Fortive Corporation ($FTV)

My name is Shamali, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations. Ms. Jones, you may begin your conference.

Thank you, and thank you, everyone, for joining us on today's call. I am joined today by Olumide Soroye, Fortive's President and CEO; and Mark Okerstrom, Fortive's CFO. During today's call, we present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortive.com. We will also make forward-looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and actual results might differ materially from any forward-looking statements that we make today. Information regarding these risk factors is available in our SEC filings, including our annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements. Our statements on period-to-period increases or decreases refer to year-over-year comparisons, unless otherwise specified, and our results and outlook discussed today are on a continuing operations basis. With that, I'll turn the call over to Olumide.

Thank you, Christina. Let me begin on Slide 3. Q1 marked a strong start to the year with another quarter of solid performance. We remain laser-focused on delivering on our strategic and financial plans for 2026 and continue to make encouraging progress on executing our Fortive's accelerated strategy. We have 4 key messages to cover today. First, our teams executed well in the first quarter of 2026, delivering solid performance in both segments. On a consolidated basis, we delivered core revenue growth of just over 5%, adjusted EBITDA growth of 13% and adjusted EPS growth of over 25%. Please note that our core revenue growth in the quarter was aided by approximately 150 basis points of tailwind from additional year-over-year selling days in the quarter. Second, we continue our disciplined capital allocation approach with a relentless focus on optimizing shareholder returns over the medium to long term. In the first quarter, we completed approximately $500 million of share repurchases. We've now reduced our share count by just over 10% since we launched New Fortive in July 2025. Third, with 3 quarters of execution now behind us, our confidence continues to build in the power of the Fortive accelerated strategy to unlock benchmarked beaten returns for our shareholders over the medium to long term. I'll spend a few minutes on this in the next slide. Lastly, we are reaffirming our full year adjusted EPS guidance range of $2.90 to $3. Based on our Q1 performance and trends to date, we believe results are trending toward the upper half of that range. Moving to Slide 4. Before we get into our Q1 results, I want to highlight some of the progress we are making in execution in 3 pillars of our Fortive accelerated strategy. Starting with the first pillar, delivering faster profitable organic growth powered by our Fortive business system amplified. This quarter, we continue to increase our innovation velocity with several notable hardware product milestones and AI-enhanced product launches. As discussed last quarter, Fluke launched a new data center testing solution, CertiFiber MAX, with the fastest throughput in the industry in late Q4. Customer response continues to significantly exceed our expectations, underscoring the strength of Fluke's brand and the effectiveness of our broader data center strategy. We are particularly encouraged by CertiFiber MAX's ability to drive meaningful pull-through of other Fluke products into data center applications, including power quality, battery testing, imaging and calibration solutions essential for both build-out and ongoing operations and maintenance of data centers. In health care, we introduced provision mirror documentation assist, a real-time, AI-powered voice-driven documentation capability enabled by deep domain expertise and proprietary data, and embedded directly into GI Porsedera workflows. This solution enables clinicians to capture structured documentation during the procedure, reducing the need to reconstruct details afterwards and enabling the clinical team to focus on the best patient care. On the commercial side, we continue to focus on faster-growing end markets and regions, where we've made deliberate targeted investments to capture growth. At Fluke, we continue to invest in commercial expertise across high-growth verticals such as data centers, defense and distributed energy, and we're seeing solid early traction from our focused efforts. And at ASP, we continue to advance our medium region strategies in India and China, supported by related commercial investments and we're beginning to see positive impact of these efforts in our results. We're also advancing ASP's growth strategies in EMEA with the European commercial launch of steroid Ultra GI. On our recurring customer value initiatives, we continue to make progress on driving deeper customer life cycle engagement and improving revenue durability. In Q1, recurring revenue again grew faster than consolidated revenue in both segments. Our recurring customer value progress continued in our iconic hardware brands. Fluke continues to make progress on increasing recurring revenue with double-digit services growth in the quarter. And Industrial Scientific continued to see strong growth and share gains in our Hardware-as-a-Service product line. Moving to the second pillar, disciplined capital allocation is an integral component of our Fortive accelerated strategy. Consistent with our priorities, we deployed another roughly $500 million to share repurchases in Q1. Since the spin-off, we've deployed approximately $1.8 billion to share repurchases, representing 35 million shares or just over 10% of diluted shares outstanding. Our revamped bolt-on M&A engine and team is in place, and we will continue to evaluate opportunities for high-quality accretive bolt-on acquisitions that meet our rigorous strategic and financial criteria. Looking forward, our capital allocation priorities remain clear: invest in organic growth, pursue bolt-on M&A where risk-adjusted returns exceed other uses of capital, return capital through share repurchases and maintain a modest growing dividend, all with a focus on best relative returns and maximizing medium- to long-term shareholder value. Moving to our final pillar, building and maintaining investor trust. We were pleased to deliver solid performance ahead of expectations for a third consecutive quarter as New Fortive. That is a good start, and we look forward to building on our momentum. We remain laser focused on executing against our 2026 financial and strategic plan and continue to have strong confidence in our 2026, 2027 financial framework that we shared at our June 2025 Investor Day. With that, I'll turn it over to Mark to walk through our financial results for the first quarter in more detail.

