Fortive Corporation (FTV) Earnings Call Transcript & Summary

Ladies and gentlemen, please welcome Elena Rosman.

Good afternoon. Welcome to the Fortive portion of the 2025 Investor Day. I hope you all had a chance to enjoy the showcase, highlighting our innovations across both Fortive and Ralliant. But since this is now Fortive's time, we're going to talk about those innovations that are really driving safety and productivity for our customers. And you're going to hear a lot about that unified theme today. So just some quick housekeeping. Today's presentations do contain forward-looking statements, which are subject to a number of risks. Actual results may vary for reasons that we cite in our Form 10-K and other SEC filings. Turning to the basis of presentation, and this is really the big highlight for all of the analysts in the room. Unless otherwise noted, all of the financials included in the Fortive presentation are representing New Fortive, excluding Ralliant. And in the very back of the appendix and on the presentation online for those that are on the webcast, you'll find historical New Fortive financials on a continuing operations basis for the years 2022 through 2024 and quarterly for the last 2 years. And just quickly, a time line reminder. The spin-off of Ralliant will be effective on June 28. What that means is that both companies will be trading as independent companies on Monday, June 30. Following the spin, Fortive will continue to report 2 segments: Intelligent Operating Solutions and Advanced Healthcare Solutions. So maybe just to kick it off with a brief overview of the agenda. Olumide Soroye will give us his strategic vision for Fortive Accelerated. Next, the presidents of our 3 largest businesses, ASP, Fluke, Facilities and Asset Lifecycle Software are going to dive into their businesses, give us a little bit of a peek at the market-leading brands that are aligned to really strong secular drivers and how they're leveraging the power of FBS Cliff to drive faster and more profitable growth. And then our CFO, Mark Okerstrom, will provide an overview of the new Fortive financial track record over the last 5 years and then lay out his formula for our value creation strategy going forward. We will, of course, have a Q&A period, and we'll plan to end promptly at 4:00 p.m. So with that, we're thrilled to kick-off with a brief video highlighting our New Fortive. [Presentation]

Ladies and gentlemen, please welcome Olumide Soroye.

