Fortive Corporation (FTV) Q2 2026 Earnings Report, Transcript and Summary

My name is Daryl, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's Second Quarter 2026 Earnings Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then the number two. I would now like to turn the call over to Ms. Christina Jones, Vice President of Investor Relations Ms. Jones, you may begin your conference.

Thank you. And thank you everyone for joining us on today's call. I am joined today by Olumide Soroye, Fortive' President and CEO and Mark D. Okerstrom, Fortive CFO. During today's call, we present certain non-GAAP financial measures. Information required by Regulation G is available on the Investors section of our website at fortive.com. We will also make forward-looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and actual results might differ materially from any forward-looking statements that we make today. Information regarding these risk factors is available in our SEC filings. Including our annual report on Form 10-K and the subsequent quarterly reports on Form 10-Q. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update any forward-looking statements. Our statements on period-to-period increases or decreases refer to year-over-year comparisons unless otherwise specified. And our results and outlook discussed today are on a continuing operations basis. With that, I will turn the call over to Olumide.

Thank you, Christina. And thank you all for joining our call today. Let me begin on slide 3. Q2 marked another quarter of strong results and execution of the Fortive Accelerated strategy by our Fortive team. Four key messages from the quarter. First, our teams delivered strong financial performance across both segments. On a consolidated basis, we delivered core revenue growth of 6.7% adjusted EBITDA growth of 12% and adjusted EPS growth of 28%. Importantly, our results reflect continued progress on our objective of driving faster profitable organic growth powered by our Fortive Business System (FBS) Amplified. Second, we remain disciplined in our capital allocation approach with relentless focus on optimizing shareholder returns over the medium- to long-term. This quarter, we executed a small bolt-on acquisition and deployed another roughly $200 million to share repurchases. Bringing total share repurchases since our launch of New Fortive a year ago to approximately 38 million shares or 11% of shares. Third, we continued to execute our Fortive Accelerated strategy. And we are pleased to see evidence that our investments in innovation commercial and recurring customer value are contributing to accelerating growth margin expansion and earnings performance. Reinforcing our confidence in our medium-term financial framework and value creation opportunity. Finally, we are raising our full-year 2026 adjusted EPS guidance to $2.95 to $3.05 reflecting our solid first half performance and our confidence in the trajectory of the business. Moving to slide 4, let me highlight some of the progress we are making in executing the three pillars of our Fortive Accelerated strategy. Starting with the first pillar, delivering faster profitable organic growth. Overall, we remain encouraged by the progress we are seeing across innovation, commercial, and recurring customer value. All of which are building the foundation for durable, faster organic growth. This quarter, our accelerating innovation velocity again translated into faster growth. At Fluke, our innovation funnel is steadily expanding. With new product introductions tightly aligned to strategic growth areas such as data centers, defense and early-in-career technicians. Demand for CertiFiber Max continues to exceed expectations. Helping establish Fluke's position in the rapidly growing data center commissioning and maintenance market. And driving pull-through of the broader Fluke portfolio into this high-growth area. In Facilities and Asset Lifecycle Solutions, we are expanding our AI-enabled predictive maintenance portfolio, our ServiceChannel and our [Inaudible] including tools that help field service technicians diagnose and fix issues more accurately in the field. At Gordian, our Flash AI solution launched in Q1 is now in production across many of our strategic accounts and running well above plan. Cutting construction cost estimating time from days to minutes and creating measurable value for customers and for Gordian. In healthcare, ASP received FDA clearance for a 50-pound expanded load capacity. Further strengthening our position in robotic assisted surgery applications, one of the faster-growing areas within the operating room environment. On the commercial side, we maintained our focus on faster-growing end markets and regions where we have made deliberate targeted investments to capture growth. At Fluke, investments in data center expertise drove incremental demand for our networks, power quality and battery testing product lines. Additionally, we continue to see strong momentum in India where our localized service and support investments are strengthening customer relationships and helping drive growth. ServiceChannel is investing in commercial and market resources across Europe to capture the meaningful international opportunity in the business. At Gordian, our investment in growing contractual engagement is reinforcing the competitive differentiation of our two-sided procurement marketplace. Healthcare, we continue to deepen our engagement with enterprise health systems and ambulatory surgical center networks through coordinated commercial efforts across ASP, Censis, and our other advanced healthcare solutions operating brands. On our recurring customer value initiatives, we made further progress on deepening customer lifecycle engagement and improving revenue durability. In Q2, recurring revenue growth remained strong across both segments. At Fluke, recurring revenue growth was driven by strong performance in services and software offerings. Early customer feedback on AI-enabled capabilities recently introduced within Fluke's eMaint platform has been very encouraging. ASP consumables and services had another quarter of strong growth with solid growth contributions from every major region. Moving to the second pillar, disciplined capital allocation is an integral component of our Fortive Accelerated strategy. Consistent with our priorities, we deployed another roughly $200 million to share repurchases in Q2. Since the spin-off, we have deployed nearly $2 billion to share repurchases. Representing 38 million shares or approximately 11% of diluted shares outstanding. Our revamped bolt-on M&A engine and team is now in place. And we are continually evaluating opportunities for high-quality accretive bolt-on acquisitions that meet our rigorous strategic and financial criteria. This quarter, we completed the acquisition of a majority stake in UV Smart, an innovative company whose complementary UVC high-level disinfection technology expands ASP's portfolio and enables more efficient disinfection of specialized instruments. Looking forward, our capital allocation priorities remain clear. Invest in organic growth, pursue bolt-on M&A where risk-adjusted returns exceed other uses of capital, return capital through share repurchases, and maintain a modest growing dividend. All with a focus on best relative returns and maximizing medium- to long-term shareholder value. Moving to our final pillar, building and maintaining investor trust. We are pleased to deliver strong performance ahead of expectations for a fourth consecutive quarter as New Fortive. We remain laser-focused on executing against our 2026 financial and strategic plan and continue to have strong confidence in our medium-term financial framework that we shared at our last Investor Day. With that, I will turn it over to Mark to walk through our financial results for the second quarter in more detail.

