Fortive Corporation

My name is Daryl, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Ford of Corporation's fourth quarter 2024 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 star, then the number two. 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, Darrell, 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 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 the risk factors is available in our SEC filing, including our annual report on Form 10 for the year ended December 31st, 2023, and the quarterly report on Form 10Q for the quarter ended September 27th, 2024. With these forward-looking statements, they speak only as of the date that they are made, and we do not assume any obligation to update. With that, I'd like to turn the call over to Jim.

Thanks, Alina. Hello, everyone, and thank you for joining us. I'll begin on slide three. Fortive delivered better than expected performance in the fourth quarter, including higher core growth, earnings, and free cash flow. These results kept a strong year for Fortive, including another year of record margins with gross margins of 60% and adjusted operating margins nearing 27% while continuing to fund future growth. In addition, we compounded adjusted earnings and free cash flow 13%, contributing to our strong multi-year track record of differentiated financial performance. Our accelerated pace of innovation in 2024 helped us sustain top-line momentum given the mixed demand environment and further enhances our outlook for 2025. Turning to the year ahead, Fortivus poised for improving core sales growth and continued strong operating performance. We've taken a prudent and balanced approach to planning the year, reflecting momentum in our bookings and durable revenue growth in industrial operating solutions and advanced healthcare, and stabilizing trends in precision technologies, driving a gradual recovery through the year. Lastly, we are progressing well on the actions we announced last year to further accelerate our strategy and enhance value creation. Our teams have made meaningful progress toward the separation of the newly named precision technologies company called Rallion. We now expect the transaction to close early in the third quarter. We also executed on our plan to prioritize the return of capital to shareholders, utilizing our record-free cash flow to repurchase shares. In summary, these actions reflect our commitment to unlocking long-term value for all our stakeholders. Turn to slide four. 2024 was another year of consistent compounding, including the achievement of several record financial metrics. Since our inception, we have evolved our portfolio and leveraged the Ford business system to accelerate growth and innovation, expand market share and profitability, and forge the leadership skills we need for the future. The exceptional value created for customers and shareholders is reflected in our sustained multi-year performance, including an acceleration to mid-single-digit core growth on average the last five years, over 600 basis points of adjusted operating margin expansion, 350 basis points of adjusted gross margin expansion amidst unprecedented inflation. Our creative capital deployment has contributed to higher growth and higher returns. As a result, we grew free cash flow an average of 18% per year over this time, underpinned by industry-leading net working capital performance. In summary, what is unique and truly differentiated about Fortis is the breadth of results that are compounding over time relative to peers. The reason for this five-year track record of success is our commitment to FBS and the strategic evolution of our portfolio. Turning to slide five, our evolution of the Florida business system and continuous improvement mindset have driven acceleration and MPI velocity, helping to sustain our top-line momentum. Within FBS, we have built over time a proven innovation tool set to identify unmet customer needs, develop new products, and bring them to market faster, which ensures greater returns on our R&D investments. We have several examples of how our increased innovation and velocity is contributing to growth across the enterprise. Starting with iOS, Fluke launched a record 20 major new products in the last two years, extending their leadership position in solar and energy storage tools and contributing 200 basis points to growth in 2024. Facility and asset lifecycle revitalized their innovation efforts the last three years, launching its strongest slate of new products and enhancements while also expanding margins 800 basis points. Revenues from these new offerings are expected to more than double in 2025 versus last year. ASP launched a record of six new products in 2024 with 510 approval, which are expected to contribute over $10 million of revenue in 2025. Improvation added to their leading GI position with their next phase of Apex Insights, a proprietary data analytics tool that boosts provider productivity, contributing to a 67% increase in Apex SaaS sites in 2024. PT is also leveraging FBS innovation tools to advance the world's technologies. Electronics launched four new products to their best-in-class electronic test and measurement offering, serving their fastest-growing markets. Sensing Technologies is launching sensors for monitoring the liquid and air cooling systems within data centers, and Qualtrol continues its double-digit pace of growth with new electric grid monitoring and energy storage solutions to support the expansion of global power infrastructure. We're also leveraging our investments in the forum to develop advanced software, data analytics, and AI capabilities, and we expect to launch new AI-based product sets in 2025 and 2026. Moving to the fourth quarter and full year results on slide six. We ended the year with strong operating performance, generating adjusted earnings growth, approximately three times revenue growth. Core revenue growth of 2% in the quarter reflected an acceleration at iOS, partially offset by the anticipated decline in precision technologies. China headwinds continues to mute the recovery we are seeing in certain markets. Acquisitions net of divestitures were offset by unfavorable FX as the dollar strengthened in the quarter. Further highlights of our fourth quarter performance include 100 basis points of adjusted operating margin expansion, adjusted earnings per share of $1.17, reflecting a 5 cent beat at the midpoint with earnings up 19% year over year, and record Q4 free cash flow of $465 million, up 13% year over year. For the year, core revenue growth was 1%, reflecting the mixed demand environment and core decline at PT. Adjusted operating profit grew 7%, and margins expanded 100 basis points, representing over 60% incrementals. We delivered earnings and cash flow above our initial guidance coming into the year, with adjusted EPS of $3.89, up 13%, and record free cash flow of $1.4 billion, representing 23% free cash flow margins for the year. Turning to slide seven, I'll provide more detail on our segment performance for the quarter and the full year, starting with IOS and AHS. On a combined basis, fourth quarter revenues grew 4%, with adjusted operating margins up 140 basis points to over 33%. This represents 12 consecutive quarters of consistent mid-single-digit core growth on a combined basis, reflecting the durability and resilience of these businesses. For the full year, combined IOS and AHS delivered 4% core revenue growth and 120 basis points of adjusted operating margin expansion, with over 60% incrementals. Moving to the right, Intelligent Operating Solutions expanded operating margins 190 basis points on 4% revenue growth in the fourth quarter, with M&A contributions partially offset by FX headwinds. Stable industrial products demand overall and NPI momentum drove mid-single-digit revenue growth at Fluke. Shipments outpaced our expectations exiting the fourth quarter. As a result, we expect a slower start to the year in Q1 before returning to more normalized growth the rest of the year. Growth in facilities and asset lifecycle accelerated to high single-digit in the fourth quarter, enabled by stronger take-rate revenue across our government and multi-site retail product offerings. As you can see on the far right of the page, advanced healthcare solutions grew core revenue 5% in the quarter, with FX headwinds of approximately 150 basis points as total growth. Consumables normalized to mid-single-digit growth as expected, and probation accelerated growth, having lapped the license headwinds earlier in the year. AHS expanded adjusted operating margins by approximately 40 basis points in the quarter and 200 basis points for the year, driven by high margins consumable growth partially offset by unfavorable effects. Turning to precision technologies on slide eight, revenue was approximately flat in the quarter with a core decline of 3%. Acquisitions net of divestitures contributed approximately three points of growth in the quarter. This represents the second consecutive quarter of sequential core growth improvement enhanced by double-digit growth in utility and aerospace and defense markets. Adjusted operating margins contracted 200 basis points on lower core volumes, partially offset by productivity benefits and a creative M&A. Core revenues at Tektronix were down low double-digit in the quarter as expected. However, orders were up high single-digit for the second consecutive quarter. We continue to see investments supporting power, compute, and communications for data center expansion and demand for defense applications, driving Tektronix orders growth, while China and EV mobility remain weak. We had another quarter of double-digit growth at Qualtrol and PacSci as our teams continue to ramp production capacity to keep up with strong demand. Moving to the right side of the page, You can see the precision technology's revenue and adjusted operating performance for the past four years. Since 2021, PT has grown core revenue at 4% CAGR, with adjusted operating profit growing twice that rate at an 8% CAGR over the period. Core revenues declined 4% in 2024. Improved portfolio positioning and focused innovation efforts have dramatically improved the through-cycle performance. Leveraging FBS tools, we have expanded our addressable market and added complementary solutions aligned to favorable secular trends, including next-gen power applications for new markets and new sources of energy around the world. As a result, PT is a much more durable business today with a stable margin and free cash flow profile poised for recovery in 2025. With that, I'll turn it over to Chuck to discuss our 2025 outlook.

