Fortive Corporation (FTV) Earnings

Management highlights

### Core Financial Performance - Consolidated Q2 2026 total revenue was nearly $1.1 billion, up 8% year-over-year (reported) and 6.7% (core). Adjusted EBITDA was $323 million, up 12% year-over-year, with adjusted EBITDA margin expanding 110 basis points to 29.5%. Adjusted EPS was 74 cents, up 28% year-over-year, marking the fourth consecutive quarter of double-digit adjusted EPS growth. - Free cash flow was ~$270 million in Q2, with trailing 12-month free cash flow exceeding $1 billion, and net income conversion well above 100%. - North America saw sequential core growth acceleration in Q2 and remained the strongest performing region. EMEA revenue declined modestly due to macroeconomic and geopolitical uncertainty, but this was more than offset by growth and acceleration in APAC and LATAM. ### 40th Accelerated Strategy Execution #### Pillar 1: Faster Profitable Organic Growth - *Innovation*: New product introductions are focused on high-growth strategic end markets. Fluke's 30 fiber masks for data center commissioning and maintenance have demand exceeding expectations, pulling through broader portfolio sales. Guardian's Flash AI construction cost estimation tool (launched Q1 2026) is outperforming adoption plans. ASP received FDA clearance for expanded 50-pound load capacity for robotic assisted surgery applications. - *Commercial Expansion*: Investments in data center expertise drove incremental demand for Fluke's testing product lines. Localized investments in India are strengthening Fluke growth, while Service Channel is expanding commercial resources across Europe. Contractual engagement growth is reinforcing Guardian's two-sided procurement marketplace competitive position. Coordinated commercial efforts are deepening healthcare enterprise customer engagement across the AHS portfolio. - *Recurring Revenue Growth*: Recurring revenue grew strongly across both segments. Fluke's recurring revenue growth is led by services and software, with positive early customer feedback for new AI-enabled eMain platform capabilities. ASP consumables and services delivered strong growth across all major regions. #### Pillar 2: Disciplined Capital Allocation - The company deployed ~$200 million in share repurchases in Q2 2026, bringing total repurchases to ~$2 billion (38 million shares, 11% of outstanding diluted shares) since the New Forty strategy launch. - A revamped bolt-on M&A team is in place, evaluating acquisitions that meet strict strategic and financial criteria. The company completed a majority stake acquisition of UVsmart in Q2, expanding ASP's disinfection technology portfolio. - Capital allocation priorities remain: invest in organic growth, pursue high-return bolt-on M&A, return capital via share repurchases, and maintain a modest growing dividend to maximize long-term shareholder value. #### Pillar 3: Building Investor Trust - The company has delivered performance ahead of expectations for four consecutive quarters under the New Forty strategy, and remains confident in the medium-term financial framework shared at the last investor day.

Guidance

- Full year 2026 adjusted EPS guidance was raised to $2.95 to $3.05, up from the prior range, reflecting solid first half performance and confidence in the business trajectory. - Full year 2026 core revenue growth guidance was raised to approximately 4%, up from the prior 2% to 3% range. Full year reported revenue is expected to be approximately $4.35 billion based on current foreign exchange rates. - Q4 2026 will have four fewer selling days year-over-year, creating an expected ~$15 to $20 million headwind to reported revenue and a 150 basis point headwind to core growth. FX and M&A combined are expected to create a 50 basis point tailwind to reported revenue in both Q3 and Q4 2026. - Q3 2026 adjusted EBITDA margins are expected to be slightly below Q2 levels, driven by lower absolute revenue and modest strategic growth investments, plus a more difficult year-over-year OpEx comparison. - The expected full year 2026 effective tax rate remains in the mid-teens, with a mid-teens rate expected in Q3 2026 and a low double-digit rate expected in Q4 2026. Full year net interest expense is expected to be approximately $140 million. - Adjusted EPS delivery is expected to be weighted to Q4 2026, with Q3 2026 adjusted EPS expected to be up very slightly year-over-year, consistent with Q1 2026 performance. - The company reaffirmed its commitment to 50 to 100 basis points of annual EBITDA margin expansion, a framework it expects to maintain through 2027.

