Fortive Corporation (FTV) Earnings Call Transcript & Summary

Okay. Wrapping it up today. Last but not least, the graveyard shift. We have Olumide Soroye and Jim Lico from Fortive. Guys, thanks for joining us here.

Great to be here.

Jim, maybe you just want to give a state of the union on what you're seeing in the macro and what -- how the -- how kind of things are progressing here in the near term.

Yes. Well, first, I would say -- first, thanks, everyone, for being here. And certainly, those who are with us virtually. I would say, number one, the year's playing out very much how we anticipated. So we feel really good about that. We think the guide really demonstrates the strength of the portfolio, the manifestation of a lot of work that we've done strategically over the last few years to continue to build a more resilient portfolio after a really strong '23 and quite frankly, some real strong several years. This, I think, is another good year of that. Relative to how we thought about the year, software part of the portfolio will continue to drive real strong growth. Health care will continue to improve and be a really good, resilient durable part of the portfolio with more margin expansion there than anywhere else. I think the third component of it, I talked a little bit about this today in a couple of the meetings is when you look at our hardware businesses today, about 1/3 of the businesses are really tied to the energy transition. So what we're really seeing is good growth in a number of those places. So I think all of that is playing out the way we thought it would. We always thought as we progress through the year, Steve, that in Precision Technologies, some of the customer -- we've had so many really strong years there over the last few years. Customers would take a little bit of a breath relative to their investments after a couple of years of double-digit growth. And so we might see a little bit of slowing in the first half. And I think everything we've seen thus far, but -- that we'd see the -- we see those projects and funnels, we'd see those projects in conversations with customers and those would start to play out in the tail end of the second quarter and into the second half. And I think everything we've seen thus far sort of supports all of that. And all of that means, I think, for the year is a good year and, obviously, a little bit better growth in the second half as we progress. But I think when we look at things like 2-year stacks and things like that, we continue to be along that mid-single-digit growth model that we've talked about with the associated great free cash flow and EPS growth.

And just geographically, you've always had a pretty good lens into China. What are you guys -- what are you guys seeing there?

Yes. Olumide and I were -- we talked a little bit about this last night, but Olumide and I were on with all of our China teams a couple of weeks ago going through things. And we have a tough comp in the first quarter because we grew 30% last year in the first quarter. So you have to work through what's comp and what's maybe the -- and we're seeing some customer investments move, consistent with what I talked about relative to things in the funnel, but all of that's really consistently with what we thought. So we -- and built into our guide was China down mid-single digit for the year with sort of an exit rate into '25 that was growth. And everything we've seen thus far would support that thought process.

And with regard to Europe, anything that may be going on there? I mean people really aren't talking about Europe that much. What do you see there?

Yes. We've seen -- we think low single-digit growth here for the year in Europe. And what we've seen so far supports that and maybe slightly better. But I think at this point, let's get through the year. But I think we get a little bit farther into the year, March is always a big month for us. But yes, I think a lot of the investments that we have going on are playing out there. So that -- and some of our weakness in sensing is actually European driven. So I would say when you look across the other businesses, we still see some good pockets of investment, and those are certainly things we're -- places we're investing in.

And maybe just sticking on the lines of the guidance here. I'm thinking Precision Tech is probably the one that has perhaps the most variability as far as the timing of that recovery is concerned. And can you just talk about sensing and then tech and how you look at those two? And what kind of -- when will you -- when do you think you'll kind of have a good idea of how those things are playing out for the year?

Yes. Well, we've talked about really looking at it from three perspectives. One is, like you said, how many quarters of down orders would you see. And in sensing, we're about a quarter ahead of Tektronix in terms of the number of quarters. So that's number one, we'd watch that. And we start to get into the times where we should see the business start to inflect in the book-to-bill be greater than 1. And I think everything we've seen thus far supports that thought process. Secondly, what's happening with point-of-sale. As our -- we get some point-of-sale data with Tektronix, we obviously get good data with Fluke, which is not MPT, but we do get some general view of the economy. And POS still supports pretty good performance right now. So I think that's the second thing. And then just conversations with our teams and our customers, continue to support. Projects have not disappeared, they were delayed as anticipated, and we would tend to see those things play out. And I think that's true in both businesses. So tech maybe a little bit farther behind by a few months, but as we get into the second half, we think things start to trend more positively and what we've seen thus far would support that.