Thank you, and thank you for joining us. We appreciate your interest. So we begin a new chapter at Fortive. Over the last 9 months, since we announced the CEO transition, I've had a chance to meet many of you in the room and joined us online. And there's been a few frequently asked questions. What's going to be different about New Fortive? How are we going to accelerate shareholder value creation? And why should you be excited -- we're going to talk to those questions head on in the next few hours. And I hope you leave the time together with clarity, confidence and excitement about our path forward. There are 5 key messages you're going to hear from me and from the rest of our team today. And I'm just going to walk through that to get us started. #1, we are a simplified forecast company with a track record of strong, durable financial performance fortified by our 50% recurring revenues. We're going to be around $4 billion in revenues, 65% adjusted gross margins, 30% adjusted EBITDA margins greater than 100% adjusted net income to free cash flow conversion. Over the last 5 years, we've delivered 4% core revenue compound annual growth rate. That's where we start from on day 1. The second key message is that we're poised for acceleration. Acceleration in our revenues, in our earnings and in our shareholder value creation. I'm going to talk to the strategy that's going to power this acceleration. It starts with our high-quality operating brands that are lined up with attractive markets with favorable circular trends. And that's supplemented by a very intentional durable business. As a strategic choice we've opted to build a company designed for durability. And you're going to hear that. You're going to hear that in the competitive advantage of our businesses. You're going to hear us in the diversity of the end markets and the geos that we play in. You're going to hear that in the recurring revenue percentage of the business. You're going to hear that in the fact that just about all of our businesses focused on the operating expenditures of customers rather than the capital expenditures. It's an intentional design for durability. The third key message is that a Fortive Business System is the engine of our success and will remain so. But it gets better because we're very intentionally improving the Fortive Business System to make it even more potent for accelerating profitable organic growth. We're doing that by infusing our AI capabilities that we've been incubating over the last 7 years into the mainstream of the Fortive Business System, which means these tools and these capabilities become part of our day-to-day weight at Fortive. Key message #4. We're a great company. We accelerate Fortive Business System helps us do that. We generate so much free cash flow, $1 billion a year and growing. As a New Fortive team, we are committed to being excellent disciplined capital allocators. That's a choice that we're making. You're going to hear that show up as the dedication to make sure that every single dollar of excess free cash flow we deploy to the highest relative risk-adjusted returns for shareholders in the medium term. Our priorities are clear. We invest in organic growth. We do M&A with a very high level of discipline bolt-on biased, but M&A nevertheless, we are very confident in the quality of our company, and so we're happy to do share repurchases where it's a better return, and [ M&A ] will have to compete with that. and we will maintain a regular growing dividend. Importantly, you're going to hear us talk about a very rigorous process that we're putting in place to make that strategy happen every day. And the fifth key message and perhaps the one that I'm most excited about is that we have a strong energized purpose-built team. That is a fine blend of the history of Fortive and the Fortive Business System with a very intentional injection of capabilities with new talent, where we need it for the strategy that we're describing. That's a story for the day. And I'm just going to lay the landscape I run through each of us. So first, why are we simplified and focused? Well, Fortive has been a public company now for 9 years. It's been 9 years of intensive portfolio transformation including the Ralliant spinoff, we would have divested of $6 billion of mostly recurring revenues. We would have acquired about $2 billion of much more durable revenues. So that's what we've gone through. We now emerge from that intense portfolio sculpt in a focused, simplified durable growth company. And I say that for 3 reasons. First, everything we do at New Fortive, will have a unity of why. There's a single shared purpose. Second, everything we do will have a unity of how. There's a single set of core values and a Fortive Business System that applies to everything we do. And everything we do will have a unity of what the financial profile of our 2 segments are strong and complementary, there is a strategic and financial coherence to new Fortive going forward. Let me give you a bit of a taste of those. The reason for our existence at New Fortive is to innovate essential technologies to keep our world safe and productive. Every single 1 of our 10 market-leading iconic brands is united in the pursuit of this mission. We may do it in different arenas, but it's the same mission. It is the same purpose study that infuses every one of our 10,000 colleagues across Fortive with the passion they bring to pursue it every single day. And many of them here in the room, you're going to see many of them in the video, and I hope you get a feel for that. There is meaning in what we do. And the 100,000 customers that entrust us every day with a mission-critical safety and productivity needs are all in the same pursuit. There's a unity in everything we have at new Fortive. There's a unity in the hub, the set of core values that we have exceptional teams for exceptional results. Customer success inspiring our innovation. Kaizen as a way of life and competing vigorously for shareholders. Those same set of core values applies to everything that we have at New Fortive. And our Fortive Business System is very much the engine of our success for every single one of our operating brands. That's coherence to our how. And as coherence to our what. On the left side of the slide you see the financial profile of New Fortive as we emerge, that where we start from. Like Elena mentioned we will continue to report in 2 segments: Intelligent Operating Solutions, 70% of the company focused on industrial operations. Advanced health care solutions, 30% of the company. I would point out that everything we do in health care is the most industrial-like aspect of a hospital. It is how you clean instruments how you move them around, how you make sure their critical biomedical devices are compliance and functioning and how you make sure you're tracking radiation to keep medical professionals safe. That could as well be in the steel plant. It is how you run your one piece flow through a hospital. So there's very clear coherence in terms of the problem we solve. Each of these segments also have the distinction that majority of what we do comes from customers' operating expenditure budgets, not their capital expenditures. That means that we are not exposed to the upswing and downswing of the CapEx cycle. That means we are field maintenance operations-oriented things they have to do anyway every day and do very well every time because it matters. That's what both of the segments did. And the financial profile of the 2 segments are very complementary and each very strong. In Intelligent Operating Solutions, we've grown a little bit faster. Our adjusted EBITDA margins are higher and I'm excited about continuing to drive the recurring revenue percentage that we have in that segment. Currently, we have 35, much lower 5 years ago, continue that journey of increase. And I'm going to talk about how we do that. On the advanced health care solutions side, we have an incredible platform with 80% recurring revenues. And I'm excited about continuing to accelerate the top-line growth and margin expansion in that segment. These 2 segments together means we have headroom in top-line growth, recurring revenue percentage, EBITDA margins flowing down to free cash flow and creating so much value for our shareholders. We exchanged talent across the segments. We share brands across the segments. We share strategies for growth across the segments we share operating infrastructure across the segment. There is incredible coherence to what we have at New Fortive. So let me talk about where we start. On June 28, when the spin is complete, we started day 1 accelerated. This slide shows the last 12 months for Fortive, as you've known it so far. On the left and on the right, is last 12 months, the same period for New Fortive as it's going to be configured. You can see the acceleration in top line, just reflecting the reduced level of cyclicality from one portfolio to the other. We've grown 4% core revenue CAGR over the last 12 months in New Fortive. 50% recurring revenues, most of that in high incremental margins, software and consumables means you see the benefit down the P&L. You see the better gross margins, the better EBITDA margins. And given our working capital discipline and capital light approach to those businesses, you see the free cash flow benefit. We start day 1 accelerated. And you look at the last 5 years for New Fortive, 4% revenue, core revenue, compound annual growth rate, 8% reported revenues compound annual we've expanded gross margins 300 basis points. And you can tell the operating leverage in the business with 12% growth in adjusted EBITDA and 12% growth per annum each year in free cash flows. And by the way, in this period, there's been a pandemic the PMI index in U.S. and EMEA has been in contraction zone for a big swath of that period of time. There's been geopolitical disruptions, there's been supply chain disruptions. This is what durability by design looks like. That's why we're different. Now we are better every day. That's what we think. And we believe fundamentally, we can do better than what our past suggests is prologue. And we have an exciting moment here to bring that to life. And I want to take a few minutes to share the strategy that's going to power this acceleration. There are 4 key pillars to our story to underwrite the acceleration here, the 4 things that you have to believe. The first one is that we have a high-quality set of brands. There's 10 of them. Each of these brands are aligned with attractive markets that have favorable circular trends. Each of these brands, as you'll hear me talk about, item #1, are leaders in their categories. Many of them invented their categories. These are iconic brands. #2, is durability by design. We've made a strategic choice that a defining attribute of that company will be building everything for sustainability and durability. I'm going to talk about that in terms of the competitive advantages in our businesses in terms of the diversity of our end markets and geos. In terms of our recurring revenue percentages and frankly, in terms of the operating expenditure forecast that we have versus CapEx and the pace of new product introduction that's become a big self-help component of why we're durable because we're launching so many new things that bring in incremental revenues, powers that durability, durable by design. The third key pillar of our strategy is that the Fortive business system, which has been the engine of our success over the last decade. And for companies that came before Fortive was created. That we have a chance to amplify the impact of the Fortive Business System by in a very focused way, improving its efficacy for accelerating profitable organic growth. I'm going to talk through exactly what we're doing to make that happen. And importantly, for us at New Fortive. As important as those first 3 pillars are, we are committed to being excellent at the fourth pillar. This idea that capital allocation excellence can be a point of differentiation for a company and a management team. It's 1 that we hold deeply as an objective. So you're going to see us talk through how we're doing that and the process behind it. Those are the 4 pillars. It starts with our 10 high-quality iconic inventor brands. Each of these brands, #1 are leading players. A very similar template across all of these brands. We find markets, but not just markets, we segment that to find specific swim lanes within a big market that has the best growth characteristics, opportunity for differentiation and large profit pools. We don't try to be everything to everyone. We pick swim lanes with the best characteristics. That's true for every single one of these brands. As you listen to the spotlight. You're going to hear that thing. How we look at a big space, but pick particular the most attractive arenas in that space. And the markets that we picked across these brands give us an incredible opportunity. There's $45 billion of addressable market opportunity, a great runway from our $4 billion starting point. And this market for both of our segments are benefiting from strong favorable circular trends. And I'll just give you a few examples of those. In Intelligent Operating Solutions a simple way to think about it, anything that expands the industrial capacity of the world means you got to operate that capacity, you've got to maintain that capacity. Anything that increases the maintenance intensity of capacity in the world infrastructure means you need more of our solutions to do that. Well, think about what's going on in the world right now. The reconfiguration of global supply chains, the focus of nation, states and companies are trying to build resiliency by having local for local industrial capacity means that so much going into expanding capacity 200% increase in the U.S. manufacturing construction investment, since 2020. And by the way, that's true for most countries in the world because everyone is trying to do local for local. That means more industrial capacity. Not the investment itself is what drives our business. It's what you do after you build it. It's the operations, it's the maintenance of it, great tailwind for our businesses. Think about $1 trillion of deferred infrastructure maintenance backlog that's waiting to be unlocked. At some point, that infrastructure maintenance has to happen. When it happens, it drives value for our business. So great tailwinds for that business. On the health care side, anything that increases utilization of health care services, anything that raises the need for productivity amongst health care professionals is great for our business. So think about 20% of the U.S. population is expected to be -- actually will be over 65% by 2030. And turns out 80% of our seniors have 2 or more chronic conditions that need health care services. Combined that with the growing middle classes, 1.7 billion people expected to be added to the middle class by 2030. All of those come in with expectations of higher standard of care in health care. All of that drives up the need for health care services. All of that creates a flow of opportunity for our businesses. And then combine that at the same time with the fact that we're facing a shortage, a global shortage of medical professionals, doctors, nurses biomedical engineers, steroid processing department technicians. This 10 million shortage projected by 2030. The less people you have the more productivity tools you need. That's what we do for customers. We make them get more out of less. And not only do we have these great brands and this great market trends that are driving value for us, but we also are durable by design. And that comes from a few things. To start with a competitive advantage that's built into each of our operating brands. You're going to hear Parker, Chad and Arul bring that to life in the spotlight. But the pattern is the same. We play with differentiated solutions. We don't do commodity businesses. The differentiation might be from a technology that's patented, might be accelerating innovation. It might be proprietary data analytics and networks, but we do things, where we can distinguish ourselves. And we combine that with deep customer loyalty, that might come from our iconic brands that invented categories. It might come from just superior customer experiences, deep integration into customer workflows or it could come from just our recurring revenue percentage, which we've honed over time. But that's not where the durability ends. Think about the diversity of the end markets and verticals that we serve. This brings in resiliency on top of our advantages. That means we have stability through economic cycles. That means we have more ways to win and more vectors for growth. And that means we have less exposure to any single variable. China is a great market for us. It's now going to be about 8% of New Fortive after this finished on. It's double digit of Fortive today. That just narrows our exposure to any one vector. And this is an important 1 for me because we've intentionally focused on recurring revenues. And this lays out how, over the last 5 years, we've increased our current revenue percentage by 700 basis points. We're now going to start as New Fortive with 50%, but we're not done yet. We're not done yet because across all of our businesses. This is now a strategic question that is enduring. We're asking every day, not just how do we get recurring revenues, but actually how do we deliver recurring value to our customers because that's what really leads to recurring revenues. And we're doing that with hardware as a service offering for customers with our sufficient software. We're doing that with a razor/razor blade consumable type models. We're doing that with AI-powered analytics that add additional insights for customers that they're willing to pay for. That's how we continue to drive that recurring revenue rate. That's durability by design. So let me talk about the Fortive Business System. I've been at Fortive for about 4 years, and I've had a chance to learn, practice shape and lead the Fortive Businesses System. It is the engine of our success. You have to live it to believe it. It is a thing. And we are excited about that passion for the Fortive Business System enduring. And we believe very strongly that we can make it even better. And we focus on a few ways to do that. First, we picked one objective, which is enable FBS to drive faster profitable organic growth. We're doing that by infusing our AI capabilities right into the mainstream of the Fortive Business System. For the last 7 years, we've had a separate center of excellence on AI that we call the Fort. We have merged that into the Fortive Business System, which means all of those AI use cases and tools are now available to all of our teams. They become part of our way every day. That means the pace of innovation kicks up. And we've picked 3 specific areas: innovation, commercial and recurring customer value, where we want to make the Fortive Business System, more potent for helping our companies drive progress. I'll just give you a few examples of what we're doing the nature of those. In innovation acceleration, and this is all about -- we want more new products for our customers that delight them and are very successful in driving incremental revenues, including AI-powered solutions. We're doing that by tuning our lean portfolio management adding AI into a secure product development, including core pilots and agents for all of our software developers. We have a new Fortive innovation studio that's focused on AI ideation and rapid prototyping and deployment of solutions for customers. We're not starting cold, we're already seeing some results from this, 3x increase in our new product funnel over the last 3 years. You saw a number of our new products at the innovation showcase that came out of this process. Terrific traction, a lot more to do. On commercial acceleration, this is about gaining share in our core markets. It's about getting into new geos that are attractive and new verticals. We've tuned our complete tool set from digital marketing to inside sales to field sales to strategic partnerships to make all those better in driving progress. In the areas where we've applied them, we're seeing early success. High single-digit growth in the markets that we focused on last year as high-growth markets. And you can see some specific examples, where we had pockets of especially notable outperformance. Double-digit growth in our ASP [ light ] business last year, Fluke has added $3 billion to the addressable market using these tools. And you're going to hear Chad and Parker talk about some of those. And with respect to recurring customer value, which is one that I have a lot of passion about because I believe that 50% number getting bigger is an important indicator of our progress on durability. While we're taking all those ideas I talked about on ways to drive customer requiring value, turning it into a toolkit for the Fortive business system to deploy more consistently. Again, you see a few examples of early success points with a lot more to do. I'm especially proud of our double-digit growth in annual recurring revenues at Fluke over the last 3 years. That's a big piece. That's 1 piece of many reasons why Fluke is a durable company that fits square in the middle of the strategy for New Fortive going forward. So that's what happens with the Fortive Business System to unlock this opportunity. Let me spend a few minutes on capital allocation. And I'll say this again. We are determined as a team to be excellent, disciplined capital allocators. And we have to earn your trust on that, but we have that determination. It starts with the fact that we generate a terrific amount of free cash flow, $1 billion a year supported by our asset-light business model and our continued working capital discipline. Our priorities are very clear. We invest in attractive organic growth in a very disciplined way, those same levers I just talked to. The next 1 is M&A. Now to be clear on where we stand. We just went through 9 years of transformational M&A., mega deals that change the configuration of the company to set us up for success that I just described. We don't need to do those big transformational deals again. For that reason, our forecast is on bolt-ons that build on our position of strength in those 10 high-quality operating brands. We believe we have a runway ahead of us to create incredible shareholder value by building on our positions of strength. So our M&A strategy will have a bolt-on bias. And share repurchases will be a permanent piece of our capital allocation. We feel because we have a high-quality company. We're fine investing in ourselves. And so any time we're looking at the relative returns between share repurchases, any M&A we do has to be competitive versus that in terms of returns. So you see us dynamically balance between M&A and share repurchase. And that leaves us room to have a regular growing dividend as a part of our story. Our M&A process will be more disciplined, rigorous strategic operational and financial frameworks that reflects that bolt-on bias because it's a different thing looking at a bolt-on deal than looking at transformational deal. Importantly, it has to fit strategically. It has to be accretive to our durability to our growth rate on revenues and to our margins. That's our new approach. As you can imagine, we've had to look at our entire M&A process to make sure it's oriented towards this new strategy, and we will do that. And over the last few years, I just picked this few examples of bolt-ons that we've done second half of 2023. These 4 bolt-ons gives you a bit of an example of what we mean by bolt-ons. Four deals, not huge, but in combination, they grew revenues 25% last year. The return on invested capital in the second year is already mid-teens. So not everyone would look like this, but that gives you an idea of what we mean. I also want to spend a minute on our Fortive accelerated financial framework. And I'm going to walk through this page from the left to the right. The first column shows you last 12 months, Fortive as we are today, before the spin. Second column shows you we start day 1 after the spin with new Fortive accelerated. 3% to 4% revenue growth, 29% EBITDA margins and very strong adjusted EPS growth rate even after adjusting for tax rates. We believe for the next few years, in spite of the uncertainty and all things that are going on in the world, we have the durability to continue that revenue growth. So 3% to 4% remains what we believe for the next 2 years will be our path. The discipline around everything we do on operating leverage remains. So 50 to 100 basis points of adjusted EBITDA margin expansion each year. That leaves us room to invest in organic growth in a very disciplined way. And we believe, combined with the work we do on capital allocation and share repurchases, that sets us up for very strong adjusted EPS growth. That's all on the path to acceleration. If you listed the strategy that I've described, that sets us up for much better. But that's what we look at for the next 2 years. Let me spend a few minutes on our purpose-built team. This is our leadership team and they're all here in the room today. And I'm incredibly excited about this team. Over the last 9 months, I focus on curating a team that fits the strategy we just described. I'm excited about what we have here. It's a blend of Fortive Business System experienced leaders, that's 80 years of an FPS experience on this team. But we've also injected some new talent, where we needed it. Let me just spend a few minutes on some of the speakers you're going to hear about. So Chad Rohrer leads the majority of our Advanced Healthcare Solutions segment. He has been instrumental to the transformation of our ASP business over the last 3 years. Chad has a distinguished career in the medical devices industry and the health care industry. He was also a [indiscernible] football linebacker before that, if you're interested. And I look forward to him sharing the spotlight on ASP later on. Parker Burke now leads fluke business. We just appointed him. Parker has been with Fortive for over 15 years and our related companies. He is a great example of joining us as a General Manager development candidate and he's had progressively increasing roles. And most recently, led our Industrial Scientific business way was instrumental to driving a hardware transactional business to what's now more than 50% recurring hardware as a service business. He joined us after serving for 6 years as an officer in the U.S. Marine Corp. Arul Elumalai has been with us for just 100 days, while he joined us after a 25-year career in the software industry, including 10 years at Microsoft, building a lot of the products that we love and use today. He now leads our facilities and asset life cycle software business, and I'm excited to see what it brings to our great team to elevate the performance of those businesses. And finally, Mark Okerstrom, our new CFO. This is a role as many of you know from our discussions that I had a very high bar for someone that will fit our culture, but also can execute the strategy I just described. Discipline operationally, capital allocation effectiveness and shareholder effectiveness. And Mark hit the mark from my point of view. It joins us with great public company CFO experience as a CFO, a great track record of shareholder value creation and delivering on expectations consistently. The big reason why it was Institutional Investor magazine, top 3 public company CFO in the Internet sector for 3 years back-to-back. Excited to have this team together. Everyone on this page has a great story. And that's backed up as well with a terrific our refreshed Board of Directors with highly relevant expertise. We have people that have been around high-growth businesses, people that understand capital allocation, the 3 CFOs are former CFOs on our Board with a lot of passion around the disciplined capital allocation that I described and just terrific oversight to make sure that we execute on that and great expertise on both of the segments that we play in. In the end, it's about our people. The thing that gives me personally a lot of joy, excitement and a lot of humility is the quality of our team across Fortive. All 10,000 of our colleagues across this company I am bed with this passion, this meaningful passion of making our world save and productive and apply themselves with the Fortive business system to make that happen every day. They are ready and fired up to execute the strategy, and that fills me with a lot of excitement as well. So that's a story, simplified focused company poised for acceleration, the Fortive Business System amplified to have impact, determined to be excellent disciplined capital allocators and a terrific purpose bill team fired up, ready to go. That's where we stand today. And I hope you join us on this journey. I'm excited to introduce Chad Rohrer to do our spotlight on ASP. And as it comes on, we'll roll a video that just shows you a little bit about how we protect patients at their most critical moment. [Presentation]