Thanks, Olumide. Begin with Slide 5. In the second quarter, we delivered total revenue of nearly $1.1 billion up almost 8% year-over-year on a reported basis and up 6.7% on a core basis. We were pleased to see price and volume growth again in both segments. With results driven by healthy customer demand and strong commercial and operational execution across the portfolio. Software-related revenue remained a meaningful contributor to growth in the quarter reflecting the underlying strength of our businesses. And robust customer demand. For our increasingly AI-driven new product releases. Regarding core growth by geography, North America saw modest sequential acceleration in Q2 and continues to be our strongest performing region. Revenue in the Europe, Middle East and Africa region declined modestly due to macroeconomic uncertainty associated with heightened geopolitical tensions and continued economic softness across the region. Pressure in EMEA was more than offset by year-over-year growth and sequential acceleration in APAC and LatAm. Driven by strong demand for Professional Instrumentation and healthcare consumables. Adjusted gross margin was 63% in the quarter down approximately 100-basis-point year-over-year. Adjusted gross margin performance was primarily driven by product mix dynamics, resulting from outsized growth in certain lower-margin products, partially offset by operating leverage. Note that tariffs had a minimal impact this quarter as the prior year Q2 also reflected tariff-related costs for most of the period. Q2 adjusted EBITDA was $323 million up 12% year-over-year. This strong performance was driven by adjusted gross profit growth operating leverage and discrete structural cost savings, partially offset by growth investments to support our Fortive Accelerated strategy. Adjusted EBITDA margin in the quarter expanded by approximately 110 basis points year-over-year, to 29.5% We delivered adjusted earnings per share of $0.74 in Q2, up over 28% year-over-year marking our fourth consecutive quarter of double-digit adjusted EPS growth. Strong adjusted EPS performance in Q2 was driven by growth in adjusted EBITDA, and the positive year-over-year impact of share repurchases. We generated roughly $270 million of free cash flow in the second quarter with our trailing 12-month free cash flow topping $1 billion with conversion on net income well north of 100%. Please note that during the quarter, we recognized a $4.5 million IEEPA tariff refund benefit in GAAP earnings. We expect another roughly $20 million to $25 million of tariff refunds in the coming quarters. To help investors more easily compare results across periods, we exclude the impact of IEEPA tariff refunds from our adjusted metrics and expect to continue doing so going forward. But the cash benefit is very real. And will be deployed using our disciplined capital allocation framework. Moving to our segment results, starting with Intelligent Operating Solutions on slide 6. Revenue for this segment grew about 9% on a reported basis, with core revenue growth of 7.4%. And we are pleased to see broad momentum continue across the segment. Core growth was driven by both price and volume, reflecting solid performance across Professional Instrumentation, facility and asset lifecycle solutions and gas detection products. At Fluke, order volume remained strong with order growth modestly outpacing revenue growth during the quarter. Customer demand continues to be robust across our industry-leading portfolio and across a broad set of geographies. Our Fluke team executed with discipline, across the board while increasing investments aimed at further tapping into key high-growth end markets including data centers and defense. North America remained our strongest growth driver, with broad-based contributions across product lines. While performance in Europe was affected by macroeconomic uncertainty, this was more than offset by strong growth in APAC and LatAm. Where increased commercial investments in strategic growth markets are yielding promising early results. Growth in Facilities and Asset Lifecycle Solutions was strong again in Q2. Led by strong performance in multisite facility maintenance and marketplace software in North America. We continue to see evidence that our commercial and innovation investments are driving increased demand for our increasingly AI-enhanced products. Our gas detection business is growing nicely, buoyed by strong demand for our hardware-as-a-service product line in North America, The Middle East, and in Latin America. Adjusted gross margin in this segment was just over 65%, down about 100-basis-point year-over-year. Primarily due to strong growth for some of our lower-margin products serving multisite retail customers, partially offset by operating leverage. Q2 adjusted EBITDA in the segment grew 12% to $264 million driven by adjusted gross profit growth operating leverage and discrete structural cost savings, partially offset by growth investments. Adjusted EBITDA