And I guess from a tech perspective, there was some backlog liquidation in the second half of last -- of '23. I mean is that kind of like a tough comp when you liquidate the backlog? Or are you guys kind of just going to blow right through that?

I think the way to think about that is, yes, we depleted some backlog. We've been depleting backlog though for a couple -- several quarters now. So yes, it's a bit of a headwind, but the order improvement really offsets that. So I think the projects that we've seen and the projects that are out there, the opportunities, I think, are really good for tech. And one of the things I always think about is, for years, we saw Tektronix as kind of a low single-digit grower. And when it went down, it went down 10%, 15%, 20% sometimes. Now we're talking about it being down maybe mid-single digit after a couple of years of 10-plus percent growth. So I think that really speaks to the work we've done to strengthen the durability of the business. And we strongly believe that will play out here in the second half.

Okay. And what are we -- these projects that you're talking about, I mean, which kind of verticals are we counting on for that? Because there's a lot of people talking about kind of the second half recovery, and just trying to gauge exactly kind of what we're banking on from a vertical [ perspective ].

I think some of that's in, broadly defined, semiconductor. So where we do have some sales, both sensing and in Tektronix, where we do have semiconductor exposure, it's in those places. Around e-mobility and mobility in general, a number of projects. I think China, in general, just inflecting better on a broadly defined basis is probably the third piece of that.

And when you say e-mobility, is that the EV plants? Or is that the actual like infrastructure that goes in an around...

It's the continued -- it's both. I mean I think when we think of all things, battery related, certainly on the EV front, well, we're not really tied to the production aspect of this. So as long as people are continuing to build out new models and new opportunities, we -- and we've seen -- we expected some delay from kind of a lot of the investment we've seen over the last 18 months. So all of that's consistent with what we thought. And then more broadly defined in the grid infrastructure, in the data center, both -- I think about it from everything from the chips that go into the data center, to the components that go into the data center, to the maintenance and operations of a data center. All of that is opportunity. And some of those projects have been delayed, but we certainly don't believe in any way, shape or form they'll be canceled.

The data -- you've seen data center projects get delayed? Or you're talking about -- or more the EV?

On the chip side. A little bit on the chip side.

The chip, yes. On the chip. Yes, of course. Of course. Just backing up a little bit, 2% to 3% price this year. How do you feel about that? Do you have visibility into that? Or is that something that you have to get some -- you have to put incremental price through to get that number?

Certainly, at least half of that is price that's -- probably 2/3 of that is already priced. It's been put in. Probably 1/3 is priced to be had. I'd think about that. So we're certainly in a different environment than we were when inflation was sort of ripping a few years ago and supply chains were a little bit more challenged. But that price number is moderated from those years as well. So we feel really good about that number.

Got it. So for the IOS segment, the -- I think we've got a mid-single-digit algorithm, 75 basis points margin improvement. What -- which of the segments do you feel best about today as far as being above that average?

Well, so we feel really good about the guide we have, which is kind of, for the year, 4% to 5% core and then 5% to 6% total growth, and we feel great about the OMX potential. I think, frankly, across our three growth platforms, we're in a great place. Fluke, as you know, is just showing incredible resiliency through cycle. I think that's combination of the work that our team has done on just the NPI velocity in that business. They've doubled the revenue value of new product introductions over the last year, and they're going to do it again this year. So that's providing a lot of tailwind. A lot of great work to align that business better with some of the circular trends around solar and EV charging stations. So this is the charging station side of it, not to build out a factory capacity. And all that is just doing incredible things for that business. So lots of upside there. As you know, that business as profitable as it is, continues to drive OMX, and will keep doing that. Same thing on FAL, we're now $0.75 billion, but huge $10 billion-plus serve the addressable market. Lots of upside still. We've had a couple of years there of strong double-digit growth. I think this year, we're kind of presuming high single digits, but again, expect that the new logo booking rate continues to be double digits. So that signals kind of the long-run growth rate of that business. So we feel good about that one. And then EHS as well has done a great job of just continuing to accelerate the growth potential in that platform. So we feel quite good about IOS.

Yes. On the software side, is that -- that high single digit is a nice long-term rate that you think you can use? Or what -- how can you get that up into the double-digit range?