It was a privilege kicking off the afternoon spotlight sessions, and I'd like to start on what Olumide finished on and that is a purpose-built team. And I would contend that it is very much at the heart of everything that we do at ASP. You saw in the video 1 out of 31 patients suffers from health care associated infection. Think about the strain on population health, the cost to the health systems across the globe with those type of statistics. For many of us at ASP, it's personal. Ourselves experienced it or a family member or a member of our community. And so we know we are united in our purpose. If you talk to anybody at ASP, they'll be able to recite your mission, and that is to protect patients in their most critical moments. I have 3 key messages for you here today. The first is a market leadership position in low temperature sterilization that we are very proud of and is underpinned by clear clinical differentiation. Second point, we have a highly recurring revenue base, intentional strategy to continue to develop our recurring revenue base and strong secular tailwinds. You heard Olumide talk about the growing middle class and other trends that are driving sterilization. And last but not least, we are poised to accelerate our top and our bottom line performance. Let's take a snapshot at our numbers. We're roughly a $900 million business, but perhaps more importantly, we have 80% recurring revenue. I love how Olumide put it. Recurring revenue is wonderful, but we want recurring customer loyalty. And that is what you see in terms of 15,000 global customers. Many of these customers are coming back to us after renewing 1 or 2 or 3 different cycles. And that is something we have to earn each and every day. I also like looking at our market potential, our addressable market under this lens. If you look at the total number of surgical procedures, there is 30 million. We estimate 30 million procedures that happen annually that those medical devices are best suited to be reprocessed in a low temperature sterilization. The exciting part is that number should continue to grow as there's more indications of use for medical devices being reprocessed in our sterilization modality. I love talking about who we are by looking at our innovation time line. I bring you back to 1993. At this time, the awareness of health care associated infections was rising. The complexity of medical devices was continuing to become more and more important. And frankly, the devices could not tolerate a high-temperature steam modality. Now there was a solution it's not a GTO or ethylene oxide, but there is more and more research upcoming showing that ethylene oxide, it could be a possible carcinogenic and based on the risk to the operator, in many cases, was not appropriate in a health care setting. This set up the opportunity for us to introduce our iconic inventor brand, and that is when we introduce steroid in the low-temperature sterilization space to the world. We didn't stopped there. We've also ventured into software side of the health care arena. In 2002, we introduced the world's first web-based instrument tracking system. That SaaS business has continued to give us opportunities as we grow and be more intimate with our customers. Most recently, we introduced what we call Sensus AI Square. This is a productivity tool. So what we're able to do here is we're able to give real-time insights to the sterile processing leaders that make better real-time decisions in their department. That drives productivity, which supports our mission as a company. And then you look into the top right of the slide, Ultra GI. You had to had a chance to see it in the video, hopefully, you had a chance to see it in the innovation showcase. This is a really big deal. Many of the headlines you may have seen the newspaper clippings of health systems that had to deal with outbreaks, painful outbreaks, bad PR, of course, but more importantly, if you think about the patients that are behind those outbreaks. In many cases, that was caused from endoscopes in the GI space. Prior to the launch of Ultra GI, there was no ability to sterilize GI scopes, 0 ability to sterilize GI scopes. And this is the highest standard of care. Sterilization gives a larger margin of safety to protect patients. And last but not least, if you look at the bottom right of our slide. Many regulators around the world require serialization assurance. Basically, they want to make sure the sterilization process actually worked. Prior to this introduction of the BIOTRACE Instant team, best-in-class was a 20-minute read time. It took 20 minutes after the cycle is over to verify that, that cycle is effective. We have taken that 20 minutes to 7 seconds. That is productivity at its best and what we continue to strive to do as a company with our innovation. Let's look at it from a little bit different lens. These are our categories. I first start with terminal sterilization. This is where low temperature sterilization space lives. I mentioned 1993, we introduced the market. I'm proud to say that even today, we still remain the strong market share leader in the terminal sterilization space. Now you see our iconic brand there in our steroid units. But this is very much a razor/razor-blade approach. So I'll tell you exactly how this works. So every time there's a procedure, the medical, the device goes through the procedure itself, needs to be reprocessed and sterilized. Every single time that process requires a proprietary ASP cassette in order to make that process run. It also requires sterilization assurance, as I mentioned earlier, as far as biological and the chemical indicators. Then I draw your attention down to the instrument tracking software in AI, the third line. We talked about the Sensus business and the opportunity that we have there. We also have our exciting startup opportunity within the Advanced Healthcare segment. We went after a really big problem. And we're using computer vision to analyze surgical trays to see where they may be waits, where there's instruments that the surgeons never use and ensuring that we provide the right instrument to the surgeon at the right time, but no more. That reduces excess has a strong return on investment. And this is an example of where we're placing bets on future growth opportunities. And last but not least, you see our large services organization. We have nearly 30,000 installed base units today, and those units last over a decade in some cases. Because of that, we have preventive maintenance that regularly needs to occur, but this is an advantage. This is an advantage for us to get close to our customers and keep the customer intimacy as we aspire to be true trusted advisers. And that service team, our field service engineers that visit with our customers. You saw some of it in the video a major competitive advantage for us at ASP. That's another way to look at it. Everywhere we see illuminated dot, this is where we have an active steroid unit. You'll see it's in all the developed worlds around sort of developed countries around the world, but also many of the developing countries around the world. 30,000 installed base demonstrates a strong market share leadership position in low temperature. It's not just the quantity, it's also the quality that matters. The U.S. News & World Report every year publishes a top 25 hospital list. I'm pleased to say that every 1 of those top 25 hospitals utilizes our steroid technology. And then you look at our win rate. We are winning 70% or greater of our deals and competitive opportunities. This shows that we have enduring customer value that we are able to demonstrate our clinical differentiation and one of which we can continue to grow and build our customer base over time. I'd like to look at where we play, talk a bit about our marketplace and where we have opportunities in terms of procedural growth. We have a $5 billion addressable market, but more exciting, you look at our priority categories. I talked about that very important GI endoscope space, 100 million procedures. Again as mentioned, high-risk space, a big cause of many of the hospital acquired infections that are happening or associated infections in our hospitals. And prior to ultra-GI, no ability to sterilize. As you can think of more and more products in that 100 million procedures being able to be sterilized, there is an increasing market opportunity. The same can be true with robotics. There's, of course, a lot of talk and energy out there as far as soft tissue robotic entrants. This is growing double digits. These are highly sophisticated devices that require low temperature sterilization. We can grow with robotics. And then you have general MIS or minimal invasive surgery that continues to grow in many of these other segments that we are very well positioned. Why do we win? Perhaps 1 of the most important concepts we're going to talk about today. I talked about true clinically differentiated technology. And it really all starts and ends with us in terminal sterilization, with the concept that we talked about at ASP is the power of plasma. So what does that mean? Well, simplified, our system uses hydrogen peroxide gas plasma. Hydrogen peroxide is injected into the chamber through our cassettes. And at the end of the process, Plasma is activated. So what does plasma do? Well, what plasma does is it dissipates to sterilant. And so it allows us to take it to safely inject more sterilant than anybody else on the market. And that gives us the ability to be more effective, but then protect the caregiver and the environment. As you heard on the video, I'd like to say that our products are tough on germs, but gentle on instruments and gentle on people. We have 2 peer-reviewed publications in medical journals talking about clinical evidence demonstrating this effectiveness and this advantage, and we intend to continue to invest in more proof points for our customers. Accelerated innovation. We've had 6 NPIs introduced with 510(k)s in the last 18 months. Some of those were on the slide you saw. There were others that we can't talk about yet, but we have really truly restarted that innovation machine at ASP. We talk about partner for our customers through our life cycle, 80% recurring revenue, and we have over 100 countries served. With the advantage we have on this, you heard Olumide talk about the rising standard of care, the rising middle class. As those people demand higher quality health care, we are there. We are there to support them, and we are there to grow our business while also making the world a better place. It's a great combination, and it's a great position for us to be in as an organization. We're leveraging FBS to accelerate our results. If you go back to the time of our acquisition from Johnson & Johnson, this is a new concept. They didn't have a business system. It took a few years to get ingrained. I'm happy to say that it's become part of our culture now. So it's how we talk. It's how we work together, and we're seeing proof points of how we're accelerating growth. We've seen in recent years our ability to accelerate faster than market growth, and that just gives us reason to believe into the future. Let me give you a little bit of a case study. I think this is a great example. And this is analyzing our overall consumable business. If you go back a couple of years ago, we are growing in a steady rate outside of the United States. But in the United States, we are losing -- modestly losing some market share. And we analyze what is our opportunity here? What can we do to accelerate growth? Part of what we learned is that we had a customer intimacy issue because our consumables were being distributed through a list of distributors. So it was taking the direct contact from our team and our customers away and adding unnecessary cost to the system. Also it's a big deal because you're talking about the customer experience of your most important product line. So we knew we could get it wrong. So we deployed to set a very focused FBS tool, starting to voice the customer, make sure we understood the expectation, value stream mapping, and I'm happy to report that it was a resounding success. Nearly 100% of our customers converted to the direct model, a 2,000 basis point acceleration in North America consumable growth. It's a 200 basis point operating margin expansion. Now some of this was a onetime impact because we eliminated the distributor fees. But what it did is it put us on solid foundation as we introduce more innovations to the marketplace, continuing to grow recurring revenue, we can get an impact from that innovation faster in a direct model. We'll talk about 3 other drivers, innovation acceleration. We have an opportunity here to expand device indications. And what I mean by that is we are partnering with medical device companies across the world. And we're working with them and say, how can we help have more of your product to be sterilized in our low temperature modality? Everyone recognizes this increases the margin of safety. So we have a lot of cooperation, but we are working dedicated here because if we can get more medical devices indicated for our application, it grows our market opportunity. Commercial acceleration. We have some great examples of where we can grow with adjacencies. I take that steam biological indicator market. I spoke about that instant steam earlier. This is a market that we didn't participate in, 0. We had 0 participation prior to that introduction. It's a $650 million market. We have now entered this market, not only entered it, but entered it with differentiated technology going from the 20 minutes down to 7 seconds. That gives us growth opportunities into the future. And last but not least, I highlight our recurring customer value. We aspire to be trusted advisers to our customers, and we're going to be working with thought leadership, partnering with key opinion leaders, working with our regulatory bodies to help influence standards that we believe makes the world a better place and making serialization available for a greater portion of the world's population. So I leave you with 3 key messages. We have a market leadership position with clearly differentiated technology that we believe is a sustainable competitive advantage. We have a durable but choice highly recurring revenue business as well as strong market tailwinds, and we are poised to accelerate our top and our bottom line growth. It's a privilege to be with you all here today. And I'm going to introduce our next speaker, Parker Burke, [indiscernible] leads our Fluke business who's also going to start off with the video. Thank you. [Presentation]