Thank you, Jim, and hello, everyone. Turning to slide nine. Let me set the stage for how we're thinking about the year. We continue to be encouraged by stabilizing demand trends overall, which gives us confidence in an acceleration in revenue growth from 2024 to 2025. While we are providing full-year guidance for total 40, we thought it would be helpful to frame the key drivers of the respective new companies, starting with new 40 on the left, comprising our iOS and AHS segments. We expect revenues of approximately $4.1 billion supported by demand for our leading safety and productivity technologies and market share gains from new product introductions. We expect stable underlying industrial demand at Fluke with positive point of sale in North America and Western Europe. China is expected to slow both from a GDP and industrial production perspective, and we have reflected that into our outlook. We expect sustained momentum in our software and recurring revenue businesses, including double-digit ARR growth and foul and stable consumables growth in healthcare. This yields low single-digit plus to mid-single-digit core growth for Newport even 2025. Regarding phasing. We expect growth in the second half to outpace the first, primarily due to timing and days impact in Q1. Turning to the PT company, we anticipate revenues of roughly $2.2 billion in 2025, with core growth up slightly for the year. Our businesses aligned power infrastructure, compute, and communications investments for data center expansion, coupled with aerospace and defense systems, comprise approximately 35% of revenue and are expected to grow double digits again in 2025. Coupled with stabilizing trends in broader semiconductor and sensor markets, we anticipate a return to core revenue growth in the second half of the year. On slide 10, we provide further details on Q1 and 2025 guidance. Starting with the full year, we expect core revenues up 1.5% to 3.5%. FX is expected to be an approximate $90 million headwind for the year, or roughly 150 basis points of impact to total growth. Adjusted operating profit is expected to increase 2% to 5%. And adjusted diluted EPS guidance is $4 to $4.12, up 3% to 6% for the year. Our adjusted EPS guidance includes a 20 to 25 cent headwind from a higher effective tax rate, NFX. This is offset by lower share count and a slightly lower interest expense. Adjusted free cash flow is expected to be approximately $1.5 billion, which excludes the impact of separation-related cash cost of roughly $185 million. The conversion rate on adjusted net income is approximately 100% excluding these items. For the first quarter, we anticipate core revenues to be roughly flat. FX is expected to be an approximate $30 million revenue headwind. iOS and AHS will start the year slower due to Fluke's stronger finish in Q4 and less days in Q1, impacting consumables and service utilization rates. PT is expected to be down mid-single digits, representing our toughest year-over-year comp. Adjusted operating profit is expected to be roughly flat, and EPS is expected in the range of 83 through 86 cents, including a 5-cent headwind from unfavorable FX and higher taxes. With that, I'll turn it back over to Jim to conclude.