Well, I think kind of why it's high single digits this year is comps from last year. So we had a couple of years there of 20% growth in several of our software pockets. And I think that's normalizing a little bit, partly a number of kind of big kind of one-time things last year. So I think the long-run growth rate, which, again, I see that by looking at the new logo bookings and what's going on with NDR, should still support double-digit growth for a long stretch ahead of us after we go through kind of the normalization at high single digits plus this year.

And then Fluke, you mentioned some of the electrification dynamics there. Any other markets -- what are the weakest markets there, I guess? And it's pretty amazing how it's performed through a cycle. But what are the kind of weaker end markets, if there are any? What are the slower growth end markets for Fluke?

Yes. Well, I mean I think it's probably -- first, I'll start with the regional look, which is consistent with what Jim said. So I think the POS in general in kind of U.S. is higher than Europe, which is higher than China. So that's probably the one way to think about the range of what we've seen. But across the board, still kind of strong POS in objective terms. So that's one way to look at it. From an end market point of view, we've really oriented the business a lot towards the higher growth end markets. So we don't have a lot of things that are kind of dragging us back, if you will. We have a few areas where we still have a lot of backlog. So we don't talk about that a lot, but still a lot of backlogs in there. So I think from an end demand point of view and sort of what's going on from a backlog point of view, we kind of -- we feel really good about the year.

How big is eMaint now?

So think about the software piece of Fluke is about 5% of the whole of Fluke and that continues to grow. One of the bolt-ons we did last year at Fluke added to that kind of recurring data software component. So we'll keep building that.

It's a great business. And one thing I was going to say is where Fluke is at today, because I think this gets a little bit lost, 5 or 6 months ago when people were thinking about, hey, we're worried about Fluke, we're worried about temp, we're worried about sensing. Now we're sitting here, right, we're talking about the performance of Fluke, and I think it's a manifestation of a lot of hard work, as Olumide said over, the last few years. Today, Fluke is almost as big as sensing and tech combined. So when we think about the sort of derisking of the portfolio over time, it's pretty substantive. And it really speaks to the, not only the organic -- inorganic things that we've been doing, but also the organic, redirecting our technology investments towards secular markets that are going to be more durable.

In FAL, can you talk about kind of the constituent pieces, just a couple of them? I know they -- there's been one laggard and a couple leaders. It seems like they're all moving in the right direction now. How did we -- has the laggard now turned officially and become a leader, if you will?

Yes. And I think, Steve, last -- this time last year when we talked, it was -- yes, I think the frame was, look, first of all, we're unifying that platform. So increasingly, what we do really connects across all those companies. And then I said, look, the laggard as you described it, we had a multiphase project to go through to get it to become a leader. And I think the team has done a great job of getting through the first phase, which I call stabilizing the business, which means removing the holes in the bottom of the bucket. So the customer satisfaction, the quality of kind of NPS cost that we're getting is much higher than it was before. And I think importantly, that's showing up in the new bookings growth rate. So that's now a business that is getting into the double-digit bookings growth rate zone, which we feel quite excited about. And in the next phase of it, like I mentioned last year, is really accelerating the product innovation beyond just kind of keeping customers, actually delighting them. So that team now is one of our leading teams in terms of AI pod use cases. So it's a business that has tremendous data assets sitting in it. On behalf of trillions of square feet of space of customers that we manage and billions of assets that we manage in our platform. So it's one of our leading growth platforms in deploying copilots and other kind of gen AI powered enhancements for customers. So we're getting into that phase of now we're stable. We're actually building on it. It is also the business that we did one of the bolt-on acquisitions on last year. That signals the confidence we have that we've gotten that foundation strong enough to start bolting onto it. So across the board, we feel quite good about the platform. And a lot of work still to do on maximizing the potential cross-sell across the companies, but feel quite good about the progress the team has made.

And what was your stat? 1.2 -- customers buy 1.2 products and they could have...

They could have 6. So we have 10,000 customers on the FAL growth platform and on average, they buy 1.2 products. We have 6 things they could buy. So think about that as kind of 5x just within your current customer base...

That's within all the platforms?

Correct.

But do they know -- but that's not -- it's unbranded that -- it's not branded that way to them, right? Like how do you -- it seems like it's a bit of a fragmented cross-sell. Will you ultimately bring it together and brand it together, rename it as a collection of businesses?

