of revenue a year. Last year, we grew low teens in terms of core growth in our revenues in this workflow. We have a highly resilient model because in this workflow over our revenue is nonrecurring models. We serve a whole range of verticals which provides an element of diversification for us as well. The workflow market that we serve here is over $10 billion. and it benefits from a range of circular trends, including investment in secure, sustainable and smart infrastructure as well as the adoption of technology tools and digitization of these workflows that plays right to the center of the solutions that our teams offer to the marketplace. In terms of where we play in this space, we have a disciplined strategic planning process that looks for where the profit pools are and where we have a right to win. And you'll see in this workflow, we don't play in every single piece of it. But the pieces we play in, we have a clear advantage. And I'll give you a few examples. This is all about helping our customers get the maximum return on investment on their facilities and assets through its life cycle. That's that with the planning stage. In the planning stage, we have the industry currency in terms of project cost estimation in our RSMeans data set at Gordian. And we've built around that proprietary data set a unique combination of facility condition and capital planning software, data and benchmarks that are really indispensable for our customers to manage the capital cycle. I'll talk to you about a customer example there in a minute. But that's the differentiation. That's why we tap into the massive flow of capital spending in this area. In the build stage we have what is the industry standard in terms of procurement platforms in highly regulated, complex verticals like state and local governments. With our job order contracting platform, customers save 20% of their project cost when they use our platform versus when they don't. We have a 2-sided network built into that business, and we have a track record of impact that is quite amazing. And that taps into over $1 trillion of deferred maintenance spend on critical infrastructure across this country that's going to create an enduring flow of opportunity through that business for us. In the maintain stage, we have a range of offerings that are anchored in proprietary data, software platforms, networks of service providers and project owners as well as analytics that we've built and has a flywheel effect into it. This is the reason we're able to save our customers 10% to 30% of their maintenance and repair spend because we can help them benchmark to what's going on in the rest of the market. That -- those are proprietary data sets that give us real advantage in those markets. So everywhere we play here, we have a strong position to win. And I'll give you a few examples. A customer here, this is a state university that run into outdated facilities and not enough budget. That's a very common situation. And our teams at Gordian and Accruent working together, pull together 4 different solutions across this workflow in our portfolio to help this customer break through. And in the end, we help them expand their capacity in terms of footprint by over 14%, reduced their energy consumption. We're now the system of record for them to manage their capital planning, including getting Board approval for the annual capital plans. These are the kind of examples that drive double-digit growth in this workflow for us. Take this over 10,000-plus customers that we have in this workflow. The power of the Fortive Business System that you heard Kirsten talk about earlier, there are a lot of examples of it. And this is one that I'm very proud of for the work our team has done. Accruent is one of our puzzle pieces in this workflow, and it is one of our biggest software companies across Fortive. This team apply the Fortive Business System, both on innovation and on working capital. And I'm not going to go through all the details on this stage, but complex product set was a starting point where you have some really high-growth products and you had some legacy products. With the power of lean portfolio management, the team was able to make the right decisions and focus the portfolio, which made 50% of the products in count, they decided to sunset. I mean the remaining products got a lot more investment. We now have a release portfolio in terms of new enhancements that's more exciting than that company has known the last 5 years. And at the same time, on working capital, we've been able, through the power of visual daily management and problem solving at the front line that you heard Kirsten describe, reduced the net working capital of this business by over $50 million in the last 5 years on a business that's transitioning to negative working capital, incredible results from the power of the Fortive Business System. And connected reliability very much anchored around Fluke. We have a $1.5 billion business that grew low double digits last year. Like I described earlier, Fluke is an exciting company for us that we believe very much has a right to win across this workflow because we have from the most advanced calibration devices to digital multimeters for end-user electricians to condition-based monitoring that connects sensors to the cloud and helps you manage asset health and intervene in your preventive maintenance program. Really, no one else has this