Thanks, Olumide. I'll begin with Slide 5. In the first quarter, we delivered total revenue of nearly $1.1 billion, up almost 8% year-over-year on a reported basis and up just over 5% on a core basis. benefiting from an approximately 150 basis point tailwind from the impact of additional year-over-year selling days in the quarter. We are pleased to see price and volume growth in both segments driven by healthy customer demand, strong commercial and operational execution, leading to solid performance across the board. We are also pleased to see strong growth in software revenue, reflecting the underlying strength of our businesses and robust customer demand for our increasingly AI-driven new product releases. From a geographic perspective, we saw another quarter of solid performance in North America, which continues to be our strongest region. Europe improved sequentially, reflecting stabilizing conditions and solid commercial execution. Adjusted gross margin in the quarter was just over 63%, down about 100 basis points from prior year, which is largely consistent with the year-over-year gross margin trends we saw last quarter and was driven mostly by the net impact of tariffs that were introduced last year. Q1 adjusted EBITDA was $314 million, up about 13% year-over-year. This strong performance was driven by operating leverage structural cost savings and the favorable impact from foreign exchange rates, partially offset by continued innovation and commercial growth investments. Adjusted EBITDA margin in the quarter expanded approximately 140 basis points year-over-year to just over 29%. We delivered adjusted earnings per share of $0.70 in Q1, up over 25% year-over-year, marking our third consecutive quarter of double-digit adjusted EPS growth. Strong adjusted EPS performance was driven by growth in adjusted EBITDA and the positive year-over-year impact of share repurchases. We generated $194 million of free cash flow in the first quarter with Q1 conversion on adjusted net income, in line with normal historical patterns. Our trailing 12-month free cash flow conversion remains north of 100%. Moving to our segment results, starting with Intelligent Operating Solutions on Slide 6. Revenue for the segment grew about 8% on a reported basis with core revenue growth of about 5%, modestly ahead of our expectations. Based on the product mix in the segment, the year-over-year impact of additional selling days in Q1 and resulted in a roughly 100 basis point benefit for iOS, making normalized core growth in the segment, broadly consistent with what we saw last quarter. Our growth was driven by both price and volume, reflecting solid performance across professional instrumentation, facility and asset life cycle solutions and gas detection products. At Fluke, order volume was strong with orders growth outpacing revenue growth and our teams continue to execute with strong operational discipline while increasingly deploy investment dollars towards growth initiatives. North America continues to be the strongest growth driver, and we were encouraged by another quarter of sequential improvement in Europe. Growth in facilities and asset life cycle solutions accelerated from Q4 and was again accretive to the iOS segment with particular strength in demand for multisite facility maintenance and marketplace software in North America. Our commercial investments and accelerated pace of innovation across these businesses are beginning to bear fruit. Our gas detection business continues to grow nicely, buoyed by strong demand and share gains from our Hardware-as-a-Service product line in North America, Europe and the Middle East as we begin to see our investments in the business show up in our results. Adjusted gross margin in the segment was just over 65%, down about 150 basis points year-over-year, which is largely consistent with the year-over-year gross margin trends we saw last quarter, primarily due to product mix and the net effect of tariffs. Q1 adjusted EBITDA in the segment grew 8% to $255 million, driven by operating leverage, structural cost savings and the favorable impact from foreign exchange rates, partially offset by targeted growth investments to support innovation and commercial initiatives. Adjusted EBITDA margin for Q1 was just over 34% in iOS, in line with the comparable period prior year. Moving to our Advanced Healthcare Solutions segment on Slide 7. We delivered total revenue of $326 million. Revenue