The premise is there are two steps in cross-sell. So there's one step that's just commercial collaboration where even if it's not branded together, even if the products are...

Right. Right. Hey, I'm talking to so and so, he needs this...

Yes. Exactly. Contacts, contract structures, things like that. So that the team is doing now. To your point, there's a second stage of real product integration that actually delivers differential value to the customers. Not just that you can buy them together, but they actually work well together. That's still ahead of us in most of the areas, not to talk of the branding, which is even so for the [indiscernible].

Is that possible though that someday you'd come with one brand with these things? Are they that tightly related?

I think we're still proving that out. It is the case, to be clear, that each of the pieces of that construction life cycle, we have a few verticals that we're really strong in. And so in the front end, for example, we're really strong in state and local and sort of health care and federal agencies and higher ed. When you get into the O&M side, we're stronger with restaurants and grocery stores. So the mapping is not 100%. So as we think through your question of is it possible to put them all into one, you want to make sure the overlap in the customer base supports that. So we may do it in some verticals and not others, for example.

What percentage of the business now is SaaS versus other? And where are you on this margin journey? I know we met, I think it was a couple of years ago now, there was like 500 basis points of margin expansion opportunity. Where are you in that continuum?

Yes. So I mean I think from a -- just from a margin point of view, we're still on the journey. And I think the way I'll think about it is, there's some of the parts of that workflow where we've pushed hard on the margin front, e.g. the O&M side with ServiceChannel. We've gone 2,000 basis points of OMX in that in 2 years, by the way, while growing almost 20% CAGR in the same period. So we've pushed the margin [ a little ] because it was a new company. FBS was powerful to help get a lot of that out. We also changed the mix a little bit of the service model there. And then on the front end with preconstruction, we've pushed more on growth and less on margin. So that's been growing 20% plus, already very profitable. So I think as we kind of get to this new kind of level, the upside is still -- I still think about that as having the potential to be a Rule of 50 platform. We're a Rule of 40-plus right now. So there's still a lot of -- both on top line growth and on OMX...

And what top line do you incorporate in that? Like high single digits Or 10%?

10%.

J10%.

Just think about it as double -- kind of low double-digit growth and then think about the OMX is as deep, the margins has [indiscernible].

And then what's the breakdown of these businesses when you think about, however you want to define it, SaaS, recurring, license, maintenance, like what's the breakdown today for the platform?

Yes. So we think about -- so when you think about, in total, $750 million, think about 3 buckets. So there's what we call recurring, which is it's not multiyear contract, but it's sort of -- you're getting a piece of a flow that, of course, if we stayed on local spend and things like that. That piece of it is about 40% of the whole thing. There's some of that on the O&M side as well. And then what you call SaaS is -- think about it, that's about 50 -- 45% to 50%. And so the onetime, which is more professional services type things is the balance of it. So majority of the business is what I would call recurring or reoccurring type revenue.

When can you get to $1 billion in revenues for this platform?

I would love to get to that as soon as I can. I think...

You don't want to wait?

I absolutely -- because I think there's not a lot of software companies that are $1 billion. And actually, there's huge companies that are $10 billion, $10 billion plus and there's $10 million to $100 million companies. But that $1 billion mark is a sweet spot that we certainly want to get to as quickly as we can. Obviously, if you just compound the growth rate that we're talking about here, you can get to how long that takes without bolt-on M&A, but I think that is the mark that we have our eyes on.

When it comes to Precision Tech and the tech business, how do you think about that business longer term? It's been a little bit lower growth. You've had some good years here. Is that a business you're going to continue to build on? I know you just did EA -- the EA deal, so investing a little bit there?

A few years ago, what we said was we now see tech as a mid-single-digit grower and that had been from low single digit for quite a while. And that was the sort of, I think, a really important mark that was the organic work that we've done to reposition the portfolio. We added services. We took out the video business. We just repositioned the business for better growth and profitability. They just had a record year. In '23, they just had a couple of years of double-digit growth. So as we look through the cycle with this year, we're still going to be at that mid-single-digit growth, maybe a little bit higher than that. The margin profile is really strong. And we've added EA, which is incredibly profitable, and mixes the growth rate up. So we feel good about where it stands today. And it's a very different business than really what it was several years ago. Most of the revenue base as we exit '24 and into '25 is going to be pretty much around that energy transition, some of those components I described a little bit ago. So when you look at just the position of the business and where it's at, nobody's seen it through a cycle yet, right, since we've repositioned it. But I think our view right now and certainly with what we've got in the guide will put us in -- when we close the doors on '24, which feels weird to talk about, and enter '25, I think we're going to see a really strong additive part of the company.