Good afternoon. Having used the FBS toolkit for the last 15 years, I am both a student and a practitioner of the Fortive Business System. I value our lean tools, our growth tools, our innovation tools. And I've had the opportunity to make a measurable impact on a number of our operating companies leveraging this incredible toolkit. And at Fluke, our FBS culture continues to enable us to outperform, outperform for our employees, for our customers and ultimately our shareholders. And I'm pleased to share with you a bit about the story today. Today, I couldn't be more proud to represent the 3,500 Fluke employees who wake up each morning with an unmatched focus on serving those people who trust us. Our people understand the work that our customers do because we spend time with them. We study how we can make their lives safer and more efficient. And in turn, electricians, facilities and maintenance workers reach for our tools every day to keep the world up and running. We are their trusted partner to keep them safe and productive in every moment. Today, I'm going to touch on 3 key points about Fluke and the incredible opportunity that's ahead of us. First, Fluke instruments are the gold standard for professional instrumentation. Further, as the leading experts in metrology which is the science of measurement, we are well positioned as a key player in defining industry standards in an increasingly complex world. Secondly, we play in a large addressable market. And our strategy, both organic and inorganic, has doubled the market opportunity ahead of us, enabling us to take advantage of durable secular tailwinds. And today, I can tell you, Fluke is a resilient business that will continue to deliver a consistent growth performance. Let's take a look at some of the details of our business. We're a $1.7 billion business with 15% of our revenues recurring. Those recurring revenues coming from our Software-as-a-Service and services attached to our professional instrumentation. We have over 50,000 customers around the world, with more than half of them outside of the United States, which is a testament to our global brand and the fact that people around the world trust Fluke. Finally, innovation will continue to drive the sustained growth led by our over 2,000 patents and growing, which enables us to keep an increasingly complex world up and running. See, at Fluke, we're a story of pioneers, founded in 1948 by John Fluke, Sr. Mr. Fluke engrained a passion for innovation in our company, which we continue to build upon today. And since our founding, we built market-leading positions across a variety of professional instrumentation and software-based condition monitoring. And over the last 10 years, we've accelerated both our organic innovation and our M&A, resulting in a higher growth, much more durable business. See, starting in 2016 with the acquisition of eMaint, we created our Fluke Reliability business, our asset condition monitoring business, which contains a significant software and recurring component. As Olumide indicated earlier in the presentation, more recently, we acquired Solmetric, which gave us access to -- or gave us access to the solar market, and Azima DLI, expanding our AI condition-based monitoring offerings. This expansion into attractive, high-growth vertical markets has resulted in a strong return on invested capital and contributed to our above-market growth rate. When you leave here today, I challenge you. Ask any electrician in the world. Perhaps it's somebody who may come into your house to do some routine maintenance around your home. Maybe it's somebody in your office who's doing work on the escalator or the elevator. Or perhaps it's an industrial worker working in some of the riskiest high-voltage situations. I challenge you, ask them, do you have a Fluke instrument in your toolkit? I guarantee they'll either smile and show you the latest technology they had invested in that they trust each and every day to do their work, or they will admit that they wish that they had one, and they'll share with you which one they're targeting with their next investment in their toolkit. Our unmatched portfolio of professional instrumentation, software and services are critical to keeping our customer sites operational and running efficiently. Further, standard writers around the world trust Fluke and our products to define industry standards for measurement in an increasingly complex world. Quite simply, electricians, facilities and maintenance workers and standard writers around the world will tell you that Fluke sets the gold standard for professional instrumentation. The great news is that our market is large. And it continues to grow, led by favorable secular tailwinds, including the energy transition and the increased consumption of power in all parts of the world, growth in key markets like the maintenance and operation of data centers and the proliferation of connected systems around the world. For the last 5 years, we've expanded this market opportunity by deliberately targeting segments with durable macro tailwinds: solar, where we help customers install and maintain solar photovoltaic plants or solar farms; EV charging, where we provide equipment for maintaining the charging infrastructure and are working with regulators to define standards for safe and equipment -- a safe and efficient operations; and finally, data centers, where we've leveraged our expertise across condition monitoring and professional instrumentation to help with the build-out of this growing critical infrastructure. As a result, we're a very durable business, and we're poised for growth through volatile industrial cycles. At Fluke, we can say we win quite simply because we are an iconic inventor brand who has earned the trust of our customers for having the highest standards of safety, accuracy and reliability. We've built on this through a recurring pattern of disruptive innovation focused on solving our customers' hardest problems in most mission-critical needs. Secondly, we have an unmatched portfolio depth and breadth, as evidenced by our incredible patent portfolio in the new-to-world groundbreaking technologies that we bring to market each year. Our customers trust Fluke. They continue to invite us into their workloads with their instruments and software, where we help make them safer and more productive. I've just touched on our incredible brand, our unmatched technology and the software tools and how they can work together to help solve challenging customer problems. And a great example that I'm excited to share with you on this is in our partnership we have with NTT DATA. As one of the largest data center operators, NTT DATA needed a partner to work on their site optimization. And we have the opportunity to work with them across our instrumentation and software portfolio, enabling them to dramatically increase their uptime, which helps them earn the trust of their customers each and every day. Secondly, we create standardization across their workflows, enabling them to optimize their operations and total cost of ownership across their thousands of assets. As data centers continue to grow and proliferate around the world, I'm proud that Fluke, our software and our tools will stand alongside those who are building, operating and maintaining this critical infrastructure. Having studied and benchmarked Fluke as a part of Fortive for the last 15 years, I'm excited to share with you about our FBS journey and where we're heading in the future. I've seen the power of the Fortive Business System transform Fluke many times over. And these tools, our lean tools, our growth tools and our innovation tools have led to incredible results: most recently, the expansion of our recurring revenue profile, enabling us to weather the cyclicality in industrial markets; secondly, building on what were already world-class operating margins, expanding them each of the last 5 years; and finally, the continued expansion of our working capital, demonstrating how FBS not only fuels our growth and our profitability but helps us multiply our free cash flow. One of the best elements of FBS is that its runway and impact only accelerates as an FBS culture matures, and this is something that the Fluke team exemplifies. Most recently, I'm excited to share with you Fluke's deployment of our FBS tools focused on innovation. These tools have enabled us not only to meet the evolving needs of the markets we serve and the customers that are in them but also in building a much more durable business. In 2022, we implemented our Lean Portfolio Management tool, a tool that we codesigned with some of the world's leading innovators. And this tool focuses our teams on efficiency and prioritization, ensuring that we are working on the things that are most important to our customers and the things that ultimately are most important to our business. In 2023, we doubled down on innovation. And we started to focus on really deeply understanding the customer problems that we can go and solve by studying them, spending time with them and understanding the workflows. Then we innovated. We iterated. And we prototyped to determine if we could build software, we can build technology or devices that help meet our customers' needs. In short, can we solve with technology the problems that they were asking us to solve? And then finally, we validate. We validate our business model. What are customers willing to pay for these new innovations? How can we maximize not only the value that we create for them but optimize the value that we capture? And our focus over the last 3 years has led to an incredible increase in our active innovation project funnel and more importantly revenue from new products that we've launched in the prior 12 months. As we look to the year and the years ahead, innovation will drive our success at Fluke across 3 incredibly important frontiers. First, we will reflect user-friendly interfaces. We'll enable the next generation of technicians to do their jobs effectively while leveraging AI and our Azima product to continue to drive innovation. Next, we'll develop tools that solve customer problems in the fastest-growing and most attractive markets, including solar, electric vehicle infrastructure and the data center build-out, operation and maintenance. And then finally, we will move -- continue to move from discrete tools to integrated decision engines using software and AI to enable the technicians who trust us to be more efficient and draw more powerful conclusions from the data that we were able to provide to them each day. As I close, I'd like to invite all of you to be a part of what we're building at Fluke and across Fortive and reiterate 3 important points. First, Fluke instruments are the gold standard for professional instrumentation. Further, we're a key player in defining the industry standards for measurement across an increasingly complex world. Secondly, we play in a large addressable market. And our strategy over the last few years has enabled us to double this market opportunity to take advantage of durable secular tailwinds. And today, I can tell you, Fluke is a resilient business, and we will continue to deliver a consistent growth performance. Thank you for the honor of letting me share with you a little bit about the work that the Fluke team has done over the last few years and more importantly where we'll go in the future. And as we welcome my colleague, a rule, to the stage, please enjoy a video on how our Facility and Asset Lifecycle group is enabling the built environment and supporting thriving communities around the world. Thank you. [Presentation]