Thank you, Chuck. I'll continue on slide 11. We've made considerable progress on the actions we announced last September. to accelerate our strategy and enhance value creation. Starting on the left, we utilized our record second half free cash flow to repurchase approximately 10 million shares, representing 80% of our free cash flow, slightly more than we committed to when we announced the separation. We remain committed to deploying free cash flow, incremental share repurchases as we work to execute the spin. Balance sheet remains in great shape. We exited 2024 with net leverage of approximately 1.6 times and we continue to expect that each company will sustain investment-grade balance sheets after the spin. Moving to the right, we expect the separation to close early in the third quarter. Following the progress our team has made to date, including confidentially filing a draft registration statement with the SEC in December, we are processing initial comments, and we expect a Form 10 filing in the spring. Our efforts to hire top talent are well underway, ensuring we assemble a world-class corporate team to drive future success. Earlier this week, we announced that PTNUCO has an exciting new name, Ralliant Corporation, and we appointed Ganesh Morsi as the board chair. We also announced that Alan Spoon, who is retiring from the Florida board, and Kate Mitchell will both join the Ralliant board. Together with Tammy, these board designees reflect Florida's commitment to the new company's success and sustained value creation for all stakeholders. We'll continue to provide additional updates as they become available. I'll wrap up now on slide 12. Last week, we are excited to announce that Char Dubé was appointed Fordiv's new board chair, succeeding Alan Spoon. On behalf of the board and management team, I want to thank Alan for his leadership, and all he's done to shepherd Fordiv to become a more durable growth company. As we enter this new chapter, I and the rest of the board are confident that Char is the right person to serve as the next chair. She's been providing valuable contributions to our board since 2020, and her deep insights into our business, culture, and strategy, combined with her extensive operational and leadership expertise, prepare her well to steward the execution of our long-term strategy with a more focused and resilient portfolio. This next chapter is a manifestation of the strategy we laid out at our inception, profitably evolve our portfolio to deliver in any environment. That was the case in 2024. Our enhanced portfolio positions, innovative new products, and dedication to the Florida business system have allowed us to deliver consistent compounding performance over the last five years. We are well positioned to continue this track record in 2025 and beyond as we progress through the separation. We could not have reached this milestone in Fortiv's journey without our unique culture and the passion of our 18,000 teammates around the world. Together, we show up with a mindset we can do and be better. I know I speak for the entire Fortiv team, including Illuminae and Tammy, when I say I could not be more excited for the future as both companies are strategically well positioned for enduring success. With that, I'll turn it to Alina.

Thanks, Jen. That concludes our formal comments. Daryl, we are now ready for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Rob Mason with Baird. Please proceed with your questions.

Yes. Hey, Rob. Hi, and happy Friday. Thank you. Usually not saying that on a 40th conference call. So just maybe to start, Jim, could you dig into the product side of the business and thinking this is more around, I'll say IOS and AHS, new 40th. When you framed out 2025 or made some initial comments back in October, I'm just curious around the product, has anything changed, evolved as you've tightened up the plans? You made a comment around China, softer, but just some perspective there around the product side.

Yeah, and maybe take away around Fortiv. First of all, new Fortiv, as you mentioned, iOS and AHS, I would say, you know, really the aspects of the business and software and healthcare really performing well. We had a little bit stronger end-of-year at Fluke. And some of that, we'll get into that later. But I think, you know, just continuing to demonstrate in Fluke the resiliency and durability, particularly around product innovation, much of which we highlighted on the prepared remarks. I would say... What's changed or maybe what's going into 25, Rob, a lot of the past is similar. We've got a little bit of headwind on the days and the consumables businesses and the service parts of our software businesses, which has a little bit of headwind just in the quarter. But really good performance in Q1 across the portfolio in what I'll call New Florida. But China is a little bit of a headwind for sure. That's most pronounced in the first quarter because what we saw last year in the first quarter, and you probably remember this, was we did see some – Optimism on the part of China channel partners in anticipation of some of the policy changes that were going to occur and impact the China government last year. And obviously that didn't happen. But so we've got a little bit tougher comp in China in the first quarter. China's going to be down really across the board. On the PT front, I would say a lot of orders were good. You know, we talked about the order growth in a couple quarters in a row now. We'll see order growth in the second half as well in PT. And I would say, you know, China, but again, there, China weak. And, you know, we're not getting out of the gate here. Really, as we anticipated, but we're certainly not seeing any dramatic increases in China as we start the year out.

Understood. And maybe just as a follow-up, you know, specifically, and maybe this touches on Summit PT because you do have more government exposure there. Are you seeing anything, you know, post-election that, you know, around the flow of funds that you're trying to account for in the planning, you know, just within your various government exposures?

We have not. In fact, you know, I think we've said this in a couple places. Parts of the portfolio where we have exposure to government, Gordian's a good example, although more state and local, less federal. But, you know, our productivity solutions really, I think, are going to resonate and really drive cost reduction. So to some extent, we think an opportunity where maybe there's more fiscal responsibility actually plays in our favor. On the product side of the businesses, we've actually seen strength. We actually, you know, we've gotten some nice large orders from some of the primes across the portfolio. So I would say at this point, nothing would indicate that customers are changing their mindset around where they're seeing our business here, at least over the past few months.

Great. Thanks so much. Thanks, Rob.

Thank you. Our next questions come from the line of Julian Mitchell with Barclays. Please proceed with your questions.

Hi, Julian.

Hey, good afternoon, Chuck. Maybe just the first question on the precision tech organic sales guide. So just there's a bunch of moving pieces, but just trying to understand that improvement in year-on-year organic sales from the first quarter to the balance of the year. Maybe help us understand how much of that is a function just of selling days versus easier comp versus some end market improvement that you've embedded maybe in China or somewhere else. And also, I suppose, the orders conversion into sales. You've had six months of decent orders. Sounds like that will persist. Are we seeing those orders convert into sales already and it's just the mismatch is just a function of different comps or are these somehow kind of longer dated activities in the order book that will come into revenue later than normal?