And I guess maybe EA -- I mean EA seems more like a growthy asset as opposed to bolting on FAL into IOS, which really is a dramatic -- it changes the perception of cyclicality there like dramatically. Is there anything you can do in this segment that you're thinking about, kind of replicate that move in IOS?

For sure. I mean the 3 things that come to mind that we're really excited about. One is we've just started on the software journey at tech, selling software as a portion of our solutions, and a lot of organic effort to do that. There are some inorganic things we can do on that.

And is that similar to like what NATI has with their LabVIEW?

It's not LabVIEW. But what it would be is in the sort of design and validation phase, software that enables the measurements. A lot of what we're trying to do with machine learning and AI is take from the measurement to the answer. And so software components that don't just give you the volts, ohms and amps, but they give you this is what you should be thinking about. And generative AI will walk you through that. An application capability. We can now build on applications with generative AI, which is a pretty powerful thing for us to do. So that's one component. The second component is services. We've got a pretty good -- 20% of the tech today is services. 0% of EA is services. So the ability to add services on to EA here over time. We've got a global service network. We shouldn't have anybody else servicing EA products except for us. And so that's another component of it. And then the third one is just the secular drivers of the business, which we continue to move the entire business towards those secular drivers, which obviously improves not only the growth rate but the durability.

Would you be willing to use equity for a deal? I'm just kidding. That's a joke. That was a joke, everyone, from last year.

We got that question today.

Did you?

In a one-on-one, yes.

To be clear, that was joke for the webcast. The AHS segment, seemingly turning the corner now on the consumables stream from the equipment -- recently strong equipment sales. Are we now like on a bit more of a glide path there? I feel like that segment has been a bit of a fit and start over the last couple of years. Are we -- can we really see kind of the fruits of that labor?

I don't think we could be more excited about where health care stands today. I mean it's just in a really good place. And I would say, what tells us that. Number one is, if you get through the North American channel change in 2023, second and third quarters were also mid-single-digit growth. So we saw the components of that growth rate, and then you saw that in the fourth quarter. So ASP has really turned the tide. And I think -- when you look at that and you'll sort of think about where we're at right now, we feel good about it. And financially, the numbers tell one story, but I also think the strategy of the go-to-market change was really to keep -- really be able to see deeper into what customers are doing on a daily basis, and that's really manifested itself as well. So that's been really strong.

Like there's growth and there's mix here, right? I mean it is consumables that come at a pretty positive mix, right?

Consumables are going to mix, yes. Yes. I mean what it's going to be able to do, and we've had good growth internationally over the few years. It was really about getting the North American business into a better place. And I think Chad and the team have done a really nice job in making that happen in the last 6 months and we're in a good place.

And can we think about consumables now as kind of like a steady grower? Or is there any lumpiness? Is there any -- like...

Consumables should not -- should have a little bit different around the world where you might have a tender or something like that. By and large, in a market like the U.S. or in countries in Western Europe, you're going to see a pretty steady consumables stream.

Okay. And any pricing dynamics on those consumables? Is there like an annual price increase?

Yes, I mean, we're getting better -- that was part of the go-direct model was getting better price. We're seeing that in the -- not only in -- we're seeing that in the financials. So I think definitely the opportunity to do that on a more recurring basis is certainly out there now for sure.

What kind of rate -- what kind of pricing do you typically expect with AHS?

Probably be in a couple of points. Probably.

Yes. Okay. Low -- still low single digits?

Yes, low single digits.

And then, how's Provation doing?

They has a great '23. They're ahead on the revenue for the model. They'll be a little slower in the first half only because of some large -- a large license deal they had in the first half of last year. That -- we'll convert that to SaaS in the years to come. So that's actually a good opportunity over a long period of time, but a little bit of a headwind. But the business itself is in a good place. Our SaaS growth is good. And our new logo growth continues to be good, but our SaaS transition is doing really well. So we're we feel good about it. The business was always really profitable. So this was really about getting it to a growth rate that is really part of their potential.

