Fortive Corporation

My name is Christina and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fordham Corporation's fourth quarter and full year 2023 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the 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. Lena Rossman, Vice President of Investor Relations. Ms. Rossman, you may begin your conference.

Thank you, Christina, and thank you everyone for joining us on today's call. With us today are Jim Liko, our President and Chief Executive Officer, and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We represent certain non-GAAP financial measures on today's call. Information required by Regulation G are available on the Investors section of our website at fortiv.com. Our statements on period-to-period increases or decreases refer to the 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 the actual results may differ materially from any forward-looking statements that we make here 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 31, 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'll turn the call over to Jim Plinko.

Thanks, Elena. Hello, everyone, and thank you for joining us. I'll begin on slide three. Ford has delivered outstanding operating performance again in 2023 for our proven formula for value creation. Our transformed portfolio of businesses is delivering consistent through-cycle performance, reflecting a more durable company with mid-single-digit core growth in 2023, despite a mixed macro environment. Strong execution by our teams drove another year of record margins, with adjusted gross margins now approaching 60% and adjusted operating margins nearing 26%. Throughout 2023, we focused on unleashing the full power of FBS, reflected by record participation in Kaizen events, including our largest ever CEO Kaizen Week. The results of these Kaizens were tremendous, including an average of 50% productivity and 50% lead time conversion improvements. Our industry-leading free cash flow generation funded a creative capital deployment, including our best year executing on bolt-on acquisitions, accelerating our growth strategy across all three of our segments. We also opportunistically bought back shares and increased our dividend, enhancing shareholder returns. In summary, we remain committed to our strategy, and its success is evident given the consistency of our results, which I'll highlight on slide four. We built forward to drive growth, drive progress, and drive value. Reflecting on our evolution, we made significant steps again in 2023 towards our vision of a premier company. This includes 5% core growth and 160 basis points, adjusted operating margin expansion. The benefits of our portfolio transformation are reflected in our progress today, averaging rule of 35 performance over the last five years. FBS is driving commercial success as we expand into new growth markets, speed innovation cycles, and maximize investment returns across our three operating segments. For example, in 2023, we saw a 33% increase in our revenue attainment on new product launches. Many of these new products are contributing to the approximately 60% of our revenues that positively impact climate, health, and safety concerns and align to the UN Sustainable Development Goals. Our operating companies are seeing a greater than 20% acceleration in software development time through the use of Gen AI, improving our ability to deliver more value to customers. Our culture of innovation, learning, and continuous improvement is contributing to gains in our industry-leading employee engagement scores, a critical component of our sustained success. Lastly, our acquisition performance contributed to our record-free cash flow in the year, underpinned by industry-leading networking capital performance and accelerated returns on invested capital. On slide five, you see how our portfolio is strategically positioned to increasingly benefit from secular growth trends. Every day, we are helping our customers harness the power of emerging automation and digitization technologies, streamline crucial workflows, and embrace the energy transition. Some highlights in the fourth quarter include, in iOS, Fluke's new family of multi-product calibrators are providing the broadest workload coverage across some of the fastest-growing markets. FAO's recent bolt-down of Red Hat is helping to transform customers' digital experience with a modern, centralized hub for engineering document management, solidifying your current leading position in that market. In PT, Tektronix is harnessing the power of open-source software with the first release of its Python-native drivers to help our customers automate their instruments and accelerate their testing times. Together with EA, which closed in early January, Tektronix is expanding its addressable market, adding complementary performance solutions to their best-in-class electronic test and measurement suite, serving the fastest-growing areas of the power market. In AHS, Landauer is helping customers reduce energy usage, waste, and carbon emissions with their new digital dosimetry solution. And ASP launched their new sterilization monitoring products in North America and Asia, helping customers achieve greater efficiency and assurance as they work to keep up with rising clinical demand. Turning to slide six and a spotlight on M&A performance, our two most recent large deals provide an excellent example of the Forded flywheel for value creation and action. In 2021, we accelerated our segment strategies with the acquisitions of service channel and probation. These two world-class software offerings are creating compelling value for our customers and Forded, having fully embraced the power of FBS to drive double-digit ARR growth and significant margin expansion. For example, Service Channel exited 2023 with adjusted operating margins in the mid-20s, up from break-even when it was acquired. And Probation delivered 112% net dollar retention in its GI solutions, up approximately 8 points since its acquisition. The execution of our disciplined acquisition strategy strengthened but the value FBS creates and is a critical component of how we achieve sustained results over time. You see that reflected in their industry-leading net dollar retention as our innovation and customer-centricity tools are helping them retain and grow their existing base. Turning to slide seven, our ability to deliver differentiated results is enabled by our world-class business system. Across Florida, we leverage FBS to better understand our customers, accelerate innovation, market share profitably, improve operations, and forge the leadership skills we need for the future. One of the best things about MBS is that we never stop improving it. As our portfolio evolves, we are expanding the tool set and capabilities that allow us to set and deliver on high expectations, as you just saw in the service channel and probation examples. In 2023, the fourth, our Center of Excellence for Software, Data, and AI expanded its capabilities, to further support digital transformation and drive innovation, next-gen products, and productivity across Fortiv. A quarter of our success is how our leaders immerse, teach, and lead from the front with FBS. Together, they make Kaizen the way of life for our 18,000 team members, reinforcing our strong culture of inclusion where everyone's contribution matters. Looking at the chart on the right, what is unique and differentiated about Fortiv is the breadth of results that are compounding over time. Since 2019, we have sustained our target of mid single-digit through cycle core growth. We have delivered outstanding margin expansion above our annual commitments. We have converted more revenue to income, growing adjusted EPS at 14% compounded rate, and converted more income to cash, compounding free cash flow at an average of 19% over time. With that, I'll turn it over to Chuck to provide more color on our fourth quarter financials and our 2024 outlook, starting on slide eight.