grew approximately 8% year-over-year and approximately 6% on a core basis. Our health care consumables and software product lines benefited from the year-over-year impact of additional selling days in Q1, resulting in a roughly 300 basis point benefit to growth for AHS. On a normalized basis, we saw a slight acceleration in growth versus last quarter. Q1 growth was driven by solid demand for health care consumables, services and software in North America. Low temperature sterilization capital demand improved modestly in Q1, the hospital spending pressures continue to persist. Our software products in the segment continued to deliver strong growth, driven by effective execution and strong provider demand for our gastrointestinal case documentation solution. Adjusted gross margin in the segment was about 59%, in line with the prior year period, with modest operating leverage offset by the net impact of tariffs. Q1 adjusted EBITDA in this segment was $84 million, up approximately 18% year-over-year, driven by operating leverage, structural cost savings and the favorable impact from foreign exchange rates, partially offset by targeted growth investments to support innovation and commercial initiatives. Adjusted EBITDA margin in Q1 expanded by about 200 basis points year-over-year to just under 26%. Turning to Slide 8. Our balance sheet remains strong. We finished the quarter at 2.8x gross debt to adjusted EBITDA, reflecting a modest increase in commercial paper to fund share repurchases in the quarter. We continue to have ample capacity to execute on our capital deployment priorities in 2026 and we remain steadfast in our commitment to disciplined capital allocation and an overall approach that seeks best relative returns. As noted earlier, we deployed roughly $500 million to share repurchases in the first quarter reflecting continued confidence in our ability to deliver on our value creation plan. As a result, diluted shares outstanding were approximately 309 million at the end of Q1. In addition to retooling our process and revamping our M&A team, integration and the execution of our value creation plans for the 2 small bolt-on acquisitions we completed in Q4 are both going according to plan, and we continue to be on the lookout for high-quality accretive bolt-on deals that meet our rigorous strategic and financial criteria. Moving to Slide 9. We are reaffirming our full year 2026 adjusted EPS guidance range of $2.90 to $3 per share. Given the trends to date, inclusive of Q1 performance modestly ahead of our expectations, we believe results are trending towards the upper half of that range. This outlook assumes a continuation of the market dynamics we experienced in Q1 and reflects current tariff rates. Let me provide a few additional considerations to assist with modeling. Based on current foreign exchange rates, we expect full year reported revenue of around $4.3 billion. We continue to expect core growth in the 2% to 3% range, and given strong order patterns, we believe results are trending towards the upper end of that range. In terms of the shape of the year, based on Q1 results modestly ahead of our expectations, we expect Q1 will comprise a slightly higher percentage of total revenue than historical patterns with Q2 and Q3 broadly in line. We would note that Q4 has 4 fewer year-over-year selling days resulting in a $15 million to $20 million revenue headwind in the quarter. We expect FX and M&A combined to be about a 150 basis point tailwind to reported revenue in Q2, operating to roughly 50 to 100 basis points throughout the second half of the year. We are now modeling the Q2 effective tax rate in the mid-teens, Q3 in the high teens and Q4 in the high single-digit to low double-digit range. We are also expecting full year net interest expense of just over $135 million. Based on what we see today and based on these modeling considerations, we would expect Q2 and Q3 adjusted EPS to be broadly similar to what we delivered in Q1. As the year unfolds and we continue to execute on our Fortive accelerated strategy, quarterly phasing may evolve. As a final note, before turning it back to Olumide for closing remarks and Q&A, we're off to a strong start to 2026 at New Fortive, and we remain committed to unrelenting execution on the Ford of accelerated 3-pillar value-creation strategy and financial framework that we outlined at our June 2025 Investor Day. I'll now turn it back over to Olumide.