Schools that our children go to on a daily basis. Grocery stores and warehouses that stock supplies critical for our sustenance. Hospitals, the lives are saved. These are what we call built environments. And the purpose of the Facilities and Asset Lifecycle group is to manage these built environments to deliver outstanding experiences for the owners, operators, workers and visitors. Three key messages about FAL. We are 3 leading software brands serving targeted workflows in the Facilities and Asset Lifecycle where we are differentiated to win. Number two, our differentiation comes from deep industry expertise, proprietary data and network effects. As we look forward, our growth accelerators are in product innovation in SaaS and go-to-market capabilities improvements. The FAL Group drives $700 million in revenues on an annual basis. 60% of that is recurring in nature. And that number goes up to 85% if we include multiyear reoccurring purchases. And we are growing at mid-single digits. The impact of what we deliver is in the scale at which we operate. $25 billion plus square foot of commercial real estate are being managed by our solutions. 80,000-plus businesses, including contractors, service providers, are connected using our software. That is the impact that we are having. The group is made up of 3 iconic category-creating brands: Gordian, Accruent and ServiceChannel. Gordian pretty much created this category called job order contracting. And with the addition of RSMeans Data, it became the de facto and gold standard for construction procurement in many sectors. Accruent pioneered real estate management and expanded into asset management and document management. ServiceChannel made the best of network effects, bringing together a 2-sided marketplace consisting of owners and service providers who are highly fragmented and thereby automating the end-to-end maintenance life cycle. So how do these brands come together to solve the problems of Facilities and Asset Lifecycle? I will break it down for you. In its simplest form, any physical structure goes through a life cycle. It's being built. Then there is day-to-day operations, and then there is ongoing maintenance of the facilities themselves as well as all the equipment that are housed in them. So what do we do? We bring together these 3 iconic brands to go and automate targeted workflows where we specialize. And we focus on workflows that are mission-critical in nature in industries where budgets are allocated on a resilient basis due to the criticality and where we are differentiated to play and win. In specific, in the build workflows, we focus on construction, planning, estimation and procurement. Think about projects like school buildings needing a new roof or a hospital going through a multiyear renovation. Our Gordian software enables facilities managers to go and complete these projects on time and under budget and to code. And the facilities operations side using Accruent software, we specialize in workplace management, running facilities such as factories, office spaces or hospitals. We also specialize in asset management, monitoring and tracking all the way from a simple life fixture to a refrigerator or a very expensive medical equipment. And finally, document management, thousands of documents, including leases, contracts, engineering drawings that facility managers have to deal with. That is being done with our Accruent software. And finally, in the maintenance phase, we are automating the end-to-end maintenance workflows. This could be just the scheduling of an annual refrigerator maintenance that has to happen across hundreds of locations, or it could be the rapid response needed when an HVAC or a plumbing system breaks. And that is done using a SaaS solution, which is ServiceChannel. The markets that we play in can be broadly categorized into 3. This is an $11 billion opportunity growing at mid-single digits. The first is construction planning technology. Here, things like smart buildings or rising energy costs are leading to renovations beyond just routine maintenance. The second category has to do with workplaces and sites, return to office. We all know what that is doing to workplaces. And customer experience modernizations, they are driving spend in this market category. And finally, in asset management, where it is becoming a norm to do predictive maintenance, to do remote monitoring, and AI is opening up new opportunities for technology providers like ourselves. While we think about all these secular trends, there's something that goes unnoticed. That is the amount of catch-up that we need to do. The maintenance backlog in commercial real estate that Olumide alluded to is north of $1 trillion. And you know what is more bothersome? The scarcity of labor, people with the right experience, the right expertise to get these jobs done. And that creates a perfect storm, and that is where we come in. There are many vendors who solve that space with software alone. But software can automate the workflows. In order to make that unlock true value, we need the data and the analytics. We need industry context tuning, and that is where we are differentiated. We are unique in bringing proprietary data, and we are differentiated in our industry context. And the durable value that we deliver to our customer is grounded in the principle that we meet customers where they are with software and services that they are increasingly consuming as fast and via flexible consumption models. Above all that, what makes us stand out is the benefits of the network effects that we bring to our customers. 80,000-plus businesses are growing and offering services on our platform, and our customers are increasingly tapping into that network for the expertise. Let me bring this to life with a customer example. Sam's Club, 600-plus mega warehouses. Sam's Club has invested in tagging all their assets across the country. So today, they have a single source of truth and a universal view of all these assets. If you are a facilities manager, your worst nightmare is when something breaks, a technician shows up and they're unable to fix the issue because they do not have the right data or they do not have the right expertise. With our solution, Sam's Cloud is able to match the right service provider for the right job. The impact, the first-time resolution of maintenance task went up by 40%. That is increased productivity. And understanding that the temperature in a refrigeration unit is spiking and doing the maintenance that prevents the milk or the meat from becoming harmful to consume, that is increased safety. That is what our technology does. But in addition to this technology, when we step back and think what makes us deliver the superior value and differentiation, the answer is in our culture of FBS. As our customers are making this transition from on-prem to SaaS to flexible consumption models, the FBS mindset, the value stream mapping methodologies and tools for financial model transitions are helping accelerate these shifts, both for us and our customers. The impact, ARR as a percentage of total revenue is up by 500 basis points. Net dollar retention is also up by 500 basis points. Beyond those, as a software practitioner for almost 30 years, what inspires me is the maturity of the software development life cycle process and the portfolio management process that FBS gives us. It dramatically increases the speed at which we can bring new product capabilities. Revenue based on new products has gone up 4x in our operating companies since their acquisition. These are the exact principles that help us deliver margin-accretive growth in our SaaS business in ServiceChannel. High teens growth and 800 basis points operating margin expansion. How did we do that? The portfolio management process helped us take products from ideation to delivery at a much faster date. And when we applied some of our FBS tools for cloud ops practices, our DevOps practices, we brought down the cost. To give you a very specific example, we brought down cloud spent by innovative storage tiering. How did we unlock that? Thanks to FBS. FBS is and will continue to be a powerful driver of growth, profitability and innovation across all our software products. And when we look forward, our growth acceleration, the primary focus areas are threefold. From an innovation perspective, it's about AI-driven software products. We have a head start here. Many of the offers that we've been working on are hitting the market now. For example, Gordian Cloud that many of you would have seen in the innovation showcase. Gordian Cloud allows all our customers to experience the full capabilities of Gordian across planning, estimating and procurement. We are a single cloud portal with human in the loop AI, all delivered as SaaS. On the commercial side, international expansion, Accruent with the acquisition and the cultivation of a channel partner network is increasing its footprint in Asia Pacific and Europe. And we are dramatically improving our capabilities across sales and go-to-market, cutting across people, process and tools to be better tuned for SaaS go-to-market. Those are our growth accelerators. In short, FAL, 3 leading software brands differentiated by deep industry expertise, proprietary data and network effects, best positioned for margin-accretive growth. Thank you for being a wonderful audience, and I would like to invite on stage our Chief Financial Officer, Mark Okerstrom.

