The operator introduces the Fortive Corporation's Second Quarter 2024 Earnings Call and reminds participants that the call is being recorded. Elena Rosman, Vice President of Investor Relations, introduces the hosts of the call, Jim Lico and Chuck McLaughlin. Non-GAAP financial measures will be presented and forward-looking statements will be made, with a reminder of the risks involved. Jim Lico begins the presentation on Slide 3.

Fortive's second quarter results showed strong execution across their businesses, with earnings and free cash flow at the high end of their guidance. Despite revenue being at the low end of their guidance, they were able to expand their operating margin and achieve 9% earnings growth. Their performance reflects their ability to adapt to a low growth environment and deliver differentiated financial results through innovation and productivity. They have a strong leadership position in durable growth markets, particularly in Advanced Healthcare Solutions and Intelligent Operating Solutions. Looking ahead, they are excited about their new product launches and confident in their updated outlook for the year. In the second quarter, revenues were up 2% with flat core growth, and they achieved record margins and earnings per share. Year-to-date, they have seen 3% revenue growth and double-digit earnings and free cash flow growth. Intelligent Operating Solutions and Advanced Healthcare Solutions continue to see momentum and benefit from recurring revenue and new product introductions.

Fortive's capital deployment strategy has been successful in driving growth in recurring revenue, which now accounts for 42% of their portfolio. However, government spending delays have affected revenue in the second quarter, particularly in Tektronix and Gordian. Precision Technologies saw a decline in orders, but they expect growth to return in the third quarter. The company's 2024 revenue outlook has been adjusted due to slower recovery in certain markets. They are implementing new productivity measures and taking advantage of their strong free cash flow to repurchase shares. In the second quarter, Intelligent Operating Solutions saw 4% total revenue growth, with core revenue up 3%, but there was a negative impact from foreign exchange.

In the fourth quarter, adjusted operating margins for the company were slightly down compared to the previous year, but showed a 400 basis point increase over a 2-year period due to strong price realization and volume growth. Fluke's revenues increased in the low-single-digit range, with growth in industrial products and ARR. EHS also saw growth in recurring revenue, but slower product sales at ISC. FAL saw mid-single-digit growth, with high-single-digit growth in SaaS. For the full year, the IOS is expected to have mid-single-digit core growth and a 100 basis point increase in adjusted operating margins. Precision Technologies saw a 1.5% decline in the quarter, with core decline of 6.6%. Tektronix's core revenues decreased in the mid-teens, while EA's revenue outlook for the year is approximately $130 million due to project pushouts.

EA has seen an increase in sales for smaller projects, thanks to their partnership with Tektronix. Pacific Scientific has also experienced growth, with a stable book-to-bill ratio and expected revenue growth in the second half of the year. Advanced Healthcare Solutions saw a 3% increase in revenue, with strong margins and growth in various areas such as ASP Censis and Fluke Health Solutions. Precision Technologies, however, faced challenges in short-cycle industrial markets in the second quarter.

The company experienced customer caution and weakness in OEM and channel sales due to election and macro uncertainty, resulting in project delays. North American revenues were slightly up, while Europe saw a decline in revenues but with growth in certain segments. Asia's revenue was down due to slower government spending and distributor de-stocking in China. High growth markets outside of China have become a significant portion of sales. The company expects improved core growth in the second half of the year, driven by strong order rates and growth in certain segments. For the third quarter, the company anticipates revenue growth and adjusted operating profit margin to increase, with adjusted diluted EPS and free cash flow also expected to improve.

The company has revised its growth outlook for the year due to lower revenue and FX headwinds. However, they have offset some of the profit shortfall through productivity actions and a lower tax rate, resulting in an increase in adjusted diluted EPS. The company's portfolio transformation has improved its through cycle durability and growth rates, with a focus on innovation. Examples of new products launched in Q2 include an EV charging station analyzer, a cloud-based capital planning tool, and a real estate planning and management tool.