Thanks, Mark. Let me close with a few observations on the quarter and where we're headed. Q1 represents a strong start to the year and further evidence of the progress we're making as New Fortive. We delivered solid organic growth, meaningful adjusted EBITDA growth and a third consecutive quarter of double-digit adjusted EPS growth, while continuing to invest deliberately and execute diligently against our Fortive accelerated strategy. We're seeing early traction from our innovation, commercial and recurring customer value growth initiatives. We are methodically allocating capital in waste that we believe will generate the best relative returns over the medium to long term. And we remain steadfast in our commitment to building and maintain investor trust. Our teams are aligned our FBS operating cadence is strong, and our confidence in the 2026-2027 financial framework we outlined at Investor Day 2025 is fully intact. I want to thank our Fortive team members around the world for their commitment to our shared purpose of innovating essential technologies to keep our world safe and productive and 100,000 customers for placing their trust in us every day. With that, I'll turn it back to Christina to open the call for questions.

Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions.

[Operator Instructions] Our first question comes from the line of Nigel Coe with Wolfe Research.

By the way, Mark, thanks for the call out on the selling days. It's really helpful. Not all teams do that. Just on the 2Q plan, I just want to make sure we think about this correctly. You mentioned 2Q, 3Q EPS, roughly similar to 1Q. Normally, we see 2Q stepping up from 1Q, but we have the selling days impact. So I'm just wondering the core growth in 2Q, is it looking to be in that sort of mid-single-digit range, that's pretty flat with sales in the first quarter, that's up mid-single digits, and margins would also be fairly similar to 1Q as well?

Nigel, thanks for the question. I think you're broadly in the zone. Again, Q2, we obviously don't have the benefit of the days. We do have a slightly easier comp. I called out the FX tailwind, that combined with M&A being about 150 basis points. And I think we're -- over the last couple of quarters, we're starting to see just some momentum across each of the two segments, based upon our own execution with iOS, a little bit ahead of AHS. And based on what we see right now, we're expecting those trends to continue through the full year.

Great. And then my follow-on question, I think, Olumide, you mentioned some success with some of the AI-driven product leases within SAL. AI is meant to be a negative, not a positive. So -- maybe just talk about that a little bit and perhaps a little bit more color on how the fall portfolio performed in the quarter?

Yes, happy to take that. So I mean I think AI is certainly a disruptive technology that's shaping the landscape. And as we've discussed previously, we feel very good about the businesses we have and how our teams are taking advantage of AI part innovation to drive growth in those businesses. And I think looking at as an example, it is a great case example of how we're using AI deployed on top of our mission-critical proprietary data reach, software solutions for customers to really deliver new value for them that's driving faster growth in that class. Now we've talked about a few examples of service channel AI and what our team is doing with that. And you see that showing up in the numbers. We're very pleased with Files performance in the quarter. It grew faster than the iOS segment called growth of 5.2%. All the operating brands contributed to that growth with Service China leading the pack with continued strength, especially in North America. And the broad trends in all our key operational metrics, ARR GDR MDR are really good. And we're excited about the opportunity to see continued improvement in those metrics as we execute on our Fortive strategy, including this AI-powered use cases. So from everything we see, given the nature of those businesses and the quantitative data on performance, we feel quite good.

Our next question comes from the line of Deane Dray with RBC Capital Markets.

There were a number of references about data center and Fluke is right in the middle of all of it. Can you just give us a sense of what the opportunity is and there's some newer technologies like optical switching it should also position Fluke well. But any update there and kind of what the overall exposure is would be helpful.