complete solution set for our customers. And this workflow is benefiting from circular trends around energy transition, around investment in infrastructure that is in dire need of upgrade. All of the forces around electrification that you heard Tami describe earlier, that stack in the R&D shop is going to end up as additional demand for us in this market. Incredible flow of opportunity for us in here. And couldn't be more excited about what we continue to do in Fluke. I will mention that as much as it expanded the margins in this workflow, very much believe there's still a lot ahead of us in terms of margin improvement. And that is true for every single one of our workflow. And that comes from the work we're doing on pricing. It comes from the relentless stride and operating margin expansion. It comes from what we do on innovation, which flows solving new problems for customers and capturing a bigger share of the wallet of the -- more than 30,000 customers we have across the IOS segment. And a couple of examples, again here. Innovation at Fluke is one that I couldn't be more proud of. When you have a 75-year-old company that is still able to innovate at the pace that we're doing at Fluke, you have to be proud. And I hope a lot that you've got a chance to see some of the work that our team has done on the solar market. This is an example of SMFT-1000, which is a multifunction tester for the solar market. Think about it as you had technicians that were trying to install solar panels or maintain solar panels. They needed 6 different devices to take the measurement, take all that data, go document it so they can confirm they've done their job. Our team in one of the fastest conceptual launch experiences we had at Fluke to call those 6 devices and turn it into a single device with our Fluke True test software platform integrated into it to capture the data and do the documentation they needed, save them the time to install those fan-outs and reducing the time for testing and documentation by over 50% and more importantly, improving the quality and consistency of the outcomes. That is how we do productivity, reliability and safety for our customers. And with respect to our end customers and the connector liability workflow, this is an example of a longtime customer that adopted our conditional monitoring platform. This was a food processor faced with the challenge of toxic gas leakages that was happening again and again in the shop, which meant unsafe for workers, shutdown of the plant, fines they had to pay for regulators in the those situations. Since they installed that system over a year ago, they haven't had a single incident. That's reliability, that's safety and that's productivity. In the Environmental Health and Safety workflow, we have an incredible position across this workflow. We do over $350 million of revenues. Again, we grew low double digits last year, very much outperforming the market and expect to continue to do so. The market as a whole is well over $7 billion of opportunity for us, benefiting again from a whole range of circular trends and caught on sustainability that you heard Pete talk about earlier, this is a big deal for the markets that we serve. And our teams in this workflow are driven by the passion to eliminate workplace deaths by the year 2050. There's still over 2 million deaths in the workplace due to different hazards that are, frankly, preventable. And this is what propels our team every day to innovate. And just an example of that, our Intellects team got the incident management platform deployed at this customer, reducing their near misses and injury events by over 60% and reducing their offshore reportable incidents by more than 50%. That's how we do safety. That's how we do reliability, and that's how we do productivity for our customers. And then another example of the Fortive business system that really connects what Stacey talked about in terms of our talent engine as well as the quality Fortive business system is a story of our iNet safety platform Fortive Scientific. We acquired a company in 2017. They had this incredible product that had gas effectives with a cloud-based software connection and analytics to help customers get better safety outcomes. Through the power of sales manage -- sales productivity funnel management, we've almost doubled that business over the last 5 years. And this team has now become a talent champion for driving hardware as a service business models across-border. Let me close with our 2028 financial targets. And I hope by now that you would not be surprised to hear that we are highly confident that these targets are attainable. This idea that we'll be growing mid-single digits plus $3.6 billion by 2028, 34% operating margin 75 bps of operating margin expansion each year is one that I feel highly confident is well within our reach. And that is because of where I started. We've created advantage positions in large, fast-growing markets with strong favorable secular trends. And we have a winning strategy, an extraordinary team across all our companies and the ferocious dedication to executing with Fortive business system to sustain outstanding results. This is why we win. And again, thank you for your interest and your enduring support along the journey. And now we're going to transition into pulling it all together into an overall Fortive financial look as well as the outlook for the next few years.