margin for Q2 expanded by about 100-basis-point year-over-year to just under 35%. Moving to our Advanced Healthcare Solutions segment on slide 7. Delivered total revenue of nearly $340 million, Revenue grew 6% year-over-year and 5.3% on a core basis. Q2 growth was driven by solid demand for healthcare consumables, services, and software, in Latin America, APAC, and North America. Our software products in the segment continue to deliver strong growth driven by effective execution and strong provider demand for our gastrointestinal case documentation solution. Low-temperature sterilization capital demand improved modestly again in Q2 and contributed to growth. Adjusted gross margin in the segment was roughly 58%, down about 110 basis points year-over-year. Reflecting product mix dynamics and strategic growth investments partially offset by operating leverage. Q2 adjusted EBITDA in the segment was $88 million up 3% year-over-year driven by adjusted gross profit growth, operating leverage and discrete structural cost savings partially offset by growth investments. Adjusted EBITDA margin contracted by about 80 basis points year-over-year, while remaining a healthy 26%. Turning to slide 8. Our balance sheet remains strong. We finished the quarter at 2.7x gross debt-to-adjusted EBITDA. Modestly delevering from last quarter. As noted earlier, we deployed roughly $200 million to share repurchases in the second quarter. Reflecting our continued focus on deploying capital with a laser focus on driving best relative risk-adjusted returns and confidence in our ability to deliver on our value creation plan. As a result, we had approximately 307 million diluted shares outstanding at the end of Q2. In terms of M&A, we completed the acquisition of a majority stake in UV Smart. Towards the end of Q2, and the execution of our value creation plans for the two small bolt-on acquisitions we completed in Q4 of last year both going according to plan. We continue to evaluate high-quality, accretive bolt-on deals that meet our rigorous strategic and financial criteria and deliver superior returns relative to alternative uses of capital. And we now have the team and processes in place to execute effectively on our M&A strategy. We have a healthy balance sheet and a growing business with high durability, strong margins, low capital intensity, very attractive free cash flow generation characteristics. All of this gives us ample capacity to execute on our capital allocation priorities with a relentless focus on optimizing shareholder returns over the medium- to long-term. Moving to slide 9, we are raising our full-year 2026 adjusted EPS guidance range to $2.95 to $3.05 reflecting solid first half performance and confidence in the trajectory of the business. This outlook assumes a continuation of the market dynamics we experienced in Q2 and reflects current tariff rates. Now let me provide some additional considerations to assist with modeling. Based on current foreign exchange rates, we now expect full-year reported revenue of approximately $4.35 billion. Given solid performance to date, we now expect full-year core growth of approximately 4% up from our prior expectation of 2% to 3%. In terms of the shape of the balance of the year, we expect Q3 reported revenue as a percent of total to be broadly in line with historical patterns. While Q4 will be a smaller than usual percentage due to there being four fewer selling days in the quarter versus prior year. As we mentioned last quarter, this will also drive about a $15 million to $20 million headwind to reported revenue and a 150-basis-point headwind to core growth in Q4. We expect FX and M&A combined to be about a 50-basis-point tailwind to reported revenue. In each of Q3 and Q4, we are expecting Q3 adjusted EBITDA margin to be slightly below Q2 levels, driven by slightly lower revenue on an absolute basis and the impact of modest strategic growth investments. On a year-over-year basis, EBITDA margin trends will also be impacted by a more difficult Q3 OpEx comparable. We now expect a Q3 effective tax rate in the mid-teens and Q4 in the low double-digit range. And full-year net interest expense of about $140 million From a bottom-line perspective, as we look forward to the balance of the year, as has historically been the case, we expect adjusted EPS delivery to be weighted towards the fourth quarter with Q3 EPS up very slightly year-over-year. As we said last quarter, broadly consistent with what we saw in the first quarter of this year. As the balance of the year unfolds and we continue to execute on our Fortive Accelerated strategy, quarterly phasing may evolve. As a final note before turning it back to Olumide for closing remarks and Q&A, our first half results reinforce our confidence in the Fortive Accelerated strategy and financial framework we outlined at our last Investor Day. And we remain focused on delivering benchmark-beating returns for our shareholders. I will now turn it back over to Olumide. Thanks, Mark.