Thanks, Deane. So yes, we are very excited about the data center investment cycle and not just the construction and build-out stage, but frankly, the larger and more durable opportunity for ongoing operations and maintenance of this massive data centers that can build out. And like you mentioned, Fluke already participates in the 2 belt for this races with a wide range of Macellum products and power quality monitoring and analytics and high-voltage diagnostics and identity fiber testing, electrical groundfall detection, power calibration , et cetera. And I think new technologies like optical switching to your point, will create additional demand for a lot of these products we already have. But even more exciting, frankly, is a tremendous job of Fluting doing on accelerating innovation that's aimed at data center needs that are not yet fully met. We talked about the certifier product that we launched in Q4 of last year and just the incredible caution response to that. And how our team is using that new product to pull through the entire suite of offerings we have for the centers and really working hard at getting specked in to hyperscaler standard maintenance tool sets for how they manage this data centers. So we feel really good about the setup and the enduring tailwind that office for us at Fluke and the exact magnitude of that is still ahead of us, but we're quite excited.

Great to hear. And then just can you address price cost expectations for the year ability to offset inflation and any tariff pressures at the margin?

Yes. Price cost was north of 1 in the first quarter. We would expect that to persist. FBS continues to be at absolutely the core of Fortive. And that is just -- continues to drive value engineering and cost efficiencies as we move through the year. The tariffs, again, they have been a headwind to our gross margins, even though they are completely countermeasured from a bottom line perspective. You saw that headwind show up in iOS this quarter. It's going to persist through -- partway through the third quarter when we were fully countermeasured. And then you'll see that dissipate completely as we lap over the countermeasures in the fourth quarter.

Our next question comes from the line of Julian Mitchell with Barclays.

Maybe I wondered if you could flesh out perhaps some of the commentary on the orders strength you've seen recently? I think some other companies have not exactly been shy about touting large orders in recent months. So how are the orders progressing there? And just wondered, any update on the cadence of demand in some of the shorter-cycle hardware businesses like Fluke or AHS consumables in recent weeks or months? Any signs of prebuy or broad changes in demand ex restock destock, anything to call out there?

Great. Julian, happy to take that, and thanks for the question. So I think first on Q1, we were really happy with the orders growth that we saw. This grew faster than our 5.3% cost, 7.7% total revenue growth, which is a great signal about the trajectory of the business. And the other growth we saw was broad-based across the 2 segments in iOS, Fluke, Fau, ISC as well as on the EHS side, ASP also really strong order growth in the quarter. So we're quite pleased with that. And that's a result of just the good conditions in our markets, the strength of our operating brands and the early positive impact of our Fortive strategy. So we're quite we quite like that. And in terms of the -- your question on short cycle and indicators there, maybe I'll just use a couple of examples. I think if you look at Fluke, as probably the biggest indicator of that, POS trends remain solid. Book-to-bill was over 1, healthy backlog to end quarter, channel inventories relatively normal in the U.S. continues to get better outside the U.S. So we feel really good about the trends we're seeing on short cycle. As you know, Fluke's been a very durable business with other growth in almost every quarter, the last 5 years despite PMI contractions on most of that time. So Fluke's continued Endurance has been quite impressive, and that continued in the quarter as well. And for ASP on the consumables side, the same thing that continued to show the resiliency that you would expect. And even adjusting for the extra selling days, low temperature stabilization on consumables continue to grow in a very durable way. So we felt all the signals were good for us.

That's very helpful. And then if we think about operating leverage or operating margins, they were very high operating leverage in Q1 year-on-year, even with the tariff headwinds, understand there was a sort of selling days mechanical impact. But when we look at the balance of the year, anything we should bear in mind on operating leverage as we move through the year? I imagine there isn't a big Section 232 tariff effect for Fortive. So yes, any sort of help there you could provide?