Segment performance

1. Intelligent Operating Solutions (iOS): - Total segment revenue grew 9% year-over-year (reported) and 7.4% (core), with broad momentum across professional instrumentation, facility and asset lifecycle solutions, and gas detection products. Core growth was driven by both price and volume increases. - Adjusted EBITDA grew 12% year-over-year to $264 million, with adjusted EBITDA margin expanding 100 basis points year-over-year to ~35%. - The segment accounted for approximately 69% of total consolidated revenue in Q2 2026. 2. Advanced Healthcare Solutions (AHS): - Total segment revenue grew 6% year-over-year (reported) and 5.3% (core) to nearly $340 million, driven by solid demand for healthcare consumables, services, and software across Latin America, APAC, and North America. - Adjusted EBITDA grew approximately 3% year-over-year to $88 million, with adjusted EBITDA margin contracting 80 basis points year-over-year to a healthy 26%. - The segment accounted for approximately 31% of total consolidated revenue in Q2 2026.

Risks & headwinds

- Macroeconomic uncertainty and heightened geopolitical tensions in EMEA have created modest year-over-year revenue declines in the region, driven by customer purchase deferrals. - Product mix shifts toward higher-growth, lower-margin products have created temporary gross margin headwinds across both segments in Q2 2026. - Global supply chain constraints for components such as memory chips and rare earth materials represent a potential headwind, though the impact is not material to current results and the company is actively implementing countermeasures including multi-sourcing. - Hospital capital budget pressure continues to modestly constrain capital equipment growth in the AHS segment, though this pressure has eased sequentially and capital returned to growth in Q2 2026. - Changes to healthcare reimbursement policies (including ACA subsidy expirations) create ongoing dynamic market conditions, though management notes these changes are already incorporated into current outlook projections.

Analyst Q&A

• Q: Do new product innovations deliver a tangible impact to top line growth, and what are the priorities for bolt-on M&A across the business?

  A: Management confirms that new products are a core driver of the company's accelerating growth, with all 10 brands holding a deeper, more strategically focused innovation funnel than ever before, and formal internal tracking confirms products are meeting performance targets. For M&A, opportunities will skew toward the company's largest, strongest platforms (Fluke and ASP), and software acquisitions will only be pursued if they have the desirable attributes of proprietary data, regulatory locking, and two-sided network effects that meet strict return criteria.

• Q: Where does the company stand on AI feature rollout, what is the size of current investments, and what is the update on Fluke channel inventory and sell-through?

  A: Management notes the company established an AI center of excellence seven years ago, giving it a significant head start, and has already deployed multiple customer-facing AI tools that deliver measurable cost savings for clients. AI adoption is strong, creates value via incremental sales, deeper customer retention, and improved net dollar retention, and is a core driver of strong software segment growth. For Fluke, Q2 performance was broad-based across regions and products, with strong sell-through in North America and Europe; channel inventory in China is now healthier after customer deferrals earlier in the year, and book-to-bill remained above 1, with innovation focused on high-growth verticals including data centers and defense.

• Q: Why are segment margins expected to be flat to down in the back half of 2026, and what is driving new growth in Fluke's data center end market?

  A: Back half margin pressure is driven by tougher year-over-year OpEx comparisons in Q3, ongoing product mix shifts, and incremental tactical growth investments, with a smaller Q3 revenue base amplifying these impacts. Q4 margins are expected to improve sequentially compared to Q3. For Fluke, data centers have long been an end market, but new innovative products like the 30 fiber cable testing mask have seen demand far above plan, and this new product is pulling through sales of Fluke's existing data center product portfolio, leveraging the current strong growth in data center construction to drive above-average segment growth.

• Q: What is the outlook for capital vs. consumable growth in the AHS segment, and are ACA subsidy changes impacting demand?

  A: Consumables and services growth remains strong across all regions, while capital equipment demand has continued to improve after a period of hospital budget constraints, returning to year-over-year growth in Q2 2026 with a strong commercial pipeline. The FDA clearance for expanded 50-pound load capacity for sterilization equipment opens a larger addressable market for robotic surgery applications, expected to improve win rates and drive future growth. Management notes that ACA subsidy changes are already incorporated into the current outlook, and demand trends are improving as hospitals resume capital procurement to support recovering procedure volumes.