The conference call is being led by Krista and Elena Rosman, the Vice President of Investor Relations. They will be joined by the President and CEO, Jim Lico, and the Senior Vice President and CFO, Chuck McLaughlin. Non-GAAP financial measures will be discussed, and forward-looking statements will be made. The company's portfolio strategy has resulted in core growth and margin expansion in all segments, with a 2.5% revenue growth in the third quarter. However, there were some challenges in the healthcare sector and a slowdown in parts of Sensing in China.

The company's strong execution led to significant improvements in gross and operating margins, earnings, and free cash flow. This was driven by the company's strategy of enhancing its portfolio, introducing innovative products, and implementing the Fortive Business System. The company expects to see further growth in 2024 through its pipeline of potential acquisitions. Despite a mixed macro environment, hardware product orders were stronger in the first half of the year, but slowed down in the third quarter in China and parts of the Sensing segment. However, software and services showed resilience with high single-digit growth in various customer workflows.

In the third quarter, Fortive's core growth was limited by inventory and market weakness. However, their performance for 2023 is exceeding expectations with mid-single-digit growth and strong profit margins. The company's focus on innovation and portfolio strategy has helped them become a leader in key industry trends such as automation, digitization, and the energy transition. Examples include partnerships with AI-driven ecosystems and acquisitions to enhance predictive maintenance capabilities. Fortive is also addressing challenges in the energy transition with innovative solutions for solar, electric vehicles, and grid infrastructure.

Fluke acquired Solmetric and Gordian acquired NSR to expand their leadership position in the distributed energy and reconstruction markets. ASP is launching new products to increase productivity, while Tektronix is acquiring EA Elektro-Automatik to enhance their position in the high-power segment of the electronic test and measurement market. This acquisition is expected to be accretive to growth and margins, with potential for commercial and operational synergies through the Fortive Business System. The company is targeting a double-digit return profile and earnings accretion in year 5.

The acquisition of EA reflects Fortive's commitment to long-term growth and the company's ability to drive higher returns. The Fortive Business System, which promotes continuous improvement, has been a key factor in the company's success. The recent CEO Kaizen Week brought together leaders from various segments to drive improvements in growth, margins, and innovation. Some highlights include productivity improvements at ISC and Qualitrol, faster customer onboarding at ServiceChannel, and improved efficiency at Tektronix. The Intelligent Operating Solutions segment saw 4% core revenue growth and margin expansion due to high-margin software growth and price realization.

In the quarter, the company saw overall revenue growth, with a strong performance from EMA and a number of wins in growth markets for Fluke. EHS revenues also grew, with strong growth in iNet and SaaS. Gordian and Accruent also had successful partnerships and ServiceChannel launched new innovations. Precision Technologies reported 1% core revenue growth and strong operating margins, with highlights including Tektronix's execution on backlog and low single-digit core growth.

In the third quarter, Tek saw a 20% revenue growth in North America due to customer investments in solving power design challenges for batteries, EVs, and industrial applications. Tek orders returned to growth after a 40% decline in the previous year, but there were double-digit declines in China. Sensing Technologies saw strong orders and revenue growth, particularly from a large U.S. utility customer. Pacific Scientific EMC reported double-digit sales growth due to improved manufacturing capacity. Advanced Healthcare Solutions saw a 2% increase in core revenues, but there was an $11 million impact from higher U.S. channel inventory. High-growth markets saw revenues up high single digits, with increased adjusted operating profit margins due to pricing actions and productivity initiatives.

The company had a successful quarter with growth in subscription revenue and a slight increase in Blue Power Solutions revenue. However, market weakness in Invetech affected overall segment growth. Provation had excellent growth, driven by APAC SaaS adoption and new logo success. The company expects growth to accelerate in the fourth quarter with the completion of the ASP channel transition and the launch of new products. Margins are also expected to improve in the fourth quarter and 2024. In terms of revenue, the company saw single-digit growth in North America and slight growth in Western Europe, but a decline in China offset this.

In the third quarter, growth in China slowed as expected, but was still up 20% on a 2-year basis. Sensing also saw slowing due to the macro environment, while AHS grew high single digit. Gross margins and operating margins both increased, with adjusted earnings per share up 8%. The outlook for the fourth quarter reflects caution in China and delayed recovery in Invetech, with expected core revenue growth of 1.5% to 3%, an increase in adjusted operating profit margins, and adjusted diluted earnings per share in the range of $0.92 to $0.95.