Sure, happy to. So again, I think just to reiterate, we've are very confident in our medium-term financial framework, and that calls to 50 to 100 basis points of EBITDA margin expansion over the course of this year and next year and each year. And that's the framework we're operating under. And the -- really, the way we've been managing the business is taking costs out of areas where they're not particular value-added. You saw us flat in the segment structures, take out corporate costs in addition to the stranded cost reduction and reinvest that in initiatives that we believe will accelerate growth and deliver excellent returns. And that's the formula. What you will see this year, though, is that because we've got this days impact in the first half of the year, we've got easier comps in the first half of the year. in the back half of the year, the comps get a little bit harder in Q3, and then you've got the days impact in Q4. And you will lap over a lot of the pretty significant cost actions that we took in the third and fourth quarter of last year. You'll see a little bit of a shift, if you will, or a little bit less margin expansion in the back half of the year than certainly we were able to deliver in the first half of the year. But we -- again, we feel super good about the overall margin trajectory of the business. FBS is working. We're reinvesting in initiatives, and that seems is early, but it seems to be driving growth and the financial framework is well intact.

Our next question comes from the line of Andy Kaplowitz with Citigroup.

Olumide, if I could follow up on AHS. I mean you mentioned, I think, acceleration in Q1 despite some continued hospital CapEx pressure in the U.S. So how would you characterize fundamentals? I know you answered Julien's question on consumables, but overall equipment. Does the environment continue to get better here this year, differences between North America and China? What are you seeing on the AHS demand side?

Great. Happy to address that. So I mean we were pleased with the performance in the EHS segment and ASPs role within that in the quarter. As a reminder, the segment did benefit from roughly 300 basis point tailwind related to the additional days in the quarter. But even after normalizing for that, we saw some acceleration in the segment, reflecting the strength in consumables, services and software. In terms of capital equipment to your point, we've seen modest sequential improvement since Q2 of 2025, as you might recall, that was the toughest quarter the impact of health care reimbursement and related policies on hospital kind of procurement of capital equipment. But Q1 continued to show that improvement -- for us, hospitals remain cautious about capital spending when the exact timing is discretionary. But we feel really good about, especially lapping that year-over-year dynamic as we go into Q2 here because Q2 last year is when it started. And the underlying capital funnel we have is really strong. And as we lap this dynamic in Q2, we like the setup for the rest of the year for our team. The U.S. continues to be the main pressure point on hospital budgets, but it's getting better and with some of the main country initiatives we have in China and India for ASP, that's adding some tailwind for us in those particular markets as they want locally made products. So we feel quite good as we look at the rest of the year, and things are getting better on the equipment side, even though there's still some caution.

Very helpful. And then one follow-up on also. I mean, you mentioned the strength in service channel and that saw stronger than the core growth in OSA in Q1. Maybe if you could talk about the outlook for facility asset-life cycle for the year. Would you say that service channel met could all continue to be higher than that 3% core growth you're guiding? And I think any more color would be helpful.

Yes. No, thanks for that. So I mean I think the leading indicators are the things we're seeing on other growth in ARR and GDR and MDR in those businesses. And also the just exciting actions that teams taking with respect to the innovation funnel and commercial initiatives to invest in areas where we have momentum across the range of options. And also just to drive improved customer experience. And all of those things are pointing north for us in those businesses. So we feel good about the setup for the rest of the year for far and role continues to play in our mix.

Our next question comes from the line of Andrew Buscaglia with BNP Pariba.

So I just want to reiterate, yes, the -- you're guiding to a similar level for Q2. You're talking about some incremental things you're working on to drive some margin expansion. But guidance really at the midpoint does imply earnings -- moderating or even potentially declining in one of the quarters. So maybe Yes. I mean is this just conservatism? Or what are you waiting to see in terms of moving that guidance higher?

Yes. Thanks for the question. I think that we feel very good about the momentum that we're seeing in the business. The early results of our execution on the Fortive accelerated strategy really across all 3 pillars. But I think particularly the efforts we're making on commercial acceleration and innovation acceleration. I think what I would say is that it's early in the year. We've got a quarter under our belt. We've got a lot of exciting things going on, and we like what we see. But it's just a little bit too early to get out ahead of our skis. I think take the fact that we gave some color that we are expecting growth near the higher end of our range and adjusted EPS on the full year, near the higher end of the range or the upper half an expression of our confidence in what we see, and we look forward to updating you on the next call in terms of how it's going.