Yeah, a lot to unpack there, Julian, but let me start with I think what you were talking about, the cadence. I would certainly say the cadence through the year for PT will be really down mid-single digit in the first quarter, probably a little bit better in the second quarter, and then some growth in the second half. I think that gets them to be about up slightly for the year. Some of that's going to be comps, particularly in China, where we see a lot more of the dramatic tougher comp in the first quarter and in the first half. We've always said that we thought some market improvement would occur in the back half of the year. That's embedded, but it's not a dramatic improvement in any way, shape, or form. We did think some markets would start to come back, and we've actually seen a number of things where customers were actually seeing that. The other aspect is we're getting to really high volume numbers in places where we're seeing dramatic growth. principally in Qualitrol and in EMC. We've got some investments to improve capacity, which will also help us in the second half. So I think the combination of, you know, comp in China, some market improvement, but nothing dramatic, and the combination of our ability to get more out here is really what changes first half to second half. And then, you know, I think as I think about really what – When we look at the business more broadly, it's also the innovation cadence. We mentioned this in the prepared remarks, but a number of the innovations, particularly in tectronics, really start to take hold in the second half. But we really don't have a lot of that embedded at this point.

That's helpful. Thank you. And then just my follow-up would be around – the tariff potential there and any way in which you could size perhaps share of purchases or cogs or something like that from some of the countries that may be affected in terms of U.S. tariffs.

Yeah. Well, I would say, number one, the Canada-Mexico, even though they were postponed, really doesn't have impact to us. So in that sense, really no impact. The China tariffs, as you know, we've had a strong playbook since 2018. We've really just pulled – We pulled out that playbook. We talked about, you know, a number of scenarios that we created several months ago when we started hearing about what the potential could be. We've already enacted those countermeasures, and that's embedded in our guide. So we, you know, the 10 percent tariffs in China have been countermeasured, and we'll move through what we have. I think to some extent how we thought about the year from a macro perspective in China does have some of the economic impact of some of the tariffs. I'm not sure we could point to any of those with true specificity. But I think the way we've planned China going to be down here, you know, mid-single digit for the year in China for Fortiv, I think it vets the fact that, you know, there's going to be some uncertainty amongst customers. And in China and, you know, ultimately that will impact our revenue. So we've tried to be prudent about that as we look into the year.

Great. Thank you.

Thank you.

Thank you. Our next questions come from the line of Nigel Coe with Wolf Research. Please proceed with your questions.

Hi, Nigel. Good afternoon. Hi. Good morning. Good afternoon. So, Chuck, I think this might be your last innings call. I'm sure you're going to miss this. this whole process. But thanks for all the help over the years and good luck with your retirement. Thank you. A couple of quick ones. Yeah, a couple of quick ones here. The days headwind in one key, we've heard this from some other companies. Is this just the leap year in the prior year quarter or was there something on Chinese New Year? Any more color there? And then just, you know, FX has sometimes had an impact on margin conversion. I think mainly within AHS. So any sort of peculiar sort of things to kind of flag with this dollar strengthening?

I think that there are a couple of things there. You were asking about days. I think there's nothing. It's just simple days. I don't think we have, you know, when you look at the whole year, I don't think there's a big difference there. So they'll come back. But That's the main thing there. I think when you talk about the health margins, they get hit with a little bit more impact to the margins, and I think that's what you're seeing there.

There's a bit of a bigger day's impact to health care. You think about how much of that day's impact sits with consumables. For example, that's about 200 basis points of headwind in the first quarter.

Okay, yeah, 200 basis points. That's what I was thinking as well. And then just to follow on with the spin, I'm just wondering if there's any more visibility on public company costs and strata costs from the spin.

Yeah, and I think we've sized them roughly around $50 million to $60 million. I think some of that we'll get after between now and spin. an offset of about half of that, and the other half would probably take maybe 12 to 18 months to work down and work out. But we expect to get it all normalized.

And, Nigel, on the separation costs, I think we, you know, in the slide we showed $185 million. That's mostly one – that's all one-time costs. That's mostly professional services, taxes, lawyers, the banker fees to do some of that work. So we've outlined that on the slide as well. So, as Chuck said, we'll get after the separate – you know, we'll get after the stranded costs. We're making good progress on building the teams here. So we feel, as I mentioned in the prepared remarks, we feel really good about our ability to get the teams ready for and hence our ability to speed up the timeline.

Okay. Thanks, Jim.

Thank you.

Thank you. Our next questions come from the line of Steve Tusa with J.P. Morgan. Please proceed with your questions.

Hey, guys. How's it going? Chuck, thanks for all the help over the years, and best of luck. Thank you. So just on the product businesses, back to the tariff question, did you guys see any kind of pre-ordering ahead of the change in administration and potential tariffs? And I'm just curious as to how the quarter played out sequentially by month, kind of adjusting for... Seasonality, in a way, if you could.

Yeah, so I wouldn't say we identified any additional revenue relative to people pre-buying, Steve. You know, what we saw in the fourth was pretty good cadence through. Point of sale was positive in North America, as an example, at Fluke. And that cadence was relatively consistent throughout the quarter. That's probably our best benchmark. We identified roughly about $10 million of revenue at Fluke that we think came out of the first quarter. But that was really more mostly U.S. distribution and European distribution. People were starting to get close to incentives. as the year played out. And so there was a little bit of additional buying to get into incentive plans and things like that. So it's really that that we identified. So it really wasn't around tariffs as near as we can tell.