Tektronix, a company that specializes in oscilloscopes, is constantly improving its products and recently launched a new model with more powerful analysis tools. Another company under the NPT umbrella, ASP, has received FDA approval for a new product and is expected to see increased sales in the second half of the year. The company is also focused on identifying and expanding into new markets, using AI and machine learning to drive innovation. R&D is seen as a high return investment and is crucial for the company's growth and success.

The company's revised outlook for the full year shows double-digit growth in adjusted EPS and free cash flow in 2024. They have adapted to the lower growth environment and remain focused on delivering for shareholders. The company plans to generate over $8 billion in free cash flow in the next 5 years and will use it for acquisitions, share repurchases, and dividend growth. With their business system and disciplined capital deployment, the company expects to double their adjusted EPS and free cash flow in the next 5 years. The company's strategy to build a more durable company is paying off, with strong growth and recurring revenue businesses. They are confident in achieving their revised 2024 outlook and have de-risked areas of protracted recovery.

The company's free cash flow generation remains strong and reflects the success of their business system and portfolio. By following their formula for value creation, they expect to see higher returns on invested capital. The company remains disciplined in their approach to capital deployment. During the Q&A session, they discussed the impact of their increased investment in R&D on both margins and growth. They have been moving their sustaining engineering capability into innovation for several years, which has a long-term compounding effect. Examples of this can be seen in better growth and new product development, such as Fluke's durability and FDA approval at ASP. The company is also focused on maintaining better gross margins for new products.

The speaker discusses the company's projected growth in the third and fourth quarters, attributing it to innovation and capital deployment. They also address concerns about macro uncertainty and a smaller backlog, stating that their revenue outlook is based on normal seasonality.

The company expects to see growth in orders in the second half of the year, leading to a sequential increase in margins in the fourth quarter. This is consistent with the previous year's performance, with about 60% of the increase coming from top-line growth. The company is confident in this projection and does not anticipate any other significant factors contributing to the margin increase.

In the paragraph, James Lico and Chuck McLaughlin discuss the positive growth in PT revenue, with an expected increase in bookings and a step up in revenue from a big deal that moved from Q2 to Q3. They also mention that some businesses within PT, such as Qualitrol, Anderson, and EMC, are contributing to this growth.

Elena Rosman and Nigel Coe discuss the inventory levels and order rates for the second half of the year, with Rosman stating that distributor inventories are normalized across all regions, giving them confidence in the return to growth. Coe then asks about the impact of EV and battery production delays on revenues, to which James Lico responds that they have de-risked the outlook for the year and have not seen a step up in other areas. Lico also mentions that they have seen a pause in customer investments but remain confident in the strategic benefits of the deal.

Stephen Tusa from JPMorgan Chase asks about the growth and performance of GE's industrial software businesses. James Lico reports that FAL had a good quarter with mid-single-digit growth and high-single-digit growth in ARR. They did not see as much budget flush due to stimulus this year, but have new customers starting in the second half of the year. Gordian and Accruent are also performing well, with strong order growth and high retention rates. Overall, FAL is expected to have high-single-digit growth for the year.

The company is seeing good demand for its Gordian Cloud and space intelligence products. They also have strong growth in their SaaS business. The company is confident in achieving their long-term EPS target of 450, but they may need to consider options such as paying down debt or increasing buybacks to reach it. M&A may be a slight headwind, but their recent bolt-on acquisitions are performing well.

The company will update their EPS target and expect to beat it this year, although they will reach it differently than expected. They will provide more details on their tailwinds and headwinds as they approach 2025. The expected performance for tech is a low-double-digit decline in revenue, compared to the previous expectation of a mid-single-digit decline. This is due to the Mil-Gov business moving out and the lack of recovery in China.