Let me close with a few observations on the quarter and where we are headed. Q2 represented another strong quarter of performance. We delivered 6.7% core growth approximately 12% adjusted EBITDA growth and 28% adjusted EPS growth. Our fourth consecutive quarter of delivering double-digit adjusted EPS growth and exceeding expectations. One year after our launch of New Fortive, we are generating momentum from our Fortive Accelerated strategy. And our confidence in the 2026, 2027 financial framework we outlined at our last Investor Day is fully intact. We are pleased with the progress we have made. We believe we are still in the early stages of realizing Fortive's full potential. And we are excited about the value creation runway ahead of us. I want to thank our customers for placing their trust in us every day. And all our Fortive team members around the world for their commitment to our shared purpose of innovating essential technologies to keep our world safe and productive. With that, I will turn it back to Christina to open the call for questions.

Thanks, Olumide. That concludes our prepared remarks. We are now ready for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] A moment, please, while we poll for your questions. Our first questions come from the line of Scott Davis with Melius Research. Please proceed with your questions.

Hey, Olumide, Mark and Christina. Good morning. I think it is still morning there. So good morning to you.

Good morning.

I wanted to touch on 2 things. The first being new products and the second 1 being bolt-ons. But new products, is it something when you talk about NPIs and you think about the KPIs around that you guys look at internally, are new products having a tangible impact on top line growth or sometimes see it in price or you see it in margins because it is--you know, you are selling something that is that is iterative. But is there a tangible, you know, sign at least that, that you think you are getting a return there?

Well, thanks for the question. I think short answer is yes, absolutely. I mean, we have been really clear in our Fortive Accelerated strategy that the three vectors that would drive this company to grow faster. The first of those is innovation and new products. Second is commercial. And the third is recurring customer value, which means we do more for the 100,000 customers we have that trust us every day. And what we have seen really is from a product innovation point of view, all 10 of our brands have really been introducing products and have a funnel of new products that is deeper and richer than we have ever had. And that is also more pointed at really high-growth vectors. So the fact that we are growing 6.7% core this quarter in Q2 and we have been accelerating the last four quarters. That certainly has had the fingerprints of those new products on it. We have talked about some examples of those at Fluke with CertiFiber Max. ServiceChannel, with some of the exciting AI-enabled, innovation we have introduced for work order anomaly detection and conversational work order completion and other things. So short answer is yes. And as you can imagine, knowing us well, we have extensive instrumentation on how we track the portfolio of new products and each individual product. In terms of what we expect and what we are delivering, and we feel quite good about what we are getting out of them.