Thank you, Arul. Appreciate it. Thank you. Right. Well, it's great to see you all. I'm going to start where Jim started, which is a huge thank you to all of you who are here today. These are long days, and we appreciate you being here and investing the time with us. And I'd also love to thank the people that are with us remotely and those that are going to watch and maybe read this later. The fact that you are here gives us even more confidence in the path ahead. So I'm going to start with just a little bit of context. I joined Fortive about 2.5 months ago, but my work on Fortive have started long before that. And it started not unlike you would start your work. I read through the Ks. I scoured the research reports. I started to build my model and I spread the numbers. And I spoke to anyone who would speak to me who knew anything about Fortive. And as I did that work, 3 key themes really popped out at me. And as I spent more time with Jim and Olumide and the team and the Board, again, those 3 key themes record back at me. Fast forward to the beginning of this year, and I went up to Everett for what was, I think, supposed to be an hour meeting with Olumide. And after 2.5 hours of him sharing his vision for where we could take this company and his clear value creation plan, I was in. And guess what we talked about. Those 3 key things. Well, at the beginning of March, I joined, and that's when the interesting bit started because up until that point, I've done all the work that an outsider could do. But now I was on the inside. I was on the inside. And as I showed up, I got handed a schedule called my immersion schedule. Now some people might call it onboarding or training, but that wasn't this. This was my immersion schedule. It was a plan, handcrafted by Jim himself to onboard me into this business. I went to operating reviews. I went through the trainings. I studied the Fortive Business System, and it helped me become a student and a practitioner. I learned the mindset. I learned the cadence. I learned about the tools. And I thought about how I could apply them. And as I went through that immersion process, 3 key themes just kept on coming back to me. But I'll tell you the thing that gave me the most conviction. It was actually meeting with you, members of the investment community. And a few of you will probably remember these questions that I asked you, which is what's going right and what could be improved. And you know what I heard? Those same 3 key themes. These are attractive businesses that have been operated rigorously, and they're poised for acceleration. But there's a real opportunity to do better on capital allocation with a returns-focused approach. And it's time for us to rebuild investor trust. These are the 3 themes I'd observed. These are the 3 themes I had heard. And these are the 3 pillars of not only our messages today, but our value creation plan. We're all aligned at the opportunity, and that's what gives us the clarity and the confidence and excitement for what's to come ahead in the years to come. Now over the next 15, 20 minutes or so, I'm going to go into a little bit more detail on the 3 pillars of the value creation plan in the hopes that I can help you form your own view on new Fortive. Let's start here. It's a great place to start, $4 billion in revenue, growing 3% to 4%, 50% recurring. $1.2 billion adjusted EBITDA and $1 billion of free cash flow, growing nicely. 64% gross margins and nearly 30% adjusted EBITDA margins. We have an attractive product mix, about 28% software, 50% recurring and climbing, diverse end markets, predominantly industrial, medical with some exposure to government but not too much. And of course, attractive geographic exposure, the U.S., Europe and exposure to the secular tailwinds flowing through non-China, Asia. And this is a chart that Olumide shared as well, which really highlights the durable growth of Fortive. Core revenue growth of 4%, gross profit growth of 9%, adjusted EBITDA growth of 12%, perfect conversion into free cash flow, operating leverage down through the P&L. But the great thing is this is happening also at the segment level, healthy durable revenue growth and operating leverage down through the P&L. And the benefits of diversification and resilience are clear. There is a lot happening in the world during this time. You can't see it at the Fortive level, and you can't see it at the segment level. If you're looking for Fortive Simplified, it's right here, 2 segments, strategically coherent, financially coherent and resilient. This is new Fortive. So Olumide spoke a bit about the work that had been done to really focus on building more durability in the business. And what a great chart to illustrate this. In true Fortive style, they set their eyes on something and we delivered. I wasn't here, but wow. Recurring revenue climbing as a percentage, something we expect to continue, and growing very nicely. Okay. So what to expect going forward? I just want to go into a little bit more detail and something that Olumide shared with you earlier. In this far left column, if you are a shareholder of Fortive today, this is what you own. On June 30, in addition to your shares in Ralliant, the next column over, that's what you own. That is the beginning, day 1 of Fortive Accelerated. But our ambitions are much higher. So if you look to the next column, this column is what we would expect in the next couple of years because this is what the business has demonstrated that it is absolutely capable of. But make no mistake, this is not our ambition. Our ambition is for better, faster than 3% to 4% core revenue growth with more than 50% recurring, more than 50 to 100 basis points of margin expansion and better than high single-digit adjusted earnings per share growth on the back of strong and shareholder-focused capital allocation. This is where we're going. So that was the first pillar, Fortive Amplified, Fortive Accelerated, Fortive organic trajectory. Let's talk about the second pillar, capital allocation. We have 4 priorities. Number one, invest in accelerating organic growth. You've heard from the team, the plans. They are real. Our plan is to accelerate this business, and we are going to look for opportunities to invest in it to take advantage of the opportunities that are in front of us. FBS will be absolutely at the core. We will also look at M&A. We're going to have a bias to bolt-ons. And we're going to look at this, just to be clear, interchangeably with share repurchases, optimizing for the best relative return. Again, our goal in all of this is to accelerate shareholder returns. And lastly, our dividend. We're going to have a good dividend. It's going to grow. We will be adjusting this to reflect the spin going forward. So let me double-click then on M&A and just dive a little bit deeper in some of the messages that Olumide already shared with you. We are in a new phase as a company. And we have been gifted with some incredible assets. This is not the Fortive of old. The Fortive of old was building the Fortive of today. And now we have a benefit of saying what can we do from an M&A standpoint to make this even better to accelerate the returns. And that will be our focus with M&A. The M&A process has been Kaizened. It has been improved by the team. And it starts with having frameworks for really thinking about what do we want to do and what are those bars we're going to hold ourselves up to. We have clear strategic and operational framework. We're looking for things that have strategic portfolio coherence aligned with our existing domain expertise. Why is that? Because if it's aligned with what we're doing, it's more likely that we will be able to create differentiated value through providing synergies. It also makes deals just generally less risky. We're looking for businesses that have a clear right to win with a strong market position, technology, management teams and track record. And if we can put 2 businesses together, one new with one of our own to create this, all the better. And we will have an FBS-enabled VCP, value creation plan, ready to execute on day 1. In terms of our financial framework, we'll be looking for businesses that are supportive to the durability that Fortive has become known for, that's supportive to growth, that has attractive margins and potential to create even more attractive margins. And again, we're looking for deals that will deliver attractive returns versus other alternatives. And of course, we have got to have clear line of sight to return on invested capital better than WACC. As I said, the process has been Kaizened, rigorous systematic due diligence, biased proprietary deals where there's less competition. Price is 100% part of the value creation strategy. We will be focusing on value creation and enhancing shareholder returns. I'll say it again, that is the goal. And the Board will be with us every step of the way. As a foundation to this capital allocation approach is an incredibly strong balance sheet. We are committed to investment grade. We very much value ongoing access to the capital markets come what may. We're going to target gross leverage to adjusted EBITDA of 2.5x or better. And we will increase leverage to 3 or more times, always with the intention of delevering within the next 12 to 18 months. So let's bring it all together on a page, investment thesis on a page, 3 pillars and a clear plan. Now as I run through these pillars, perhaps you could think about imagining a bridge, a bridge that starts with the share price on the day we spin and ends with a share price in the future. Each pillar, a bar in the bridge. So the first pillar, again, attractive business with strong prospects, acceleration on day 1 and more to come. What does that mean for us? We're going to continue to run this business with incredible rigor, with an orientation though to growth, FBS Amplified. What does that mean that you can expect? Continued operational rigor, continued financial discipline, occasional short-term investment of margin to drive medium-term financial performance and ultimately accelerating revenue, adjusted EBITDA, free cash flow and earnings per share growth over time. Let's move to the second block in the value creation bridge. New capital allocation approach geared to enhance shareholder returns. What does that mean to us? Well, we're going to allocate capital wisely with better equity returns as our North Star. So what can you expect from us? Select organic investments to accelerate growth, a strong desire to find deep and wide pools to do regular returns-enhancing great deals with a bias to bolt-on. You'll see buybacks prominently featured, and you're going to see a growing dividend over time, and we'll regularly review the payout ratio and the yield. And lastly, we will have conservative use of leverage. We understand the value of leverage and accelerating equity returns, and we will use it. And of course, the last pillar, building and maintaining investor trust as a core part of the value creation plan. What does that mean to us? Well, it means we're going to earn and consistently work to build greater trust with all of you. So what to expect? Clear expectation setting with a bias to underpromise and overdeliver, delivery on expectations set by us and also expectations shaped by us. We can't shape them all, but we know we're going to try to shape them all. And of course, simplified guidance and disclosure with a focus on key metrics and color on the key drivers. This waterfall, this bridge all adds up in our model to shareholder returns that exceed the S&P 500 Index over the next 3 to 5 years. We want to beat the index so that you can beat your benchmark. Attractive businesses with strong prospects, acceleration on day 1 and more to come, a new capital allocation approach geared to enhance shareholder returns, and building and maintaining investor trust is a core part of the value creation plan. We think it's a powerful framework for value creation, and we hope you'll join us. With that, I'm going to bring up Elena, and I think we can go to Q&A. All right.

Ladies and gentlemen, please welcome our Fortive leaders back to the stage for our Q&A session. We have our team positioned around the room with microphones. Please raise your hand, and we will run one to you to ensure your question is being heard in the room and for our webcast viewers.

All right. Terrific. Well, we've got about 30 minutes. I'd love to kick it off with some questions. I see -- we go with Scott Davis, please.

Mark, I just wanted to be clear. Do you have a new M&A team or a different M&A team?

I'll answer your question, and then I want to kick it over to Olumide. Do you want to start with anything? Or should I just get after this one?

Yes. No, thank you for that. I mean I think the -- maybe I'll start since, Mark, you're 2 months in. So the M&A team that we have is a blend. So we believe for this bolt-ons to work, a lot of the work needs to happen in our 10 operating brands because the benefit of a bolt-on cultivation process is you need the people in the business to know, in some cases, third-party partners that they integrate with or someone they're running into in the marketplace. So the biggest shift here, Scott, is really putting the cultivation more in our companies because that's where the action comes. The deal execution at the center itself leverages some of the same people we have because that -- the discipline there, Mark can add to the team we have in the center. The real work is in the tentacles for cultivation. So that's the way we think about it.

And I'll just -- just to build on that, too, we've got a great M&A team. They are very solid, and they were geared for what Fortive was doing, which was transforming portfolio. And the second I came in and I said, hey, how do you guys think about bolt-ons they'd already Kaizened the whole process. And as I started to talk about, hey, here are the things that I'm generally used to seeing, literally on the first deal approval that came my way, which was, I don't know, a few weeks ago, amazing. So it's Fortive style. It's been FBS.