Good afternoon, everyone. Thank you for spending the day with us. We've certainly enjoyed having you. I hope you've enjoyed what you've been watching. Back in 2016, we had goals and aspirations about what we wanted to do with this company. We wanted to build a growth of your company. We wanted to reduce cyclicality, improved durability. We want to expand our operating margins and gross margins. We wanted to invest that free cash flow into new acquisitions and delivered double-digit earnings growth and free cash flow. Pretty simple. We've heard it as Fortive formula. Along the way, we learned that it would be helpful to put some way points out there for those of you who maybe like to do orientation or boating. So 2 years ago, we laid out some targets on growth, margin expansion, free cash flow for where we would be in 5 years, and that's the 2025 targets that are still -- that you're going to see here in a minute and so that we could be measured along the way. On each of these metrics over the last 2 years, we are running meaningfully ahead versus our goals despite operating in what everyone, I think, can agree, is a very difficult operating environment. The combination of the Fortive business system that you've been hearing so much about today and the deployment of our free cash flow towards our acquisitions is the foundation of why we were able to do what we've done over the last 2 years and why we are so confident about what's going to happen going forward. One of the best examples of the power of the FBS is the improvement in our net working capital as a percent of revenue. We've hinted at this, showed this quickly a couple of times, but this dramatic improvement of a 50% reduction over the last 4 years is one of the things that really stands out for us. The culture and cadence and the tools that drive the rigor of FBS at each of our operating companies that you've heard a little bit about today are on full display, especially when it's paired with their asset lights -- asset-light business models that we have. These results are critical to delivering the exceptional free cash flow growth we've had, despite the tough supply chain environment '22 where you can see we were truly differentiated ourselves from our peers. That culture of an improvement, continuous improvement also shows up in our deal performance. Over 70% of our deals are either delivering double-digit ROIC as we're showing in the top box here or in the more recent deals running ahead of the more near-term targets we've had in the bottom to with the acquisitions and the share buyback. We're seeing, as we expected, some meaningful accelerations, particularly in the second half of this year, in the second group, where we one, make some improvements in part because the pandemic is going to be behind us in the rearview mirror. It's going to flip from a tailwind -- or from a headwind to a tailwind. And also because of the improvements that Olumide and his team are delivering for a current. We remain confident that all of our deals are going to be accretive for us and drive our growth as we've seen in the last 2 years for many, many years to come. When you look at the hand and the enhancements of our portfolio since 2016, it's been enabled by the performance of our acquisitions, which in addition to adding higher growth and more durable revenues is also generating more profit and cash per revenue dollar that enhances our future cash flow. So I showed you a moment ago, we're ahead on all the key metrics we established 2 years ago. We're extending these metrics to give longer-term targets out to 2028, so that you can continue to track our progress and hold us accountable for delivering on our commitments. As you can see, it's still the same basic constructs as before with continued mid-single-digit growth through the cycle now at the upper end of that range, though, and with continued growth and operating margin expansion with an acceleration to mid-teens in our free cash flow growth. When you look at that free cash flow. Over the next 5 years, that's going to be $8 billion for us to deploy -- the deployed towards M&A and capital allocation. You should expect us to continue to be disciplined with regards to our capital deployment and informed our ability -- by our ability to maximize our value creation over the long term. There's no change in our strategy here. Given the strength of this cash flow, we believe we can continue to accelerate our workflow and connected strategy with a mix of adjacent or bolt-on opportunities to fuel the cycle and generate more free cash flow for future investments. The primary -- the majority of our free cash flow is going to go towards this to the M&A acquisitions. But we're still going to continue to be opportunistic and repurchase -- do share repurchase when we think that there's value to be created. Last year, we bought back 7 million shares. This quarter and this year, we bought back an additional 2 million share. We'll continue to look at this as a lever to help return shareholder values, particularly when we're undervalued as we think we are now. We will continue to target though, a modest dividend but no change to that. Given this free cash flow and our history in terms of deploying capital towards M&A, that would be helpful to look at some of the guardrails we have on leverage. I don't always think that past is prologue, but I do think that this is a pretty good expectation of what the next 5 years could look like from a leverage perspective, periods of investment where we buy great assets and deploy M&A and then periods where deliver -- de-levering where we come back down. We're targeting -- our target here is to be between $ 1.0 billion and $ 2.0 billion net leverage -- net debt to EBITDA going forward. So we'll try and stay in that. Our priority is to always maintain investment-grade rate. We bring it all together and see what's been happening here with our free cash flow, not only just over the last 2 years, we're well on our way to somewhat -- 2 years ago, I was told that we're incredibly aggressive with targets for our 2025 free cash flow, but also now moving it out, deploying some of our cash flow, not all of it. And what we think we can commit to you for 2023, which is an acceleration on earnings per share and free cash flow in the mid-teens over that time period. What we've been describing here, what I've been describing here is really the Fortive formula. We've got great businesses in growing markets. They generate cash flow and margin expansion. We take that cash flow and deploy it towards great M&A. And along the way, we get better every day with the Fortive business system. We're confident about -- we're proud of how we've done. We're confident about what the next 5 years are going to be, and we're excited for you to be along with us for the journey. So I'd like to thank you for your time today. And with that, I'm going to ask some of my team to come up here, and we'll take -- we'll move to a Q&A session.