Got it. And then just last one as a follow-up on the Tektronix, the T&M side of PT. Which verticals are you seeing the best order rates in? Which ones are kind of picking up here the most?

yeah i mean we've had it we've had really strong anything tied to you know defense has been strong for several quarters i would say the the high end what i'll call for lack of a better term the high end of of uh of semiconductor high and high speed compute hyperscalers um those kinds of you know quantum computing all those have been really good so design efforts investments that are going into those opportunities have been really strong. You know, broadly, industrial has been pretty good, too, you know, particularly in North America. Where we've seen the weakness, as we mentioned in the prepared remarks, is really Western Europe and in China. And that really, part of that is EV mobility, and the other part of that is just broadly China. And most of that is really export control customers that we can no longer do business with. Got it.

Okay.

Thanks a lot. Have a great weekend. All right. Thanks, Steve. Yeah, you too.

Thank you. Our next questions come from the line of Jeff Sprague with Vertical Research Partners. Please proceed with your questions.

Hi, Jeff. Hey, thanks. Good day, everyone. Hey, how you doing? Good to catch up. Hey, a couple loose ends here. Just on the days, can we just have the number? Like how many days are we talking about here? Sounds like it's two-ish.

Two days. Yeah, it's two days. Two days. And it was about $8 million.

Yeah. And you think it affects, what, 60% or 70% of your business? Is that the right ballpark?

No. It would be consumables, which are about half of health care. And then the remaining, call it $3 or $4 million, is in services and places like Gordian to take great business.

Think about daily services like we would do in the service organizations for Fluke and Tech, as well as the services that we have in software.

Okay. Yeah, I think it might impact things in distribution, but maybe not. If people want it, they'll catch it up. Okay, that's helpful. Thank you. And then just on China, I think you said down mid-single digit. I think that was a 2025 estimate. Can you just kind of level set us on that? How much China – what China did in 2024 for the year and in the quarter?

Yeah, so I think for the – High single digit. Yeah, down high single digit for 24, down mid-single digit for 25, with probably Q1 being down, you know, high single digit to low double digit in the quarter. And that's more broadly. Okay. And, you know, what's interesting, Jeff, is our high-growth markets, X China, have actually been continuing to grow really well. And so, you know, I think the offset there is going to be we continue to see good growth in some of the other high-growth markets.

And then just maybe finally for me on sort of the flat AOP for Q1, I take it that's still some margin pressure in PT and then some upward growth. trajectory in the other two segments, but anything you'd say there that kind of get us in the right ballpark?

Yeah, I mean, I would say on flattish growth, we're typically going to, you know, that's kind of the overall affordability. You know, we had good margin expansion last year, so 110 basis points in 24 in Q1. So when you kind of look at where we're at on a two-year stack, still good despite kind of that low single-digit growth that we would have had on a comparable basis. But it was exactly right. New Ford over iOS and health will have good margin expansion. And, you know, with being down the way we are in PT, we're doing a nice job of offsetting. You know, when I think about how we've done in PT over the last year, given the fact that our, you know, tech being down, our highest gross margin business, it's been really good operational performance to offset a number of those things. And obviously our margin expansion for the year was good in 24, in part because of iOS and AHS doing a great job, but also the countermeasure work that PT did as well.

Great. Thanks a lot.

Thank you, Jeff.

Thank you. Our next question has come from the line of Scott Davis with Milius Research. Please proceed with your questions.

Hey, Scott. Hey, guys. It's good morning out there still. But, hey, I don't think you addressed it on prepared remarks, but maybe you did. But this is for Chuck. The tax rate has seemed to be pretty volatile for the size of the company. Is there a particular reason why that's been hard to pin down?

Well, you know, the tax rate came down Q4 due to discrete items. That's typically where most of those things land, and they can be somewhat unpredictable, and we don't forecast them. And so I think that's what you're seeing there. When you take out discrete items, it's actually folding into that 14% range.

Okay. I get it. All right. If you wanted to mark to market kind of where we are with probation and ASB, let's just take those two businesses. What do you guys think the new realistic kind of long-term growth rates are? I mean, we know what you thought they were when you did the deals, but it's been a few years now. So if we just mark to market now and you said, okay, over the next five years or even longer, what would you expect to be kind of the entitlement potential growth rate to those two assets now?

Yeah, I would say ASP, mid-single-digit. That's a combination of, you know, additional elective procedures plus some price, plus some, you know, volume, share, gain. And then, as we mentioned in the prepared remarks, We're really starting to see the innovation flywheel start. So we feel good that, you know, as we've talked over the years, Scott, you know, we had six, five, 10K approvals here. And, you know, it takes a while to get the innovation cycle moving in health care just because of the regulatory environment. But we're really starting to see that. So we feel really good about that mid-single-digit growth rate going on. You know, it's a little bit impacted nationally. How we just talked about the days, that's, you know, our biggest day's impact is at ASP. But when we look really at the entitled growth rate, it's mid-single digit. Probation, probably high single, low double. You know, when we look at the SAS conversion, it'll move around a little bit depending on how that conversion goes. But that's a combination of really just the continued work, great work we're doing. We haven't talked about it in a long time, certainly. you know, in some time, but, you know, they're doing a great job. I mentioned the dramatic increase in SaaS sites that we had, and that's really the great work we're doing. We've really got a good sales motion going. And as we also mentioned, we've got Apex Insights, which is their AI offering, which is now starting to get some traction as well with customers. So call it, you know, high single to low double, and that's really what we thought we would underwrite when we bought the business.

Yeah, consistent. Okay. I'll pass it on. Thank you, guys. Best of luck this year. Good luck, Chuck. See you. Thanks, Scott.

Thank you. Our next questions come from the line of Andrew Obin with Bank of America. Please proceed with your questions.