Okay. And then just to change gears a little bit. I think we could ask the same question 6 months ago, but I'll ask it since this is a fresh chance. But the software assets within the portfolio, can you help us understand why you think you're the best owner for those assets and how you can make them better from here?

Yes. So a few reasons. The first is there are assets that connect to the problems we solve for customers in general. And I'll just give you a few examples. So we have a set of professional instrumentation tools that get used in the cost of maintenance and mostly field-based maintenance, not in the lab, in the field. And it turns out that in the cost of those technicians during their work, the most important value driver is actually where is the work to be done and who is the best technician. And the idea of not just giving you the tools but actually bringing the intelligent system, so tool and the person arrives at the right place at the right time, actually turns out that unlocks more value for customers. So you saw the example of NTT DATA. That's the third-biggest data center provider in the world that Arul talked about. That's a great example where we could have been a vendor that's just selling them tools from Fluke, but the power of being able to show up with actually an extended solution that has here's how you can tag your assets, track your assets, and then when something needs to be done, use a set of professional instruments to solve the problem. It just takes us up a level to the point about we don't want to be a commodity player. So the more we have this integrated solutions, the more nobody else can do what Fortive does. So that's the way -- and each of our software assets has that dimension to them. They're not stand-alone software things that don't connect to anything else. They actually build on what we have.

Great. Next question. Julian, in the middle row.

Maybe just the first question around the health care business. There's a common perception that it's kind of lost share versus STERIS, for example. Just wanted to understand kind of what your market share ambitions are in health care and how we should think about its margin expansion potential from here.

Yes. I mean I'll start and I'll kick it to you, Chad. So the health care segment for us is done really, really well. From a margin expansion point of view, you see the journey we're on. So I'll just -- that's the easy one. The journey continues on margin expansion. Some of that will come from just the fact that our growth in that segment is coming from some of our software and consumable assets that are just high incremental margins because there's not much variable cost that comes with them. So the margin improvement journey will continue over time. I think from a top line and share point of view, we really like the strategy that we have that you heard Chad describe because we picked a lane. Some other players may do a lot of different things. We picked a lane where the puck is headed, where there's more instruments moving to low-temperature sterilization because it provides a higher margin of safety. And the medical device providers also need sterilization approaches that don't destroy the instruments. So there's a lot of trends that move towards where we're headed, and we are winning in that lane that we're sticking our bets on. So we feel really good about the top line trend. I think like Chad talked about, before we acquired the company, there was a period in consumables where we were losing share in North America. But that's -- the story is very different now from the 70% win rate that you heard Chad talk about. Anything you want to add, Chad?

Julian, thanks for the question. I'll just add a few thoughts. I mean first of all, it's not a perfect proxy for our business versus any competitor. And so we analyze our competitive win rates. And I think as I mentioned in the presentation, we're winning over 70% of our deals. We track that rigorously. I do think you saw it show up in our financials with some improved performance in 2024. But I also underpin a lot of the innovations and investments we're making such as Ultra GI are just hitting the market now. So this is going to really show up in years to come when that innovation machine takes hold.

Great. And then just a follow-up on FAL. I think the margins there look low-ish given the organic growth is sort of mid-single digits. So I just wanted to kind of understand, is there a path for a big margin catch-up at FAL? Or it's not likely just because of the competitive landscape?

Well, the interesting thing, Julian, is it's a kind of multiyear view. So the journey we've been on is always the margin top line growth trade-off, right? And so take ServiceChannel as an example just to be specific because we've talked about this. We've had incredible margin expansion at ServiceChannel, 2,500 basis points over a 3-year period. And that was a choice we made in terms of what was important at that period of time. And there may be a period where we feel there's more top line growth to be had, to Mark's point. And so you may see a period of time where the margin growth slows down but the top line growth goes up. But if you step back and you look at the journey on FAL, it is a great platform for us. It's $700 million plus, scaled platform with a chance for us to both grow the top line and then grow margins over time as well towards our fleet average. That may not happen every single year because we're making those choices on what's the right forecast in each period based on what's going on in the market and what's, frankly, best for the business over the medium term. So -- but in general, I'll say on both top line and margins, there's headroom for FAL.

In the back row, Jeff Sprague.

Jeff Sprague from Vertical Research. Just another one on FAL, if I could. Olumide, you gave an example, and there was 1 or 2 in the pitch on cross-selling. But just curious, what percent of your customers or what percent of your software revenues represent a situation where a customer is using more than one of your software offerings?

Well -- so the -- there's different ways to look at our offerings. So each of the brands that Arul talks about have different software components within them. So Gordian has got planning, estimating, procurement. Accruent has got -- so if you look in each pocket, there's probably half of the customers that use multiple things within each of those companies. ServiceChannel being the highest in terms of cross-sell and probably Gordian in the earlier stage of that journey with Gordian Cloud just launched. So there's a lot more within each brand. In terms of our across the brand, like I've talked about a few times, they each have a clear forecast and an area of strength in terms of verticals and what they do. So the cross-sell across is still very small because it's really -- Gordian is optimized for state and local, higher ed and health care. On the other hand, ServiceChannel is optimized for multi-site retail, and Accruent has a bit more diversity. So there's a little bit that cuts across, but we really view it as win the battle in each of those 3 playing grounds that Arul described. And that's -- if you think about a cross-sell that's still available in each of those buckets, that's a huge headroom for us.

And then maybe just a modeling or 2 for Mark, I guess. Just a couple of footnotes. At constant tax rate, I know we're thinking about tax rate in the mid-teens. But are you indicating there's pressure north of that? And then also, I just wonder if you could share your thoughts on sort of the $1 billion dividend coming in from Ralliant. How might that be deployed? How quickly might that be deployed?

Sure. So nothing to signal specifically on the tax rate. We live in some pretty interesting times. So our plan is to basically deliver strong growth rates regardless of what happens with tax, but we are assuming that it's at similar rates to what it's been going forward. With respect to the dividend, so we get actually a $1.15 billion dividend from Ralliant, which is the $1 billion plus reimbursement of $150 million that was being left in the business. Of that, about $700 million is going to be used to repay debt. First piece of that will go to our term debt. We'll then look to the next spot. We'll probably retire some of our foreign-denominated bonds early. And this is all really to get ourselves in that target leverage ratio of 2.5x gross. And then with the remainder, we're going to use those for largely repurchases. And the Board actually authorized a special repurchase authorization for repurchases up to $550 million. And that will happen in the next 12 months.

All right. Next question. Cliff?

I'm not -- Cliff Ransom, Ransom Research. I'm not quite sure how to answer this -- ask this question so it doesn't sound negative. I'm a friend of the family. When you look at what you want to do, Mark, in finance with respect to the Fortive Business System, how -- I'm assuming you're still using Hoshin Kanri. And what does your X matrix looks like? What do you have to do to do what you want to do? Do you have the resources in place? And how will you apply them?

Yes. Well, we've got the resources in place. We've got the team. We've got the processes. We've got the tools. And our plan is actually to set this business up for acceleration. We're on a very strong path. And I think as the team has laid out, FBS is at the core of it. And the interesting thing, as I've gotten to know this team, is that you've got some real FBS practitioners here. And over time, I mean, if you compare what the Danaher Business System was, which I studied in business schools is incredible, it has evolved and continuously improved. And today, as the portfolio has evolved, just more tools and more process have been built in. So I think we've got the team. I think we've got the process. We've got a great technology team. And I think we have everything we need to actually be successful. And again, FBS is at the core. Olumide, anything you'd add to that?

Yes. No, thanks for the question. I mean I would say that Hoshin Kanri and policy deployment, as we call it, is still the center of how we accelerate executing our strategy. And so from a finance function point of view...

It is or is not?

It is. It absolutely is. So just to give you that comfort and piece, it's still at a center of how we approach executing strategy faster.

Next question. Scott Graham?

I have 2 questions. The first is on -- so ASP, you're assuming that the market is growing low single digit plus. Is that just the low-temperature side? Or is that the entire market?

That's where we participate. And so that would be the market which would include not just terminal sterilization. That would also be the washing and disinfection space in the service side of the business -- of the market.

Okay. Well, then I guess I actually have 3 questions. The other one around ASP is, would you have interest in getting into high temperature?

There's something we could certainly consider. But the reason why we've hesitated in the past, as Olumide mentioned, we don't want to be into commodity businesses. So anywhere we play, we want to be deep and differentiated. So the path that's been looked at is not as much differentiation in that marketplace. And so we've elected to partner with other companies in the marketplace where it makes sense and given deals.

Maybe I would just add. If we find a path that is coherent with our strategy, which is durable business, is able to be accretive to our 65% gross margins and 30% adjusted EBITDA margins and it happens to be a differentiated technology in high-temperature sterilization, we probably would look at it. If it's a business that's -- it looks like it's good but it's 30% gross margins, we probably wouldn't do it. So I think that's where just having clarity on what we're optimizing for really helps us.

The other question was around FAL, which I think 2 years ago, perhaps less the aspiration there was sort of high single-digit organic. And now we're kind of in mid-single digit. Is that just the maturing of the business and the market? And then secondarily, I guess it's 4 questions. Secondarily, smart buildings, AI-enabled solutions, aren't these true potential accelerators to the market growth going forward?

Yes. Maybe I'll start. And then, Arul, I'll have you add on. So I think the way we look at the market growth rates is dynamic. So we look at it 2 years ago. But to Mark's point, when we're talking about it now, we wanted to reflect the current state of the market. And between 2 years ago and now, a few things have shifted. Some of that market around infrastructure maintenance spend comes from kind of government spending flow. And with DOGE and everything else, that's evolved in a way that we think affects the outlook for the market for the next 3 years. It's also the case that the overall kind of macro has an impact, too, for the corporate side, the nongovernment side, on how willing they are to invest in some of these facility maintenance things. People are deferring and so on. So we factor all that in. We still feel, over the long term based on the circular trends and the $1 trillion of deferred spending, maybe the next 3 years is mid-single and not high single. But at some point, that $1 trillion has to resolve. And we will be there with the leading businesses in those markets. So I think that's the way I think about the shift in the growth rate over time. I think with respect to smart buildings and what that does, it's this idea of expectations are rising on the experiences we have in the built environment. And that's true everywhere, including like if people are in the office, you actually want to make sure the experience they have is attractive enough for them to be in the office versus hybrid. So we are absolutely finding that all of that focus on experience in built environment is a tailwind for our FAL businesses. And again, it's one where we pick our lane. We're not trying to be the company that does building automation. We know what we're really good at. We partner with some of those other players, and we win the battles that we get into.