Fortive plans to fund $35 million in productivity initiatives in the fourth quarter, which is not included in their adjusted EPS outlook. They expect free cash flow of $415 million for the year and are reiterating their earnings guidance for 2023. They anticipate core growth and margin expansion in all segments, with core growth expected to be around 5% and adjusted profit margins to increase by 150 basis points. Adjusted diluted earnings per share is expected to be between $3.37 and $3.40, and free cash flow is expected to be $1.25 billion. Fortive believes they will continue to see sustained core growth and strong margin expansion and free cash flow growth in 2024. They attribute their success to their portfolio durability and the power of FBS.

The consistency of execution reflects the strength of product vitality and alignment to high-growth secular trends, with solid customer demand and excess backlog providing a resilient growth profile. In healthcare, a modest industry recovery is expected to drive stronger growth and incremental margins, while efforts to increase demand generation and strengthen go-to-market capabilities will drive strong SaaS and license revenue growth in 2024. This is demonstrated by strong execution, record gross margins, operating margins, and free cash flow, highlighting the power of the Fortive Business System. By executing the Fortive formula, the company expects to double earnings per share and generate over $8 billion of free cash flow in the next 5 years. The acceleration of capital deployment further positions Fortive as a higher-growth cash flow compounder and a premier company delivering exceptional value to shareholders. The Precision business, particularly Tektronix, has seen changes in guidance, with the market initially appearing to worsen but now showing an increase in revenue for the year.

In response to a question about the recent revision in sales for the PT segment and the decline in China, James Lico explains that there was a decrease in demand and inventory in China, leading to caution among customers. However, he remains optimistic about the future and expects an improvement in orders and sales in the fourth quarter.

The speaker discusses the performance of China POS in Q3 and believes it will improve towards the end of the year. They also mention the overall performance of the PT business, with a focus on Sensing, which has experienced slowing growth due to factors such as China and OEM orders being pushed out. They also touch on the health care business, which has faced challenges but is expected to improve in 2024 after completing a channel transition.

In paragraph 14, James Lico discusses the natural entitlement for the company in 2024 without any one-time negatives. He mentions a channel transition that resulted in $10 million in adjustments, but on a 2-year stack, they see mid-single digit growth. Lico also mentions margin expansion in health and sets the company up for a better 2024. The next question from Steve Tusa asks about the status of the hardware backlog, which was previously around $350 million.

The company's projected revenue for the year has decreased from $330 million to $150 million due to lower than expected orders in the Sensing and Tek divisions, particularly in China. The Invetech business, which focuses on design and engineering for the diagnostic and bioprocessing market, has also experienced a decline in projects being pushed into 2024. The company still has a backlog of over $100 million, not including EMC, which is expected to provide a safety net for 2024. The CEO takes responsibility for overestimating the second half of the year and acknowledges that the core healthcare market is centered around hospitals.

James Lico responds to a question about the current state of the economy and how it may affect the company's costs and performance. He acknowledges that there are signs of a potential recession, but the company has been preparing for this possibility and is still on track to meet its goals for the year. He also mentions that certain areas of the business, such as software and services, are performing well and that they are expecting orders to improve in the next quarter.

The company has seen a slowdown in Tek orders for a few quarters, but the two and three year stacks are still strong. The slowdown is due to a comp issue and possible improvements in China. The company has also experienced an inventory realignment and a misjudgment in Q3, but there is nothing baked into Q4 numbers. The company is confident that they have worked through everything and will see a mid-single digit ASP in Q4.

Tektronix experienced a cyber-incident in the quarter, causing some downtime in North American facilities. The issue has been contained and mitigated, and the company does not believe it will have a material impact on the quarter. The acquisition of EA will allow Tektronix to leverage its franchise and expand into new applications, particularly in the power market. While there is not much product overlap, there is significant application overlap between Tektronix and EA.

The company plans to 10x their go-to-market strategy for their products, which have had strong growth and high margins. They believe they can accelerate market expansion and partner with EA. The Fluke sell-in and sell-through were consistent in North America, but slower in China.

The company's order growth for Tek in September was better than expected, but there were some challenges later in the month. The biggest changes in the second half of the year were a decrease in specific OEM customers within Sensing and in China. The decision to acquire EA is a bet on the future of the business, and the company is confident in the returns from Tek.

The speaker discusses the success of their company's strategy of getting out of volatile businesses and focusing on services. They have seen growth in the power market, particularly in electrification, storage, and renewable energy. They have had success in these markets and see the acquisition of EA as a high-value opportunity that will immediately benefit Tektronix. Industry experts have also praised the deal.