Yes, good morning. Hi, how are you? Just the first question, maybe talk about your digital, your software assets, you know, Gordon, accruing service channel. Where are we in those growth rates and what do those look like exiting the year and going to 25?

Yeah, we had an error growth of high single digit for both the quarter and the year, Andrew. Our software revenue grew overall in Q1 is going to grow high single, and that's with some headwinds on the service front. So we think that high single is good. We're seeing, you know, we had those dramatic growth rates at Gordian for a number of years. So the Gordian rate is moderating a little bit down into the, you know, double digit range, low double digit, but we're seeing improvements at a current and service channel. So good growth there. I just mentioned about probation, good growth there. So intellects, we're starting to improve the growth rate there. had a little bit of a challenge there in 24 but we've done some nice work uh to continue to improve that so you know overall software in very good shape um you know we we mentioned a number of places where we've got some innovation going on as well in foul and the prepared remarks so um x the team's executing well innovation flywheel is starting to starting to take take uh take have some real impact I would think those businesses, and I think as you look around, and I know you do this a lot, I think those numbers are going to hold up pretty well. So we feel good about where our software businesses are, and we've also dramatically improved the profitability. We talked about the 800 basis points and the prepared remarks in FAO. We're just, we've got a lot, we're really demonstrating how FBS can really accelerate a software business, and I think you'll continue to hear that as we progress through the year.

And can we just talk about sort of utilities and power vertical? It seems structurally things are changing there over the long term. How is the conversation changing with the customers? Do you need to have capacity? Do you have the right exposure? If you could expand on that because that's a big topic. Thank you.

Yeah, it is. And so it really comes in two ways. In the smaller way, it comes from what we do with EA and Tektronix, where we are really playing in a lot of the technologies and R&D investments that are going into the next generation of utilities. And as the grid gets improved and technologies are going into that, obviously R&D is organizations around the world are designing those components and designing those chipsets. And we're very involved with tech and EA there. The bigger number, as you point out, is at Qualitrol. And that's been very strong. That's both on the grid monitoring side, but also on the transformer side. We've got a number of new sensors that we're launching with those businesses. We've had double-digit growth. in in that business for several years and as i mentioned on a previous question we're ramping capacity because some of we're really up against our own capacity here and we we look out that's a longer cycle business and as we look out the next 12 to 18 months we continue to see customers making dramatic investments So that's going to be a good growth driver, as we've talked about, for what I'll call Ralliant, because we have a new name now for TT. And that'll be a good growth driver for Ralliant going forward.

Thank you.

Thank you.

Thank you. Our next question has come from the line of Joe Giordano with TD Cowen. Please proceed with your questions.

Hi, Joe. Hey, guys. Thanks for taking my questions. When I benchmark tech versus your peer group, do you think you guys have just more structural exposure to things like EV in China than some of your competitors do?

Well, I think the comps are tough because, you know, you don't have a perfect view. But I would say, you know, with EA, we might have a little bit more EV exposure as a percent of the business. But I think those numbers are relatively in line. And when we comp them against over multi-years, we see pretty similar performance.

Okay. And then just on PT margins in the quarter, Like, I think they were expected to ramp pretty considerably, and they were down sequentially on higher revenues. Just curious of any color on that.

In Q4 or Q1?

Q4. The PT margins in Q4, yes, they were down relative to the volume decline revenue, 220 basis points.

Yeah, we have a little bit less revenue there and a little bit less revenue in some places where, you know, they're in some of our higher profitable businesses. Some of that is that production capacity point I made. Some of it's a tech. So a little bit of that is a little bit of volume and then a little bit of mix, too.

Good. Thanks, Ed.

Thanks, Joe.

Thank you. Our next questions come from the line of Andy Kaplowitz with Citi. Please proceed with your question.

Good morning, everyone.

Hey, Andy. Hey, Andy.

Chuck, thanks for all your help. Chuck or Jim, maybe you can update us on how you're thinking about price versus cost in 2025. There's obviously some tariff-related uncertainty, but I would imagine that material cost inflation has been relatively benign. So what's embedded in your expectations for 2025?

We've got about 200, a little over 200 basis points price across the enterprise. And that's pretty consistent. Look, maybe 225 basis points. So that's pretty consistent across segments. So in that sense, we'll continue to, you know, we always go after more price. So that's usually a testament to our teams. We'll see, you know, that'll mean some, we'll start to see volume on the iOS front here. But, you know, we won't have volume at PT most likely, given the outlook that we've got around Flattish. So for the full year.

Helpful. And then in AHS, I think in Q3 you had double-digit consumer growth. It was mid-single digits in Q4. I know you talked about the difference in days in Q4, Q1. That's probably the big reason. But do you see anything in AHS that actually slowed growth? Or was it really just the days? Is there a difference, a bigger difference in growth between U.S. and, for instance, Europe and China in AHS?

Yeah, health is in a really good place. You know, Q4 didn't have the benefit of the year before comp that Q2 and Q3 did. So we really saw good underlying performance. You know, a little bit of impact on this IV bag situation, which we'll see in a couple of months in Q1. But, you know, broadly, really good performance in health, particularly really across the board in all the businesses. I would say Europe was good. So in that sense, China, a little challenge. So I would say if you're anywhere in health where we're watching is in China, but more broadly across the world, Japan, Middle East, you know, we're really seeing good performance across our health businesses. Now, our most global business is ASP. So when we think around the world, it really is, you know, ASP is really the one business that sells everywhere in the world.

Appreciate the color.

Thanks, Andy.

Thank you. Our next questions come from the line of Chris Snyder with Morgan Stanley. Please proceed with your question.

