Fortive Corporation

and I'll be your conference facilitator this afternoon. At this time, I would like to welcome everyone to the Fortis Corporation Third Quarter 2023 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After a speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the call over to Ms. Elena Rossman, Vice President of Investor Relations. Ms. Rossman, you may begin your conference.

Thank you, Krista, and thank you everyone for joining us on today's call. With us today are Jim Leeko, our President and Chief Executive Officer, and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non-GAAP financial measures on today's call. Information required by Regulation G are available on the investor section of our website at fortif.com. Our statements on period-to-period increases or decreases refer to year-over-year comparisons, unless otherwise specified. During the call, we will 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 for the year ended December 31st, 2022. 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. With that, I'd like to turn the call over to Jim.

Thanks, Elena. Hello, everyone, and thank you for joining us. I'll begin on slide three. In the third quarter, we continued to see the benefits of our portfolio strategy with core growth and margin expansion in all segments. Third quarter, core revenue growth was 2.5%, tempered by specific headwinds in healthcare and slowing in parts of sensing in China. Strong execution by our teams growth substantial improvement in gross and operating margins, earnings, and free cash flow. Adjusted gross margins expanded by 160 basis points to 59.7%. Adjusted operating margins increased by 150 basis points to 25.9%, and adjusted earnings per share grew 8%, and free cash flow increased 25% to $384 million. As you can see, our strategy is delivering results with enhanced portfolio positions innovative new products and dedication to the ford of business system allowing us to consistently perform despite a mixed macro environment as we look ahead our attractive funnel of bolt-on and adjacent m a opportunities across our three segments and five connected workflows are expected to drive upside in 2024 as exemplified by the acquisition of ea electro automatique as well as three other bolt-ons in the quarter Turning to slide four, we wanted to highlight how the year is playing out relative to our initial expectations and begin to frame our thinking for 2024. Beginning on the left, hardware product orders were stronger in the first half of the year as traction on new product launches and leverage to secular drivers provided more backlog to buffer the normalization of supply chains. Hardware product orders were down mid-single digit, which we believe reflects continued solid demand with orders up over 20% on a three-year stack basis in the third quarter. Point-of-sale trends in North America and Western Europe have remained healthy, even as channels normalized, while we did see slowing specifically in China and parts of sensing in the quarter. Software and services continue to demonstrate their resilience, with high single-digit growth across our facilities and asset lifecycle, environmental health and safety, and perioperative customer workflows. The healthcare environment continues to improve, Core growth in the third quarter was constrained by the clearing of channel inventory in ASP and continued weakness in the bioprocessing market in Inditex. Turning to the right-hand side of the slide, we are delivering 2023 performance ahead of our initial expectations coming into the year with mid-single-digit core growth with adjusted operating profit margin incrementals over 60%, delivering nearly 2x the margin expansion planned in the year. And we are accelerating our capital deployment in the quarter with robust free cash flow and ample firepower to fund attractive M&A opportunities. Further evidence that our strategy to create a more durable growth company is working is highlighted on slide five. Our innovation and portfolio strategy continues to build on leadership positions in our connected workflows benefiting from customer investments and key megatrends, including automation and digitization, the energy transition, and the need for productivity solutions contributing to our improved through-cycle performance. We have several good examples across Fortin, including providing customer software solutions to digitize and automate processes and deliver customer success in AI-driven ecosystems. Probation is partnering to enable real-time AI in the GI workflow, contributing to their strong win rates and accelerated mid-teens growth in 23. And in the third quarter, Fluke added Azima DLI, a bolt-on acquisition accelerating their AI-enabled predictive maintenance capabilities with vibration analytics and remote condition monitoring. Fordham is also helping to solve our customers' toughest energy transition challenges with breakthrough innovations. Fluke and Qualtrol are both benefiting from strong demand in solar EV storage equipment and the build-out and modernization of electric grid infrastructure. In addition, Fluke acquired Solmetric to further solidify their leadership position in the fast-growing distributed energy market with high-precision solar test and measurement products. In this environment, our customers are putting a premium on productivity. ASP is launching new sterilization monitoring products, broadening their leading position in biological indicators, allowing customers to reprocess surgical instruments with greater speed and efficiency. Further, Gordian acquired NSR, a natural extension of their pre-construction workflow, which provides cost data that will allow them to expand job order contracting in the UK. Turning to slide six, we are pleased to announce our agreement to acquire EA Electro Automatique, enhancing our leading position in advanced electronic test and measurement solutions. EA specializes in the high power segment of the market that serves a number of growing end markets, including data centers, energy storage, e-mobility, grid modernization, and hydrogen power alternatives. EA expands Tektronix's addressable market and complements and diversifies their offerings in the fastest-growing areas of the power market, solving for power density and efficiency challenges and creating a more sustainable and electrified world. With an estimated $175 million of revenue and low 40s operating margins in 2023, EA is expected to be accretive to our growth and margins. Tektronix's global scale, including a 10x increase in go-to-market resources, accelerates EA's global market expansion. Further, the Forta business system will be a valuable tool in achieving commercial, manufacturing, and operational synergies, creating unparalleled value for customers and shareholders. As a result, we are targeting an attractive double-digit return profile in year five in earnings accretion that ramps as we de-lever given our robust free cash flow. In summary, the acquisition of EA reflects our commitment to more durable and higher