And line of sight to a 30% margin at some point?

Provation?

The segment. Yes, yes.

Healthcare. Yes, yes. I'm [ supposed to make this Provation ]. That would be a problem. Yes. No, I think -- I won't pick the year, but I think when you look at this year, we're going to be 125 basis points for health versus 100 for the company. So we're a little bit better in health, and I would expect to continue to see that in the years to come.

On the -- anybody have a -- any questions on the business? Okay. On the M&A environment, how is the pipeline looking? And any change in the bid-ask spreads that have been relatively wide in the last couple of years in some of these assets?

We're an NDA on a lot of things, in several things right now. We feel good about the process. I would say there's a lot of talk around things opening up more in the second half. I think you got a couple of dynamics going on, Steve, having done this for a while. On the one hand, you got a little bit of economic uncertainty, which is generally good for pricing. You've got not a lot of deals have been done for a while. So people are starting to get anxious. And so particularly in private equity, that's probably good. On the other hand, stock market is pretty high, right? So people are looking at comps and saying, well, if I can just get this comp that they can pick on the public market. I think that translates to better pricing overall from a couple of years ago, but we're going to be disciplined. We just did 5 deals with EA and 4 bolt-ons, and we love those deals. And they're going to be -- they're really strong financial returns. And so we feel -- we'll remain disciplined and take the opportunities as they come.

Just the longer-term target of $450 million and then beyond that, what -- as you mix the portfolio up as these margins continue to go up, I mean, what should we think about now as normal operating leverage from a profit perspective?

Well, I think 40% is still the number we like on the incremental side and that's because it gives us the degrees of freedom. People always say, well, more software, more hardware. But some -- embedded in that is -- as I always remind people, our hardware businesses are very profitable. So there isn't a huge difference in that regard. But we definitely think -- Olumide, talked about the great work he's doing in IOS. That's going to continue to improve. We'll see that similar improvement in health. And then we'll have the -- we haven't talked a lot about FBS, but FBS has a general tenacity around continuing margin expansion. So we feel good about 40% because it gives us -- not because that's not the maximum, the maximum is higher than that, but the opportunity and the degrees of freedom that, that gives us to continue to invest in the business, build -- continue to build a more sustainable growth model is really what we're all about here.

So 40% plus is kind of how we should think about it?

I like 40%, and we'll see where it goes. But last year, we were higher than 40%. So there may be times when it's a little higher. But we do like this opportunity to continue to invest, accelerate investment. Some of the things we're seeing at Fluke right now, the NPI funnel that Olumide has talked about in a lot of the one-on-ones, quite frankly, it's in that greater shape because we've taken some incremental money, and we've deployed it to the business. And I think from a long-term perspective, shareholders are going to want us to do that.

And then the [ 450 ], is that a target we should have in the back of our minds or...

Yes, we wouldn't have put it out there if we weren't serious about it. So I think definitely, we think it's achievable. We think there's a few ways to get there. We don't need new M&A. So that -- one of the things that I think that we've answered the question is, do you need new M&A to do that? The answer is no. The way we really look at that is sort of -- and again '25 is -- '25 will be here before we know it.

Right. I mean new M&A would probably be dilutive to that to a degree, as opposed to just paying down debt.

Depends on the deal. That's right. But what we've got, the 5 deals we just did are all really accretive. They've all got short-term returns in the bolt-ons in particular. So EA is going to be a big winner in '25. So we think all of those components, along with just what we've done historically, when you look back 5 years I think that's the track record that we've had over the last 4 years. One of my favorite slides is that '19 through '24 set of financials. And I think when you look at that, the [ 450 ] looks pretty achievable.

Two more questions from me that are very generic, but I'm just trying to get a nice kind of survey [ sent it ]. Number one, in the election. If there is a change of administration, there could be some economic things, whether it's stimulus or tariffs. Is that a discussion at all in the Boardroom? Are there any contingency plans? Or it's -- how do you guys approach something like that? Something as unpredictable as that...