And we asked Pat Murphy to join us as well. As many of you know, Pat is -- will be retiring by the end of the year, but we thought no good deed goes unpunished, and we'd bring them up here to have an opportunity to answer as many as questions, particularly historical questions about health.

All right. I'm going to start this time somewhere I haven't been Steve.

I didn't ask a question on the first round, so going to ask a couple if it's okay. On the AHS front, the performance has been -- I think it's generous to say it's been pretty inconsistent. And especially last quarter, there were kind of 3 issues, I think, that stood out. There was a supply chain issue. There was a distribution channel change or something like that and then China weighing on the results that were well below expectations. Can you just give us an update on where we stand intra quarter here and how we should -- we feeling any better about this coming out of the second quarter? Or is it all pretty back-end loaded resolution on those issues?

Maybe given the transition here, I can take the first one. I think, Steve, number one, if we think about the first quarter, we had a couple of things we talked about, one being some supply chain issues in Fluke Health. We had -- certainly, China was part of it and elective being even lower than we anticipated in some currency situation, onetime currency hit that we had relative to margins. Obviously, the onetime currency thing by physician one time. The health care situation gets -- or excuse me, Fluke Health gets better. In fact, we've fixed those supply chain issues already. So they're behind us now even in the second quarter. And we expect to continue to sort of drive the business the way we thought China will get better from where we were. It got better towards March. It was really more of the sequencing through the quarter. China continues to get better. And certainly, as we finish the quarter, we'll be we think, back to normal likely. And then as you said, we've got -- the guide gets better in the second half because this go-to-market change that we made in the second quarter kind of gets through most of its efforts in the second quarter. And we start the second half with all of those things behind us.

And then just on Tektronix, can you maybe talk about how big those growth markets are and perhaps how you guys are maybe differentiated from your public peers, Keysight and Nati, I mean, I think that every time one of those guys sneezes, your stock goes down. And I think it would be helpful to clarify where you're positioned relative to those guys and maybe how those markets differentiate you if they do at all? And how you've maybe transformed the business over the last 10 years relative to where it was at Danaher.

I would start with the end markets that are out there. The electrification of everything, all test and measurement can take advantage of the electronics going everywhere where you'll see a real differentiation with Tektronix is what we bring to this power efficiency. The acquisition of Keathley back in 2009, really gave us in high-power precision power, a unique advantage. The improving technology, we've continued to innovate and build out and the new platform of Aciloscopes. So that's kind of the combo punch that gives us a unique and sustainable advantage in solving that power efficiency problem that then we can take to a variety of end markets that are just abundance of electronics.

Okay. Joe Giordano.

So for the deals that you highlighted that were below plan, like when you look at them now, what was that? What drove that? Was it an analysis error on like the market itself? Was it something about the positioning of that company? Was it an execution issue, some combination? Like how do you diagnose that today? What do you learn going forward to apply the next deal?

Well, we can maybe take this a little bit. I think number one, I think we've been pretty consistent with this is on a current more product lines. And so what we were right, multiple product lines. It wasn't one business. And I think what we've really been, I think, very transparent about is the product lines we thought we're going to do well are actually doing better, and that's the basis of the strategy that Lumina highlighted. It was a couple of the product lines that we thought we would be more transitory and would be hold up a little bit better than they did. So it's taken a few more years to get through that. But where we stand today is mostly through that transition, and we can talk -- we can certainly talk a little bit about where we go from here relative to cement but probably more broadly out -- on the health care side, it's really ASP and it's really about the pandemic. And I don't think -- we didn't have a pandemic scenario, that's for sure. But I think as we were talking about, we're starting to see the inflection point coming out of that. And certainly, I think as we've said for a while, we thought '23 would be better than 2 will be better than '23 relative to that and the work that we've been at both Pat and TAMI, I think of -- and soon to be Tami be will get us to a much better performance. And as Chuck outlined, think you see that in the numbers, both segment potential and the overall potential.

I don't know, Olumide . Maybe talk a little bit about current.