growth and ability to drive higher returns for Fortiv for years to come. Turning to slide seven. Fortiv Business System continues to be a differentiator for us, enabling our business to drive innovation and profitable growth. We recently completed our annual CEO Kaizen Week. This event is a hallmark for demonstrating our culture of continuous improvement and our ability to deliver outstanding results in our operating companies in one powerful week. As always, we bring together our most senior Fortiv leaders including our segment leaders and many of our operating company presidents, with a total of 41 teams and over 500 team members, driving significant improvements in growth, margins, free cash flow, and breakthrough innovations. Some Kaizen highlights include, at ISC and Qualtrol, their events realized 100% to 125% improvements in productivity, service channel reduced their time to onboard new customers, and probation had a 2x improvement in the conversion of marketing leads. both enabling more and faster ARR growth. Tektronix deployed a co-pilot leveraging AI to bring technical expertise to customers and internal automation to significantly improve their efficiency and customer experience. And Fluke Health Solutions had breakthrough results in dosimetry reporting, reducing customer response time by more than 50%. In summary, this year's event continued to emphasize the power of the Florida business system and the breadth of applications across our portfolio, driving sustained results. I will now provide more details on each of our three segments, beginning with intelligent operating solutions on slide eight. iOS grew core revenue by 4%, with good growth in most regions. Margins continued to benefit from our portfolio evolution with high margin software growth, as well as price realization and productivity benefits, driving 230 basis points of adjusted operating margin expansion. Highlights in the core are included. Blue core revenues were up low single digit, as solid core demand and MPI traction buffered expected channel normalization. EMA continued its strong performance with another quarter of double-digit revenue growth. Luke secured a number of wins in secular growth markets, including a sizable calibration order from an aerospace and defense customer. Luke also continues to see success with new product introductions, with the recent launch of MECQ, a first-to-industry acoustic imager for diagnosing mechanical failures. EHS revenues grew mid-single-digit with double-digit INET growth at ISC and another strong quarter for SAS and Intellect, with over 50% growth in ACV customer bookings in the quarter. In addition, Marathon Petroleum, our largest INET and Safer Systems customer, recognized Industrial Scientific with their Corporate Exceptional Partnership Award. Facility and asset lifecycle revenues grew high single-digit, driven by continued strength in SAS. Fortian continues to drive market penetration, as more customers utilize their job order contracting platform to procure and manage their large infrastructure projects. The current security agreement with Xavier University provided facility management software, which included cross-selling with Gordian, and Service Channel launched several innovations for both subscriber and provider software releases, contributing to strong overall growth. Turning now to slide nine, Precision Technologies reported 1% core revenue growth and adjusted operating margins of 26.5%. spanning 60 basis points, reflecting strong price realization and productivity benefits. Some highlights of the quarter include electronics is executing on robust backlog in power and digital test and measurement solutions and delivering low single-digit core growth and outstanding operating margin expansion. This included over 20% revenue growth in North America, reflecting continued customer investments to solve the proliferation of new power design challenges for batteries, EVs, and industrial applications. Tech orders continued to normalize off a 40% two-year stack at the end of 2022. Double-digit order declines at tech were greatest in China. However, we did see weekly patterns improve sequentially as we moved through the quarter. Further, we expect continued lead time improvement and channel normalization with orders returning to growth in the coming months as customers continue to prioritize investments in semiconductor advancements, AI-enabled compute, and electrification of everything. Sensing Technologies saw another quarter of strong orders and revenue growth at Qualtrip. This included a meaningful deal in the quarter from a large U.S. utility customer for full transformer asset monitoring solutions. Elsewhere in Sensing, slowing in China was reflected in lower-than-expected orders and revenue growth. Lastly, Pacific Scientific EMC reported another quarter of double-digit sales growth as it benefits from Kaizen activity to improve manufacturing capacity and operational execution to deliver on record backlog. Moving now to slide 10, an advanced healthcare solution. Core revenues were up 2%, reflecting improved underlying sterilization demand, partially offset by higher than expected U.S. channel inventory in ASP. For the third quarter, the total impact resulted in $11 million in less revenue, impacting AHS core growth by over 300 basis points and adjusted operating margins by almost 200 basis points. Elsewhere, high growth markets saw revenues of high single digits driven by robust growth in Latin America as well as good growth in Asia. Adjusted operating profit margins increased by 200 basis points year over year. We are seeing traction on pricing actions as well as the benefits of the productivity initiatives reflected in higher margins. Additional highlights in the quarter include Census continued to grow its subscription revenue with its CensusTrack SaaS business increasing mid-teens. benefiting from continued traction in both new logo expansion and cross-selling opportunities as customers standardized on their leading instrument tracking software solution. Fluke Health Solutions' revenue increased slightly as high single-digit growth in its corridor symmetry business was partially offset by project timing. We also saw continued market weakness at Invatec, accounting for approximately half of the slower-than-expected growth in the segment in the third quarter. Lastly, probation had another quarter of excellent growth, over 20%, driven by continued APEX SaaS adoption and new logo success. Previewing the fourth quarter, the ASP channel transition is now complete, and we expect growth to accelerate in AHS. This includes the initial ramp of ASP's recently launched portfolio of steam sterilization monitoring products, which will further build over several quarters as they expand their global reach. We continue to expect margins to ramp in Q4 and 2024, driven by consumables growth, price realization, productivity actions. With that, I'll pass it over to Chuck, who will provide more color on our third quarter financials and our 2023 outlook, starting on slide 11.