Great. Next question. Andy Kaplowitz?

Andy Kaplowitz, Citigroup. So I know you want to set a reasonable bar for expectations, but new Fortive growing. It's been growing at 4%, as you know, saying the guide to 3% to 4%. What would pull back to 3% to 4%? And then maybe you can give more color about price versus volume. Like what are the assumptions around price in that forecast going forward?

Okay. Mark, I'll let you start.

Yes. Well, I think first of all, the guidance we've given for the next couple of years is what this business has been demonstrated that it's capable of. And I think just to be clear, our aspirations are for much better. And I would just call your attention to the environment that we're living in right now. It's pretty volatile. And I think just even the conversation we just had around what's happened with government spending to have one example or the pressures that you can see that are on the health care system right now with federal spending getting pulled down. These are all things that could happen. And so we just wanted to give you a perspective on kind of where the business is sort of right now given all the things that we can see. On pricing, I would just say -- and again, we're not going to give specific guidance on pricing, but I will say that the quality of the brands and products that are in this portfolio give them incredible pricing power. And I'll leave it at that.

That's helpful. And I wanted to ask Parker. Like the ability to -- like it's 15% recurring, much lower than the rest of Fortive. But the ability to lean into recurring for Fluke, can you get that sort of up over time? And even if you can't, you're expanding markets there. So the ability to sort of press growth in Fluke seems pretty interesting. It's a large portion of your business. You've talked about building into data centers. So what is the growth runway going forward? Can it accelerate from here?

I've had the opportunity to build a Hardware-as-a-Service recurring revenue model, built upon a great model at Industrial Scientific over the last 6 years. And I think about what Chad said in his presentation, thinking about recurring revenue models are most successful when we can truly create real enduring value. I saw that in Industrial Scientific. And since I've joined Fluke and worked with the team, I see opportunities where we can create ongoing recurring customer value. And I'm excited to dig in with the team to learn more about it and work together to figure out -- see where we can make real progress.

Great. Next question. I apologize I don't know your name second row. Thank you. Next to Chris Snyder.

This is Michael Anastasiou from TD Cowen sitting in for Joe Giordano. So earlier in the presentation, you mentioned that the Fortive FORT was folded into FBS practices. Can you just perhaps enumerate on what the FORT has done to the FBS practice specifically? And I have one follow-up to that.

Yes. Great. So just to set the context, so the FORT was the creative name we came up with for AI center of excellence, which we created 7 years ago. I think about it as a group of kind of data scientists and AI-savvy practitioners that help all of our company, all of our businesses to really developed use cases, both for operational productivity, customer experience, product innovation, G&A efficiency. And they were doing that for 7 years as sort of an incubation room, go try something out and see how it goes. That developed enough and obviously accelerated with gen AI over the last 2.5, 3 years that we felt it's now ready for mainstream. So what we've done is we've taken that FORT team and combined it with our FBS office, which is kind of our -- think about it as an academy and center for the FBS in the company. And so that team is now one team. And some of the examples I talked about, about creating a Fortive innovation center or bringing in AI core pilots and agents into our lean product development so it becomes part of our standard, think about it as really taking something from the periphery, putting it into the major freeway that drives the company, which is the Fortive Business System. And so that's trickling to innovation, commercial acceleration and the way we think about enduring customer value. So they're now thinking, if you think about 100,000 customers, you think about the data that we have about them, what can we do with AI to create upsell solutions for those customers. So it's really that combination that accelerates in the adoption of AI use cases.

Great. That's helpful. And then you also mentioned a Fortive Innovation Studio. How is that related to the practices that you just mentioned?

Yes, very much related. So one of the things that -- once we combine those 2 teams, one of the things they decided is we actually needed an innovation center. Think about it as space and a set of assets that can be an assembly place for our companies to ideate, rapidly prototype and launch new products focused on AI-powered use cases. The thesis of it is, you heard from the team a number of times, we serve 100,000 customers. They trust us. They respect our brands. And we happen to have so much data about the different kind of mission-critical things to what customers are doing. So then the question is with the capacity that AI has layered on top of that incredible customer access, respected brand and data sets, how do you create add-on analytics, AI-powered solutions for those customers that can just become a cross-sell and an upsell for them. So that's really what the Innovation Studio is about, and trying to do that for each of our companies.

Great. Chris Snyder?

I have one on Fluke. I just wanted to hear about your confidence in ability to continue to innovate and stay ahead of the market as a stand-alone company. I would think that some of the domain expertise that comes from Tektronix, which is really on the kind of the cutting edge there, filters its way down into the innovations you guys make at Fluke. Maybe that's wrong. So I'd just like to hear your perspective on that from an innovation standpoint.

Yes. Parker and I will tag team on this one. So the Fluke business is very different than the Tektronix business. Fluke business, think about field-based maintenance operations professional instrumentation. So these people with bells in the field. Tektronix is more you are in the lab for R&D. You're designing something that's kind of cutting-edge new technology. It's kind of a lab focus. So it's very, very different, very different OpEx versus CapEx. The drivers of the business are very different. This is more about how much capacity you need to operate and maintain. This is about how much are you investing in new innovation in different things. And as a result of that, the technology road maps are very different. They're really very different. I think Tami mentioned it earlier. The one area where we had something being shared was on services, where we kind of said, well, let's not have services in 2 places. We had a host and -- but you could still tell the different things. And so what we've now done is separate those. So each one has its own service unit. So although from the outside in, it might look like, oh, it's -- they're both kind of measuring things, they're just very, very different. And that's part of why you've seen for Fluke as a result of that OpEx exposure, as a result of the more global nature of the Fluke brand versus Tek, as a result of the fact that I think importantly for Fluke, while Tek has a higher recurring revenue content, Fluke has been growing that more recently. So we now have 15%. That used to be maybe 2%, 9 years ago. So it's just very different businesses, not much dependency from a technology point of view and just a very different profile. It takes an amazing business when we have those tailwinds or big Tek trends. Fluke is just a lot more durable. So that's the thesis.

Yes. I mean maybe just following up on that point of Fluke being more durable. I understand it's more OpEx MRO driven. I guess is there any context that -- or color you can provide about how Fluke has performed in down cycles through history? Did that durability really show through?

Yes. Well, I think history depends on how far you go back. But just for the benefit of our time here, I think if you just look at what's happened in the last 5 years, Fluke has grown every year. I think as you all know, the U.S. PMI and even EMEA PMI have kind of been in contraction zone for a lot of that period. And I think if you look across, if you define the industry broadly, there are very few companies that have grown consistently through that while at the same time achieving the margin expansion that you heard Parker talk about and driving improvement in working capital. And so it's just -- it's a very -- it's been a very impressive piece of that durability story. And that was a crucial question for us as we thought about the spin, is making sure the characteristics of Fluke, given it's such a big part of new Fortive, really fit with the strategic focus we have around durability. And it's just incredibly compelling when you look at the history of it.

Okay. Time for one last question. Cliff?

Elena, I forgot -- Cliff ransom, Ransom Research. I forgot to congratulate you on finally getting to a Danaher descendant. When you look at policy deployment, how do you want that to change over the next 3 to 5 years? What will you do with it differently?

Yes. No, thanks for asking that. We always have this question of what's our favorite sort of FBS instrument. Policy deployment is high on my list of my favorite. And what it is, is really just you come up with a strategy, and it's a beautiful strategy, but then you've got to actually get it done. And policy deployment is a way of establishing a high-priority focus space to go drive the most important pieces of that strategy. And I think in that sense, the wiring doesn't change. I think it's a beautiful thing. We still have a strategy. We'll still pick what are our 3-year objectives and what are our annual objectives, what are the improvement priorities we have, what are the kind of targets to improve. And so the frame itself doesn't change. I think what evolves is the nature of things that we get after. So for example, while 5 years ago, on a typical policy deployment matrix, it might be a lot more about we have a desire to grow and now we're going to go hire more salespeople, build sales enablement, come up with a way to make sure marketing is feeding the right leads, that's what you've have seen 5 years ago. I think if we do that next year, based on this combination with our AI center of excellence, you're seeing things like how can we use more agents and copilots to completely reimagine the way we sell. How do we use the intelligence from the market to aim the types of prospects we're going after? Not only that we can sign them, but we can actually retain more of them and upsell more things to them. So the freeway structure doesn't change, but I think you now just have high-speed cars running through those same freeways. And that's exciting for our teams. And this goes back to the Fortive Business System is an amazing, amazing foundation for us that will endure. And what we have a chance to do here is to do more with it and get more impact on our strategy.

Okay. Thank you very much for your very active participation today. I do want to hand it back to Olumide for some closing remarks.

Well, I think we've said this a few times. First of all, just thank you. Thank you for spending this time with us. We're grateful for it, for your interest, whether you're here in person or you're watching this on the webcast or recording. It means a lot to have you with us. And we know some of you have been with Fortive for a long time. Some are new. Some are just curious. But wherever you are in that frame, I hope you leave today with clarity, with confidence and with excitement about new Fortive. We are a simplified focused company with a deeply rooted recurring revenue profile, 50% and going up, durable financial performance over the last 5 years. We have a clear strategy to accelerate, accelerate not just our top line growth but our earnings growth and our shareholder value creation. It's a grounded strategy, and it is one that we feel excited about. And the Fortive Business System that's been the engine of our success is going to endure, and it's going to get even better as we amplify it in some very targeted ways to help us grow faster and more profitably. And importantly, as you heard us talk about a few times, we have a renewed focus on being excellent disciplined capital allocators. We know that's a high bar, but it's a high bar we set for ourselves. And we are fully aligned across our entire management team and our Board, and it's something I take very personal. And finally, we have an incredibly strong energized and purposeful team that's fired up and ready to get this done. So we hope you join us for the journey. Thank you for being here with us today.