Fortive CorporationFTV
Recorded

Fortive Corporation Morgan Stanley's 14th Annual Laguna Conference

Review the key takeaways and the transcript of this earnings call.

PeriodFY 0Duration27 minParticipants3

Transcript

Preview the first fifteen paragraphs, organized by speaker.

Olumide SoroyePresident and CEO

Hardware as a service type offerings that we have and it's software subscriptions. We've continued to see strong performance across those. To give you a few examples on IOS segment, at Fluke, which is again, our biggest brand, we've just had great success in attaching service plans and subscription software to some of our products at Fluke. This has really taken the experience that our customers have with our advanced professional instruments and saying, how can we make that better over beyond the time they're buying the device from us? That's going really well and continues to provide upside. Then on the software side, and the healthcare consumable side, it's really about driving utilization of equipment we have in healthcare and then attach, for our software businesses. In healthcare, as an example, again, we have tens of thousands of equipments out there.

Olumide SoroyePresident and CEO

Everything we do to help our customers run more devices through those sterilization machines, that's recurring revenue growth. We talked about the recent FDA approval of our 50-pound weight claim for our sterilization machines. That means our customers can put more robotic equipment and devices through those machines, which means the utilization rate on those machines go up, which means more consumables and more services. So those are, it's a very targeted approach at looking at all the 100,000 customers we have and ways to do more for them on a hardware side and on the recurring revenue side to deliver more value and the best place to grow is with the customers you already have.

Chris SnyderAnalyst

Yeah, that makes sense. On Fluke specifically, you highlighted that you're offering now more software recurring revenue opportunities to products you have. Currently recurring revenue is 15% of Fluke. What now, essentially the product portfolio, what percentage now has some software or software option attached to it that you can now bring to the marketplace? How high can that go?

Olumide SoroyePresident and CEO

Yeah. So Fluke's just a terrific business for us with a lot of growth vectors, and one of them is this attaching service plans and software to our Fluke portfolio. We talk about a 50% of our revenues at Fluke being recurring revenues, and that continues to grow at a really strong rate. So if you play that through over time, it's just an exciting frontier for us for growth. The power of that in the end is that as you get into higher value equipment, customers need more service plans to run them, to calibrate them, and to keep them functional. As you think about AI and what's possible with AI, it gives us a chance to add more value that customers are actually willing to pay for, as upsell on those devices. So, lots of runway ahead of us.

Chris SnyderAnalyst

And speaking of AI, how are you using AI to enhance product value on both the hardware and the software side?

Olumide SoroyePresident and CEO

Yeah, it's a great way to frame the question because it is on both the hardware and software side. Just as context again for everyone, we have the benefit of having started our AI journey, with our center of excellence in AI launched seven years ago. We've had time to mature this capability, and I didn't start it with GenAI a few years ago. What that's given us a chance to do is really be focused on real customer value, right? Because we're not trying to learn the technology, we're focused on use cases. I'll just give you a few examples. On the hardware side, we took the approach of looking at every technician that uses our devices and trying to think through how we can leverage AI to help them do their job faster, make better decisions, better reliability, and uptime.

Olumide SoroyePresident and CEO

We're doing that systematically across our portfolio. A perfect example is our Fluke OptiCal, automated visual calibration product that we released recently. Think about this as a way to take the activity that technicians do of checking measurements on multiple devices and having to interpret those measurements. We now have a computer vision system that can capture those measurements, and with AI, can translate them into the implications and then some agentic workflows for some of those who actually take the actions needed. So it's gone from selling them a set of devices to now having this upgrade service that can actually, instead of a new technician trying to figure it all out, do 80% of the task and just help them get more done. So that's an example of AI delivering real value for customers on the hardware side.

Olumide SoroyePresident and CEO

On the software side, we've talked on many of our earnings call about a range of AI enablement that we've put on top of this incredible data-rich systems of record with multi-sided networks around them. Our ServiceChannel, our Walker AI intelligence platform, continues to see great adoption. At Gordian, our Flash AI solution, which kind of help people do estimates in minutes that used to take them days and weeks to do. We've also talked about Provation and our voice documentation capability that helps surgeons now not have to handwrite everything or dictate everything to a nurse practitioner. But they can actually, in an automated way, capture content with their voice rendering. Just a great set of real use cases, again, enabled by the fact that we've been advantaged because we built this capability a long time ago.

Chris SnyderAnalyst

Very interesting. A little bit on the cost structure now that you're a sort of a leaner standalone company, how are you progressing on your structural cost-saving initiatives, and how much progress is there left to make?

Mark OkerstromCFO

Yeah, great question. We talked at the time of the spinoff of there being about $50 million of stranded costs. We were able to take that out between the second and fourth quarter, third and fourth quarter of last year. We also went beyond that and took out a fair bit of cost, particularly at the segment level and in the corporate cost structure. We used that capital essentially to reinvest in the initiatives backing the Fortive Accelerated strategy, and it's early days, but we're seeing great progress. I would just say that we're not done, though. The Fortive Business System is all about continuous improvement, always about looking at ways to do things more efficiently. We certainly see that in the operating companies, but also at corporate. We're on the hunt to do things with less.

Mark OkerstromCFO

Even though the big chunk is behind us, I think we're going to continue to drive efficiency through the business.

Chris SnyderAnalyst

Can you talk a little bit more about those investments and where those dollars are going, and how long you expect before you see the return on that investment, and where that's going to show up?

Mark OkerstromCFO

Yeah. Well, the good news is we're already starting to see returns flow in, and the investments have really been across the portfolio and across those three initiative groupings that Olumide mentioned, which is accelerated innovation, accelerated commercial activity, and recurring customer value. Just to give you a few examples, for Fluke, we really beefed up their engineering resources. They've launched an industry-leading data center tool called the CertiFiber Max. Order volume's way ahead of our expectations. We can't keep up with it. That wouldn't have happened but for the investments that we are making. On the commercial side, we've been putting more boots on the ground in places like Latin America, places in Europe, places like the Middle East, India.

Mark OkerstromCFO

We're seeing the returns on those sales heads, again, across the portfolio, Advanced Sterilization Products, Industrial Scientific, Fluke, and we've also put more specialty commercial expertise into Fluke in both defense and data centers. Again, we're starting to see the returns on that. On the recurring customer value side of things, we've been working on some of the innovations around the software products that Olumide mentioned, and also working on making sure that our service center infrastructure for Industrial Scientific and Fluke and Advanced Sterilization Products in places like India or the Middle East is fully built out with the view of getting more of those great service plan subscriptions that will help drive the recurring revenue even higher.

Chris SnyderAnalyst

Switching to capital allocation, you guys generate a lot of free cash, which is a very positive piece of the business. How do you make capital allocation decisions between M&A and buybacks?

FULL TRANSCRIPT

Continue the full translated transcript in StockNow.

Access every statement, the English original, and speaker-by-speaker history with StockNow Pro.

View the full transcript with Pro

More recent earnings calls

View earnings calendar