The speaker, Elena, mentions that they will be experiencing low-level digit growth, averaging mid-single-digit over the next three years. There will be a slight uptick in orders that will turn to revenue, but overall, the tech core year-over-year is expected to be down in the low-double-digit range for Q3 and Q4. Longer-cycle aspects of the business are setting up for orders and shipments in late 2024 and early 2025. The speaker, James, states that they are not seeing any issues with churn or disintermediation in their software products, specifically Accruent and Service Channel, and both are expected to accelerate in growth throughout the year.

The company's workflow strategy has led them to focus on businesses with vertical expertise and potential for AI solutions. They have a strong position in niche markets and are always looking for competitive threats. They have not seen any disintermediation or competitive threat from AI at this point. The lower tax guide for the second half is primarily due to the move out of pillar two, as the minimum global tax rate will not impact them this year.

James Lico, responding to a question from Joe Giordano, addresses the criticism that the company is late in cutting costs in cyclical markets. He explains that there have been some abnormal factors, such as a strong Mil-Gov segment and delays in Chinese government actions, that have affected their performance. However, the company has been prepared for these factors and remains on track for strong margin and EPS growth for the year. They are now taking stock of their progress with six months left in the year.

James Lico, CEO of a company, is discussing their M&A strategy with Joseph Giordano. Lico explains that they typically do one to two deals a year and have seen success with their recent acquisitions. They will continue to be selective and disciplined in their approach. Jamie Cook from Truist asks a question, but it is not specified what the question is.

The speaker thanks the questioner and addresses their inquiries about the company's growth in Europe and Asia. They mention that while sales core growth has deteriorated in the second quarter, they maintain their core growth guide for both regions. They also mention that healthcare in Europe has been strong and North America will be the highest growth region. The speaker also addresses concerns about a slight decline in IOS margins, but notes that they are still satisfied with the margins and expect them to continue expanding. They also mention that China has gotten worse within the guide, but the rest of Asia is slightly better.

The company's sales in China have decreased to 10% of total sales, while high growth markets in Asia have increased to 14%. The company expects good growth in India and other parts of Asia, and has taken steps to de-risk their business in China. The company expects a 2-3% increase in pricing for the rest of the year. They are also focused on capturing synergies and increasing commercial opportunities in the EA segment, which may lead to a doubling of revenue in smaller orders by 2025.

The company expects to see a funnel of $10-20 million in transactions by the end of the year, with potential for growth in the future. Despite a temporary slowdown in customer investments, the company remains confident in the long-term growth drivers of new battery chemistries, data center battery storage, and EV mobility. The 60% incrementals seen this year, in part due to restructuring, suggest the potential for above-average incrementals in the future as healthcare recovers and short-cycle businesses rebound. The company is on track to meet its 2025 goals for the IOS and AHS segments.

The company has been focused on productivity and cost savings, with plans to continue in the future. They have seen good growth in their ASP business, with the potential for even more growth with their new product launches. The team is optimistic about their performance and believes they are on a good run. The Censis SaaS business has also seen significant growth.

Joseph O’Dea from Wells Fargo asks for clarification on the trends in EA over the past 3 months. James Lico explains that there has been some softening in industrial and factory automation demand within PT, but healthcare and IOS have remained consistent throughout the quarter.

The POS front at Fluke improved in June, leading to a good quarter and year. The industrial group business at Fluke was up mid-single-digit. Larger projects were pushed to the right, with some being pushed from previous quarters. The de-risking is due to projects being pushed, slower OEMs, and the slower China recovery. Customers are pushing things to the right due to macro factors such as the election and interest rates.

James Lico, CEO of a company, discusses the uncertainty in the global market and how it has affected their business. He mentions geopolitical factors, macro uncertainty, and delays in government spending as reasons for a decrease in revenue. However, he also highlights the resiliency of their portfolio and their focus on de-risking the year while still achieving double-digit growth in earnings and free cash flow.

The speaker discusses their company's strong market position and ability to innovate. They look forward to discussing further and wish everyone a good summer. The operator then ends the conference call.

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