Yes. Fair enough. Yes, I wanted to check on the M&A front with -- you guys have been doing a good job managing on the cash flow side. But yes, what's the outlook like you got your footing post separation at this point. You have probably a better idea of where you want to go with your capital allocation priorities. So -- what do you see in terms of M&A as it plays out this year?

Yes. Thanks for the question. Well, again, capital allocation is a critical pillar to the Fortive accelerated strategy. And we've been pleased to deploy capital with discipline retiring just north of 10% of our share count since the time of the spin, and we're really looking to deploy capital across organic growth initiatives, M&A, share repurchase and a modest growing dividend based upon best relative returns. As it relates to M&A specifically, we have -- we've really revamped everything. We've revamped our approach with more of a focus to bolt-ons. We've put in place rigorous strategic and financial criteria. We have essentially rebuilt the team. We've executed a couple of bolt-on acquisitions in the back half of the year, and those are going very well and the value creation plans are tracking, and we think the teams are performing really well. We're also super excited that on Monday, Corbin Wallburger, will be joining us to run corporate development for us globally and run M&A. And Corbin is well known in circles around this industry. We think it's going to be a fantastic fit and we're excited to have him join what is already to be a really excellent team. And I think we'll see what happens, obviously, if multiples start to expand on a relative basis, M&A becomes more attractive. And we're putting ourselves in a position where we're building pipeline. The team is strong and getting stronger. And when the time comes where that becomes the best use of capital, we'll be there, we'll be proactive and are ready to go.

Our next question comes from Frederickson with Baird.

Question on Gordian. I think June is typically a more sizable month for that business with year-end government spending. You obviously didn't see that last year. just any visibility to weather that normalized year-end spend materialize this year or what's baked into the 2Q guidance?

Yes. Thanks for the question. So yes, you're right, a lot of the state and local agencies, June is say, year-end. And our team is doing a phenomenal job of being very close to customers and being there to serve them on any budget that's left. We feel really good about the funnel that we have and expect to have a strong outcome. We haven't presumed anything kind of extra normal in terms of the Q2 guidance. And if we get more there than we got last year, we'll get the upside. So we feel quite good about the setup and the walkout team is doing to be close to customers as we go through Q2.

Okay. And then second one just would be on the Detection business. Any color you can share on what you're seeing in the Middle East? Any disruption tied to that? And then any discussions with customers about potential rebuild-related orders?

Yes. So I'll take that. So I think with respect to the gas detection business overall. We're very pleased with how that did in the quarter. It was accretive to iOS segment growth overall. Demand was strong globally, frankly, with solid performance in North America, Europe and the Middle East. And I think with respect to the Middle East, we really have seen, to your point, increased demand. And we don't think the rebuild is at to pick yet. So we're excited about the opportunity to show up for customers as that picks up in the region. Overall, just keep in mind that sales in the Middle East is a small part of 40 overall, it's low single-digit percentage of our total revenues. But that team based on the order book is still quite excited. Thankfully, our teams in the regions are all safe and staying close to customers. So we're feeling good about being able to help in a challenging context.

Our next question comes from the line of Chigusa Katoku with JPMorgan.

I just have a quick follow-up on FAW. You commented that it grew faster than iOS, growth of 5% during the quarter. But can you just clarify if that's what it was adjusting for the selling day impact and how that compares to last quarter?

Yes. So the FAW business did very well, even if you adjust for the selling days. And so I think that statement holds even adjusting for selling days. That's an indication of just the great job our teams doing on building the order book over the last several quarters here that's now beginning to show up in revenues as RevRec kicks in for those new orders. So it still is quite good. And like I mentioned, the leading indicators looking ahead are also quite strong, excluding extra selling days.

Okay. Great. And how does that compare to last quarter? Do you have any color there?

Overall, I think I see that we're seeing steady acceleration in the platform, which, again, one of the things we liked about Q1 is the broad-based nature of acceleration we saw and saw was no exception to that compared to last quarter.

