Fortive Corp Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Execution and Results: Q4 was a quarter of solid execution with core growth of just over 3%, adjusted EBITDA growth of 8%, and adjusted EPS growth of about 13%. Full-year 2025 adjusted EPS was $2.71, exceeding the high end of the guidance range.
• Fortive Accelerator Pillars:
  • Accelerate Profitable Organic Growth: Accelerated new product introductions, including Fluke's Certified Max data center testing solution and ServiceChannel's third major product release. Targeted investments in growth markets showed early signs of resonance. Recurring revenue grew faster than consolidated revenue.
  • Allocate Capital with Discipline: Repurchased about 26 million shares (8% of diluted shares outstanding) in 2025. Closed two small M&A deals in the second half of 2025. Capital deployment priorities for 2026 include investing in organic growth, pursuing accretive M&A, share repurchases, and maintaining a modest dividend.
  • Build and Maintain Investor Trust: Delivered performance ahead of expectations in Q3 and Q4, confident in the 2026-2027 financial framework outlined at Investor Day 2025.

Segment Performance

• Intelligent Operating Systems (iOS): Reported revenue growth just over 5%, core revenue growth about 4%. Adjusted gross margin was just under 67%, down about 130 basis points. Q4 adjusted EBITDA grew 8% to $288 million, with adjusted EBITDA margin expanding to just over 37%, up about 100 basis points from prior year. Growth driven by price and volume across professional instrumentation, facility and asset lifecycle software, and gas detection products.
• Advanced Healthcare Solutions (AHS): Total revenue was $353 million, grew approximately 3% year-over-year and 1.6% on a core basis. Adjusted gross margin in Q4 was 56% versus roughly 58% in the prior year period. Q4 adjusted EBITDA was $92 million, and adjusted EBITDA margin was 26%, impacted by growth investments.

Guidance

• Initiated full-year 2026 adjusted EPS guidance of $2.90 to $3.00, representing approximately 9% year-over-year growth at the midpoint.
• Assumes continuation of Q4 market dynamics, current tariff rates (tariffs net of countermeasures not expected to meaningfully impact the bottom line in 2026), based on current foreign exchange rates, mid-teens effective tax rate, and net interest expense just over $120 million.

Risks

• Forward-looking statements are subject to a number of risks, and actual results might differ materially from forward-looking statements. Information regarding risk factors is available in Fortive's SEC filings, including the annual report on Form 10-K and subsequent quarterly reports on Form 10-Q.

Q: Get color on Fluke, including sell-in/sell-out and new products.

A: Fluke's performance is strong with North America being the strongest region. Encouraging improvements in EMEA and LatAm, and APAC holding steady. New product innovation at Fluke is faster than ever with targeted commercial investments in markets like data center and defense, and recurring revenue in Fluke continues to grow double-digit ARR.

Q: Talk about price contribution in the quarter and assumptions in guidance.

A: In the quarter, price was about 2%, volume about 1%. 2026 is roughly in line with price, and tariff countermeasures in 2025 provided a tailwind but expected to be broadly in line in 2026.

Q: Help with first quarter outlook and organic sales growth expectations.

A: Expect reported revenue and adjusted EBITDA to broadly follow historical trends. January has come in very solid, and the first quarter is expected to be in line with the guidance's shaping, with a bit of FX tailwind in Q1.

Q: Color on AHS margins, whether multiyear reinvestment need or localized in Q4.

A: Margin pressure in Q4 was very localized due to strategic investments in customers, sales/marketing, and R&D to set up for top-line growth acceleration. The general trend for AHS margins remains to improve.

Q: Unpack iOS 4% organic growth, sources of surprise.

A: The 4% organic growth was due to excellent execution of the Fortive Accelerator strategy by teams, including strong performance at Fluke in areas like data center applications and defense, leading to healthy backlog levels.

Q: AI impact on software businesses, including enhancements and market scrutiny.

A: AI is seen as an opportunity to drive better customer experience and deep integration into workflows. The bar is high for software assets due to AI scrutiny, but Fortive's software businesses have strong ARR growth, gross dollar retention, and net dollar retention, with AI enhancements driving expansion and better customer use rates.

Q: Bolt-on M&A outlook for five-year plan.

A: Bolt-ons are smaller deals as enhancements to the value creation story, but not required for success. The primary focus is on accelerating organic growth through the Fortive business system and smart organic investments, not relying on specific M&A numbers as it's opportunistic.

Q: iOS growth in EMEA, APAC, LATAM and durability of turn.

A: Outcomes in EMEA, APAC, and LATAM were due to better execution by teams, but it's prudent to wait for a few more quarters to call a new trend. Expect better outcomes to continue with improved team execution.

Q: Gas business (Industrial Scientific) growth outlook for 2026.

A: Industrial Scientific is seeing strong growth due to a great market, leading product with hardware-as-a-service offering, and excellent team execution. Continued execution is baked into the 2026 outlook, expecting a strong year for the business.