Fortive Corporation

Greetings and welcome to the 4Div Corporation second quarter 2004 earnings call. At this time, all participants are in the listen-only mode. A brief question and answer session will follow a formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Elena Rossman, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Diego, and thank you, everyone, for joining us on today's call. With us today are Jim Lico, 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 is available on the Investor section of our website at fortive.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 statement 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, 2023. 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. Thank you for joining us. I'll begin on slide three. Our second quarter results showcase strong execution across our businesses, allowing us to deliver earnings and free cash flow at the high end of our guidance with 90 basis points of adjusted operating margin expansion and 9% adjusted earnings growth, despite revenue at the low end of our guidance. Our performance continues to reflect our ability to adapt to the low-growth environment and deliver differentiated financial results enabled by FBS-led innovation and productivity actions. Our leadership positions across durable growth markets are reflected in upside performance in advanced healthcare solutions and continued momentum in intelligent operating solutions, positioning Fortiv well for the future. As we look ahead, we are excited to see the acceleration of our innovation and new product launches, delivering more value for customers and sustained growth for Fortiv. We are confident in our updated outlook for the year, reflecting strong growth in our recurring revenue businesses and continuing our track record of mid-single digit through cycle core growth and compounding earnings and free cash flow by double digits in 2024. Turning to slide four, I'll provide an overview of our second quarter and year-to-date results, as well as what we're seeing as we look ahead. Second quarter revenues were up 2% with flat core growth. Acquisitions contributed three points to growth, partially offset by a foreign exchange headwind. Strong operational execution contributed to record second quarter adjusted gross and operating margins and earnings per share of 93 cents. Year-to-date, we achieved 100 basis points of adjusted operating margin expansion and double-digit earnings and free cash flow growth on 3% revenue growth. Turning to what we are seeing across our businesses. Intelligent operating solutions and advanced healthcare solutions continue their momentum, benefiting from durable and recurring revenue, as well as new product introductions aligned to secular growth drivers. This demonstrates the success of our capital deployment strategy in these segments, where we continue to focus our bolt-on efforts to further enhance growth. Across Florida, our recurring revenue is now 42% of our portfolio. growing low double-digit year-to-date. We expect that pace of growth to continue in the second half. Government spending delays broadly contributed to revenue coming in at the low end of our second quarter guide, primarily driven by delayed military and government R&D projects impacting Tektronix, as funding continues to be prioritized to production-related programs. and slower job order contracting growth at Gordian, as they lapped government stimulus funding in 2022 and 23. Orders at Precision Technologies were down in the quarter as expected, and Book to Bill was stable at 1.0. Consistent with our prior outlook, we expect orders to return to low single-digit growth in the third quarter. However, our updated 2024 revenue outlook does reflect a slower than expected recovery in certain end markets in PT in the second half of the year. We are offsetting lower revenue with new productivity actions and have reflected the delay in global minimum tax implementation in our tax rate guidance for the year. Chuck will cover the outlook for the rest of the year in more detail shortly. Lastly, our free cash flow performance continues to differentiate. with industry-leading free cash flow margins, allowing us to repurchase 2 million shares in the second quarter and continue that pace the remainder of the year. Turning to slide five, I will provide more detail on second quarter segment performance, as well as our expectations for the full year. Intelligent Operating Solutions' total revenue growth was 4%, with core of 3%. Acquisitions were favorable, partially offset by an FX headwind. Adjusted operating margins were down slightly versus the prior year, although up approximately 400 basis points on a two-year stack, with strong price realization and volume growth more than offset by growth investments. Additional highlights include fluke revenues were up low single digit plus, including mid-single digit industrial products and double digit ARR growth in the quarter, a strong proof point of our efforts to make the business more resilient. Fluke's bolt-on acquisitions, Solmetric and Azima DLI, continued to outperform, contributing to Fluke's growth in the quarter. EHS grew low to single-digit, paced by recurring revenue contributions, including strong SaaS and INET growth, partially offset by slower product sales at ISC. SAL grew mid-single-digit, or mid-teens on a two-year stack, with continued normalizing growth at Gordian and lapping the wind-down of pass-through revenue at Service Channel. FAO maintained its pace of high single-digit SaaS growth, and we expect to see that reflected in accelerated core growth in the second half. For the full year, we expect iOS to deliver mid-single-digit core growth with approximately 100 basis points of adjusted operating margin expansion. Precision Technologies was down 1.5% in the quarter, with core decline of 6.6%. Acquisitions, net of divestitures, contributed six points to growth, partially offset by FX. Adjusted operating margins were down slightly year over year, with lower core volumes almost fully offset by productivity benefits, favorable price, and M&A. Additional highlights include Tektronix core revenues went down mid-teens as revenues normalized to booking. We saw pushouts of large mil-gov projects in the Americas and slower recovery in China, partially offset by mid-single-digit services growth. EA has seen large EV mobility and battery expansion projects push out, reducing its revenue outlook for the year to approximately $130 million. While sales cycles are longer for these large projects, EA has seen a doubling of the sales funnel on smaller run rate projects across industries, validating the go-to-market synergies with Tektronix and positioning the business well for 2025 and beyond. Sensing was down a mid-single digit in the quarter with continued strength in utility grid, food and beverage, and healthcare end markets more than fully offset by weaker industrial and factory automation demand. And lastly, Pacific Scientific delivered another quarter of mid-teens core revenue growth driven by robust demand. We finished Q2 with a stable one-to-one book-to-bill and are expecting revenue to return to growth in the second half. For the full year, we now expect PT growth down low single digit with adjusted operating margins approximately flat. Advanced healthcare solutions revenue growth was 3%, with core growth of 5%, partially offset by unfavorable FX of approximately 2%. Adjusted operating margins expanded 260 basis points with strong volume, price realization, and productivity benefits more than offsetting growth investments. Additional highlights include ASP Census grew mid-single-digit, driven by double-digit consumables growth enabled by the successful North American channel transition at ASP, and new doors and cross-sell expansion at Census. Fluke Health Solutions was up low single-digits with double-digit dosimetry services growth. Probation grew low single-digits, lapping a large prior-year licensing win, while SAS revenues up nearly 50% in the quarter. Given the strong first half performance, we now expect AHS full year core growth to be at the high end of mid single digit with over 150 basis points of adjusted OMX for the year. Moving to slide six, several short cycle industrial markets served by our precision technology segment faced headwinds in the second quarter. We saw continued customer caution, weighing election and macro uncertainty, contributing to OEM and channel weakness, and further CapEx-related project delays. North American revenues were up slightly, benefiting from mid-single-digit growth at iOS, driven by strong industrial and software growth, mid-teens growth in healthcare consumables, and continued strength at PacSci, partially offset by lower Tektronix revenues. In Europe, we saw revenues normalized to bookings, with a mid-teens decline at PT, partially offset by low single-digit growth in iOS and low double-digit growth in healthcare. Core revenue in Asia was down low single-digit, driven by slower government spending and distributor destocking in China. Japan was up mid-single-digit or better in all segments, and in India, we saw slower growth, given election uncertainty, impacting project timing at Tektronix. Core growth for the quarter largely centered on our high-growth markets, excluding China. These regions have now eclipsed China in size and account for approximately 14% of sales. Looking ahead, we expect improvement in core growth in the back half of the year, driven by favorable order rates, as well as continued strength in AHS and software. With that, I'll turn it over to Chuck to talk through our updated third quarter and full-year guidance.