Hey, Chris. Thank you. Hey, how's it going, guys? Appreciate the question. I wanted to ask on PT orders, you know, great to see that double-digit positive for the second quarter in a row. Are orders going higher in absolute terms? Because I know the comps are negative. And then with that, anything you could share on how precision tech, the book-to-bill is trending in Q4? Thank you.

Yeah, so book-to-bill for PT and certainly for tech and sensing on a combined basis is one for the year. It's a little below, just below 1.96 for the fourth quarter, but that's typical for us in the fourth quarter given the the seasonality of the shipments that we have in the fourth quarter?

Yeah, I would say dollars, I think we're up Q4 from Q3, and we'll grow orders in the first half in PT. A little bit of pressure in the first quarter because of some of the comp issues I was mentioning around China, but we still see continued growth in orders here in the first half. And to Steve's question around how does some of the timing – I think it was Steve's, around six months or nine months. We'll start to see some of that shipment impact. We did see some of those orders more back-end loaded. Some of it is because there's semiconductor-related and there's semiconductor investments in the second half. But we also saw some of our sensing companies that typically get blanket orders. Some of those orders we've got, normally we would get for a full 12 months. We've only got for a few months. So we see a little bit of that order rate coming into shipments a little bit more back-end loaded than typical. But we feel very comfortable with that sort of seasonality relative to years past.

Thank you for that. We really appreciate it. And then maybe just following up, I was surprised to see precision tech organic growth lower in Q4, I think down mid-singles versus the Q4 down three just because we are seeing that, you know, positive order momentum. It doesn't seem like the day's impact is all that material for precision tech based on some of the prior commentary. So, I guess, is Q1, is that down mid-single reflecting EA Electro now coming into organic? And, you know, with that, what is the expectation for EA Electro in 25? Thank you.

Yeah, so I would say a couple things on the first quarter. One is China a little bit more challenged than we anticipated, so I would say that's part of that. Second of all, you're right, EA going into core, and EA's best quarter last year was the first quarter because of the backlog coming in. So that's part of it as well. We think, you know, some good – the good thing about EA, we certainly – and we mentioned it in the prepared remarks, but just to put a bow around it, much of that EA – much of that EB mobility challenge that we saw principally in Western Europe and in China is EA. So that is certainly – we think EA will grow mid-single digits this year. And with the power of FBS and some of the things we've done operationally, we're going to get their margin rate back to where they were when we bought the company. So the margin rate is now in really good shape. We're going to put it – the business will be back into growth mode as we move through the year. The Tektronix – Sales synergies are ahead of plan, and that's really, really working well, particularly in North America, as we find new parts of growth in different markets, and we've started to get some of those orders. So I think those are some of the things that are going well. But again, we've talked about this through 24, the large order EV business that was a big part of their business back in 22 and 23. We have not seen that come back, nor have we planned for it to come back in 25.

I just add that the EA headwind is about $10 million on a core basis. It's $10 million of the core decline over, you know, year over year for Q1.

Thank you for that. I really appreciate it.

Thank you. Our next questions come from the line of Dean Dre with RBC Capital Markets. Please proceed with your questions.

Thank you. Good day, everyone. I also want to wish Chuck all the best. Thanks. Thanks, Dean. Chuck, before you ride off into the sunset, I want to put the spotlight on networking capital. And at 6%, that puts Fortiv among the elite. And so I was hoping you could just parse out how that looks, new Fortiv versus Ralliant. Did I say that right, Ralliant? Yeah, you did. How does that break out? I would imagine the more software part of New Ford have skews that lower, but just directionally, can you help us there?

Yeah, I think that I'm not sure. I haven't really looked at it that detailed in terms of with Ralliant, but we have looked at it excluding the software, which would have it around 9%, and that's what I would expect Ralliant to be in that zone, which is also really good. Both companies have really good working

So similar question for the two. I was not expecting Ralliant to be that low on the networking capital, which is a positive, obviously. But just what does that mean for Ralliant's free cash flow for both companies, kind of free cash flow cadence for on an annual basis based upon that? It's got to be both very comfortably above 100 percent conversion.

I think I'm not above 100%, but pushing, and I'd say that 95 to 100. The two things that really drive you over 100 would be whether you have software, some software companies have maybe working capital or doing M&A and be able to do improvement. But I'd call them, expect them to be 95 to 100.

Yeah, we'll certainly get more clarity as we get to investor day. But You know, Dean, you point out the free cash flow of both businesses is going to be really strong.

Great. And just to clarify, on your software business collectively, are you at the negative working capital level?

Collectively, I don't know because not all software companies do that, but some do. I think we're pretty flat.

Yeah. We're still working through service channels. Probably the big change there. Dean, they weren't typically that way, and so contractually we're working through that over time. Accruant is probably the biggest negative working capital software business we have.

Great. Thank you for all that, caller. Thanks, Dean.

Thank you. Our next questions come from the line of Jamie Cook with Truett Securities. Please proceed with your questions.

Hi. Just two quick follow-ups. One, within PT, I think last quarter you noted some improvement in SEMI. Can you just talk about what you saw specifically in the fourth quarter and your expectations for 2025? And then my other question, or, you know, congrats on the spin happening earlier. Just because we get questions on it, I assume, you know, the probability of anything happening on PT, an inbound offer, we can just assume that's sort of put to bed and not on the table. Thank you.

Yeah, I take the second one. I think that's probably a fair assumption that we're going forward with the spend, and we've evaluated all inbound offers. And then remind me of the first question that you had.