Yes, well, half the world being -- have an election this year, right? It is certainly -- that's just touring the world and it's a conversation not just about the U.S. election, but in various countries. We've -- since '18, we've been dealing with export controls, supply chain, globalization, to regionalization, to manufacturing. We've made a lot of progress over that time. So any sort of -- you can probably kill yourself with scenarios here, but I think we're really well prepared for something that might happen if it were to happen. And we certainly have contingency plans around it for sure.

Do you usually have a very good macro mindset? I mean given the government is driving so much of what's out there, everything except AI effectively is like now driven by the government decisions, if there is a new administration, I mean, is that conceivably like, is there a transition period here for the economy that you have to kind of -- guys have to pull back on what they thought would be stimulus dollars? And I mean...

Yes. It's a great question. Again, I think that's another place where...

Are we overplaying these scenarios?

I think we're over -- well, number one, I think, there's always a scenario out there that you could say could happen. But I think when we look at it and we look at the portfolio today, one of the things we really tried to build is no matter what the segment or no matter the growth platform, we're really about safety and productivity. And I don't think, sans massive shifts in spending, that safety and productivity as a value proposition to customers is going to go away. In fact, in the times of ambiguity, quite frankly, it becomes a little stronger. So I like the way we position the thematics -- that thematic theme through all of our growth platforms. And so I feel like we're -- that's going to build the resiliency and durability. And then we'll -- I think we're wonderful adapters. And at the end of the day, we'll adapt to things as we see them play out.

And then one more, just -- you guys were out in front, I think, of this a little bit on the AI front with the FORT. putting aside what you've embedded in your products, which I feel like a lot of people have been trying to do for a while, what inning are you in as far as infusing anything AI from a business model perspective to make your company more productive? Has there been any step change in that activity recently?

Yes. I'll let Olumide talk. We think about it in 4 buckets. We think about -- internally, we think about accelerating R&D and we think about productivity. And then on the growth side, we think about the customer experience and we think about product innovation. The FORT has been committed for 5 years to those kinds of things. We've seen real -- since your more of the internal question, we've seen real productivity, deploying bots throughout our enterprise. We now -- as an example, we have a whole generative AI aspect to FBS. So you could go in and kind of put in your problem that you have a challenge and you get a whole learning mechanism around how to deploy FBS. So we're seeing accelerated FBS. We're deploying bots. We've standardized our network infrastructure in order to deploy things faster across Fortive. So we've done a number of major steps to really accelerate machine learning and productivity. Maybe talk about R&D a little bit.

Yes. I mean -- and I think we're probably in the second inning is the way I would describe it. I think from an R&D point of view, that is a constituent that's really deployed kind of copilots. So if you're doing refactoring existing code or just trying to get a documentation for coding you're doing or you're trying to write test protocols, majority of our engineers are using that now already. And that's shown 20%, 30% productivity improvement, which is part of what we're deploying to accelerate NPI because when I said to people we've doubled our NPI and they look at the R&D. And they say, well, you haven't doubled your R&D spend. Well, it's because we're using those tools to create capacity today and do more for customers. So I think that's probably a little bit further ahead. But I'd say, Steve, we're still really early in fully deploying this, all the areas that Jim talked about. And I think especially, you mentioned the product side, we have so many platforms that have millions of touch points with customers and incredible richness of data assets that really lend itself to deploying some of these AI tools to enhance our products. So that's a huge upside that's still ahead of us.

And then maybe last thing because I know we're out of time. We built the whole growth platform workflow strategy with this mindset of, if you really want to deploy AI, you need to be in scalable models, right? A lot have talked about the large language models and only the Googles and Microsofts can afford to build some of those. But at the end of the day, within vertical markets, we have 25 operating businesses. And if we try to deploy AI solutions with customers in 25 operating businesses, they wouldn't be scalable. The whole strategy around connected workflows had in mind that inevitably, we would be able to build scalable models, $750 million business in [ FAW ] now, where we have scalable models in which to build AI solutions. And we're in the real early days of that, but the strategy is not. We've been thinking about that strategy for a while.

I mean definitely something to continue to discuss.

Yes. I mean we said hardware, software and data analytics, but the data analytics was the small part, right?

Right. And we are -- this week, kind of we all glossed it. It's kind of like you said AI 5 years ago, it was like, yes, whatever. Now it's like, oh my god. All right. Well, thanks a lot. Well, let everybody go home. Thank you.

Thank you.

Thanks for staying, everybody.

Thanks, all.