The speaker is discussing the potential impact of a recent deal with EA on the company's EPS and free cash flow targets for 2028. They also mention the strong performance of the facility and asset life cycle business and its contribution to margin expansion. The business has been performing well and is expected to continue doing so, with a slight moderation in one area but overall on a good trajectory. The speaker reaffirms their confidence in the business and its potential for growth.

The speaker discusses the expected revenue growth for the company, stating that it will likely be in the range of 9-11%. They also mention a recent change in their distribution strategy and how it will affect margins. The speaker then clarifies that their pricing strategy is more focused on capturing value through innovation rather than simply increasing prices.

The company's gross margin trajectory has been strong due to their innovative products, and they expect the pricing environment to be better in 2024. They have been able to increase prices in the healthcare sector and are optimistic about their ability to continue doing so. They have not yet provided guidance for 2024, but they are confident about their ability to maintain pricing. In the fourth quarter, there was a small impact from the fiber business and foreign exchange fluctuations. There is uncertainty about the weak forward guidance from Tek, and the company is unsure if it is due to a decline in short-term demand or destocking from consumers like themselves.

The speaker believes that there was a small impact on FX in the fourth quarter, possibly less than one cent. There was also a corporate cost of one cent for remediation efforts. They mention that there may have been some inventory correction in China, but overall they feel they are in a good place with inventory levels. They are also taking actions on inventory in light of the lower revenue guide for the fourth quarter.

The speaker discusses the company's inventory management and emphasizes their lean manufacturing approach. They also address a question about revenue growth and incremental margins for 2024, stating that they expect 40% incrementals and will build on their current actions. They mention that after a few years of strong growth, they anticipate a normalization in the second half of the year.

The speaker discusses the slight differences in Sensing and China, but notes that they are seeing normalization in the second half of the year. They expect mid-single-digit growth through the cycle and have been able to drive margin expansion due to their preparation and business management. The next speaker asks about the visibility into the ramp-up of consumables demand, and the company responds that they are already seeing growth in elective procedures and consumables, with some slowdown in China due to anticorruption measures. They also mention an inventory adjustment in North America, but expect growth to continue when factoring that out.

In this paragraph, Andrew Kaplowitz asks Jim Lico about Fortive's M&A strategy after the announcement of VA and three small bolt-ons. Lico explains that the company has been actively looking for unique opportunities and has already completed three bolt-on acquisitions. He also mentions the recent acquisition of EA, a company known for its technology and growth potential. Lico states that the company will continue to look for similar opportunities in the future.

The company is confident in its future growth despite recent challenges, and plans to focus on unique opportunities for higher returns. The current slowdown in the healthcare sector is attributed to the impact of COVID-19, but the company expects a rebound in consumables and overall growth in the mid-single digits.

The speaker discusses the growth and margin expansion in the third quarter, attributing it to the strategic decision to change channels. They express confidence in the future, with expectations of continued growth in the healthcare market and other parts of the world. The backlog of hardware orders is expected to decrease by around $100 million per quarter.

The speaker discusses the company's inventory rationalization and explains that there are differences between Fluke, Tek, and Sensing. They mention that there were longer lead times in Tek and Sensing which may have led to more forward buying, and it is unclear if the inventory issues are related to the specific markets they serve.

The speaker is clarifying the reasons for the company's differing approaches to managing inventory and backlog. They state that there has not been a significant inventory correction, but rather a decrease in backlog due to changes in orders from specific verticals. They also mention a slight decrease in inventory in China, but overall, they do not anticipate any major changes in inventory levels.

During a recent earnings call, Charles McLaughlin and James Lico discussed Electronic Arts' (EA) revenue growth potential and incrementals over the next five years. They anticipate low double-digit revenue growth and strong incrementals, with a 60% fall through rate. They also mentioned that 20% of the next 5-year free cash flow will result in $0.40 of EPS in 2028. However, Lico added that there is potential for upside given the synergy and go-to-market expansion. They also addressed changes in the revenue line and the company's focus on driving margins for long-term success.

The speaker is pleased with the margin expansion and free cash flow, which aligns with their outlined strategy. They are confident in their plans for 2024 and will provide a guide in the coming months. They look forward to finishing the year strong and will be available for follow-up questions. The conference call is now concluded.

This summary was generated with AI and may contain some inaccuracies.