Okay. Great. And then a follow-up, but -- so sorry to follow up on this point. So last -- compared to last quarter, it accelerated, correct, not decelerate?

I think without getting into the specifics, I think we're really pleased with the progress we're seeing in the quarter, including adjusted for days. And I think we'll just stay away from getting into too much specifics. But again, continued strength in fall across the board, as Olumide said, really no exception across all of the components of the business and all the components of Fortive.

Okay. Great. And just my last question, but so were this trend similar for the AHS Software business?

Yes. HS as well, again, continued very strong performance, even adjusting for days. And again, as I said in my prepared remarks, our software revenue in totality is growing nicely ahead of the overall business. And we really don't, as we look across the whole portfolio, I see an exception to that. Those businesses with the renewed focus on innovation acceleration and commercial efforts, we're seeing good early signs.

Our next question comes from the line of Scott Graham with Seaport Research Partners.

So the old Fortive talked a lot about OMX and how FBS poured productivity into that. I was wondering if you might be able to give us some type of data point on this. I know you've enhanced those programs. Just wondering, is this 30 to 50 basis point goal here for productivity? Is there a sustainability to whatever your goal is? Any kind of data point KPI you can give us would be helpful.

Yes. Thanks for the question. So let me start from the foundation of our culture. So the foundation of our culture around the Fortive business system and the relentless pursue better, including productivity and now increasingly growth is stronger than ever. And we've got our President Kaizen week next week, we got 40 teams around the world that are going to be focus on driving growth and productivity. So the fundamentals of how we operate is only getting stronger. And so you should expect good things from that. Secondly, I would say, we've intentionally framed this 50 to 100 basis points of adjusted EBITDA margin expansion a year in our financial framework as the governing framework for productivity and the fall through on high-margin incremental revenues that we drive. And that's intentional because we do want to give ourselves the space to invest productivity gains in growth that is going to sustain and the acceleration outperformance across both segments. But within that framework, productivity is as big a piece as ever and deliberate investment in growth is a bigger piece than it's ever been because that's how if you look at the performance this quarter and 5.3% core growth across the company, would like to keep investing to make to make a contact that more than norm. So productivity remains as strong as ever. It's baked into that 50 to 100 basis points of adjusted EBITDA margin expansion a year, and we feel really good about the setup.

Okay. My follow-up is simple. It looks like FAL is kind of getting back to that sort of mid-single-digit growth that I think you talked about at the Analyst Day. Is there an opportunity this year for Fluke to catch up? You've got the new data center product, you're anticipating some pull-through. I don't know if that's maybe later this year or next year. you have Fluke connectivity going, you're adding products to the tool belt as usual. It's a terrific business. I'm wondering if it's going to potentially catch up to fall this year in your view.

Yes. When Mark was talking about a 2% to 3% kind of modeling consideration guide on core growth for the year and the fact that we're tracking towards the higher end top half of that range. I think all of that reflects the conviction we have about potential across the platform. And of course, given that Fluke almost 40% of what we do, you should translate that to mean we feel really good about the set of part kind of change to just given the walkout team that's doing continue to make a really great business even more extraordinary from a growth and margin performance and brand and customer loyalty point of view. So I think short answer to your question is we see Fluke as a really exciting platform. We will continue to make that great business even better from a profitable growth point of view. And from a multiyear basis, we see no ceiling ahead of us.

And we have reached the end of the question-and-answer session. I would now like to turn the floor back over to CEO, Olumide Soroye, for closing remarks.

Great. Thank you, and thank you all for your interest in Fortive. I just incredibly excited about the job our team did in the first quarter to deliver really strong results and adjusted EPS growth of over 25%, which is again our third quarter of double-digit growth in EPS. And more importantly, just really excited about the momentum and excitement across our teams as we look ahead and feel really good about the setup we have for the year. And for the multiyear extraordinary value creation opportunity we believe we have here for our long-term shareholders. So thank you all for your interest, and we will see you next time.

Thank you. And this concludes today's conference, and you may disconnect your lines at this time. We thank you for your participation. Have a great day.