An improvement in SEMI, yeah. Jamie, I would say a couple things. One is where we're kind of a little bit getting back to the prepared remarks. The high-speed compute aspects of SEMI Conductor have been good. You know, NVIDIA is a customer. Some of the large hyperscalers are customers. So I would say that's the good part. I would say that pretty typical to what you're seeing in some other places, the weaker aspects of SEMI are more the, you know, sort of discrete aspects. consumer products, that kind of stuff, and we don't anticipate a return on that. We're starting to see some green shoots there, but without a doubt, and some of that's in the order rate, but we're sort of expecting some improvement in that by the end of the year, but we haven't anticipated any big dramatic improvement in the end of the year.

Thank you.

Thank you.

Thank you. Our next questions come from the line of Joe O'Day with Wells Fargo. Please proceed with your questions.

Hi. Hey, Joe. Thanks for taking my questions. Hey. Fair amount of focus on China, but just if you could talk a little bit about regional expectations specific to fluke, really, and how you think about the growth opportunity within the guide. If we think about it from North America, Europe, China kind of perspective, what type of growth do you think you can do in fluke?

Yeah, I think we think about, we did, I think we did, you know, sort of low single digit plus at Fluke at 24. We did anticipate the same thing being in 25. So pretty similar expectations. Team's done a nice job, as we mentioned, you know, making a lot of their own luck with this acceleration of the innovation cycle. North America will be the winner in the clubhouse most likely regionally. But we expect some growth in Western Europe and we expect good growth outside of China in the high growth markets. We do expect probably China to be down a little bit in the full year with most of that being in the first half just because of comps, mostly comp challenge. So we don't have a big anticipation of any big improvement in the market. Point of sale is a little mixed. Our sort of day-to-day run rate point of sale at Fluke in China is actually down, but our sort of project-based point of sale is actually up. So we are still seeing some, and I think that's really a function of the innovation. We're finding places where that innovation can work, but sort of the day-to-day run rate business still hasn't come back yet. And we'll continue to stay prudent around that as well. So Fluke's in a really good position as we start the year off and after a strong finish. Maybe a little bit of that weakness in the first quarter is what we mentioned, which is some of the revenue coming out of the first quarter. We saw that in the fourth.

And then on the sensing side, just any color on what kind of growth you expect out of Qualitrol, trying to get a little bit of perspective on whether those capacity constraints and what kind of an impact they have on growth constraints. And then also within sensing, just anything on Hengstler and demand trends in Europe, whether there's anything encouraging there.

Well, I would say, number one, multi-year double-digit growth, and we would expect that again this year. And that's a little bit of the capacity constraints. It's not just the volume this year. It's the sum total of the continued volume growth that we've got. So we'll have a little bit of capacity increase there to deal with the long-term demand trends that are very strong. Sensing in general, we saw order growth in the second half. I think double-digit order growth in sensing in the second half. But some of the blanket orders that we would normally see at the end of the year to cover the entire year, we did not see. And I would say that's Part of that is Hensler, as you point out. And, you know, I think where your question is going is exactly right. You know, their exposure to European automation is a higher percentage of anywhere else in sensing, and that's really where their business has been the most weak. And also China has been weak. We have some automation customers there as well. And that would principally be in discrete automation, which is probably consistent with a lot of what you've heard from others, you know, over the last few weeks.

Indeed it is. Thanks a lot. Thank you.

Thank you. Our last questions will come from the line of Scott Graham with Seaport Research. Please proceed with your questions.

Hey, Scott. Hi. Good afternoon. Good morning for you. And thank you for taking the question. And, Chuck, good luck and be happy.

Thank you.

A couple questions around. First of all, my questions are actually all around the margins.

in the quarter you know was price cost your you know your typical spread 50 100 basis points is that fair the price was three percent in the quarter um and when you look at gross margins we expanded gross margins 10 basis points in the quarter um so relative to that you know sort of spread it's probably on par with what it's been over the course of the year okay and then could you remind us what

the restructuring savings will be, what's the plan there, and how they layer into earnings as the quarters progress?

We funded $20 million of restructuring in the fourth quarter. We assume that that rolls in and gradually we see the benefits of that over the course of the year. Not much. maybe a couple million dollars of benefits, call it a penny in the first quarter guidance?

Go ahead. Thanks a lot.

All right. Thanks, Scott.

Thank you. There are no further questions at this time. I would now like to hand the call back over to Jim Liko for any closing comments.

Well, thanks, Daryl, and thanks, everyone. Incredibly thoughtful set of questions. We appreciate all that. Obviously, Elaine and team will be available for any other questions. I just want to thank everyone. A lot of comments around Chuck. I just want to make sure everybody knows he's not going anywhere. He's going to continue to support the Ford team here through the spin, so you may have an opportunity to hear from him a little bit, but he's obviously done a great job for us over the years, and And we're excited for what he will do next. But that's not tomorrow. He's still got some work to do near as I can tell. So anyway, as you can hear, exciting times for us. We couldn't be more excited. Good finish to the year. I think in many respects, we pointed out some of the five-year numbers that we're really proud of. When you look at several records set in 2024, uh around a number of things despite some of the mixed macro environment we were able to do a number of things on the margin and free cash flow front that i think are just synonymous with fps and really have an opportunity to uh to really set us up for 2025 but probably the most important thing is how fps has really driven innovation and really when you see that across the board i think you'll hear more of that as we progress through the year we're excited about 25 we're excited with the fact that we can bring to you the idea that the spin is going to happen faster It really speaks, I think, as well to the power of FBS and the quality of our team. So we'll look forward to the follow-up questions. We'll see many of you out on the road here soon. A lot to do here between now and the spin. We're excited about it. We look forward to continuing to talk about all the exciting things going on in Florida. Thanks. Have a great day and have a great weekend.

Great. Thank you. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.