Fair enough. And then on the bolt-on side, are there are there I do not know what proper word to use here is my fourth call today, and my brain's starting to fry. But are there limitations meaning particular businesses that you would not want to bolt-on to or areas that you do have limited interest in expanding or you looking at bolt-ons across the entire portfolio, you know, software, not software, healthcare, non-healthcare. I mean, just any sense of kind of priorities there and where we might expect to see the lion's share of bolt-ons?

Yeah. So I mean, we first of all have a much simpler portfolio. It is really quite interesting because if you think about the company today, Fluke is more than 40% of what we do. Business at ASP is another really big chunk of what we do. And then there is the rest of the company. So if you think about just the surface area, we have to look for bolt-ons in. It certainly would skew towards our strongest platforms, you know, I will use Fluke as an example of those and ASP as a good example as well. So while we do not exclude any area, we are generally building a funnel that sort of looking at what is available and what is strategically and financially interesting for each of our brands. You are going to see us skew towards our strongest brands. On your point about software, you know, I mentioned this, I think, a few calls ago. We like the software brands we have because of the attributes they have. Around proprietary data and regulatory lock-in and two-sided networks And so if we are looking to bolt-on anything, that thing has to have those attributes that we like as well. It has to be at a financial proposition that fits our criteria in terms of returns. So software bolt-ons are possible, but it is a very narrow path. To find something that works and is affordable. So that is the way we think about it. We build a funnel, but I think if you think about what is going to come out as executed deals, you will see them skew towards our biggest brands where we are strongest and probably less towards software and more towards differentiated hardware businesses. Scott Davis: That makes a lot of sense. Okay. I will pass it on. Best of luck.

I appreciate it.

Thanks, Scott.

Thank you. Our next question comes from the line of Nigel Coe with Wolfe Research. Please proceed with your question.

Thanks. Good morning, everyone. Thanks for the question. I know that Christina will do a great job of kind of sending an email with all the modeling items. Just wanted to clarify your comments on Q3 mark. We have revenues and margin down modestly sequentially? I think that would be normal seasonality. Just wanted to clarify that. And then it seems like there is some moving pieces on the tax between Q3 and Q4. I think you said mid-teens in Q3, that is now mid-teens and Q4 is looking to be a bit higher. Are we still on that path for mid-teens tax rate for the full-year?

I think you have got it entirely right. So I think normal seasonality, as we said, Q3 revenue would track in normal path, and that would be a sequential step down. You know, along with the commentary we made on adjusted EBITDA margins. And then absolutely right on the tax rate, we are continuing to expect something in the mid-teens on a full-year basis, and again, mid-teens in Q3 and low-double-digits in the fourth quarter.

Okay. That is great, Mark. I just want to clarify that.

And then just maybe just elaborate a little bit more on the mix headwinds.

Nigel Coe: That you called out, especially within ASP. Just wanted to understand how persistent that is. And then just kind of beyond that, maybe just talk about memory chip inflation. I think you might have touched on this last quarter. You know, is that weighing on conversion rates in the back-half of the year 2020 in a degree?

Sure. Happy to take both of those. So gross margin, yes, again, mix shift was a big driver in both segments. Specifically in AHS, as you called out, we saw mix shift driven in part by just resumed growth in the capital part of ASP. They also made some strategic investments against some larger accounts that also impacted gross margins in the quarter. And, again, overall, just as a reminder, mix shift was predominantly impacting gross margins in iOS. As a result of strength and high-growth in one of our lower-margin products strategic product, in ServiceChannel in particular. With respect to inflation generally in memory chips, you know, I would say FBS is incredibly good at offsetting these, and we certainly had price cost was positive for us in the quarter. You know, on the margin, you know, there are projects that the teams are working on to make sure that we have multiple sources for things as some things like you know, rare earths and memory chips become harder to come by. It is not a material factor that you would notice in our results, at this point in converting orders or in backlog to revenue. But it is something that we are actively working to countermeasure. Okay. Nigel Coe: Okay. Thanks, Mark. And also I am saying, across the adjusting out the tariff benefits makes a lot easier. Thanks a lot.

Thank you.

That is our goal, make your life easier.

Thank you. Our next questions come from the line of Deane Dray with RBC Capital Markets. Please proceed with your question.

Thank you. Good day, everyone.

Good day.

Hey, Olumide, I really was interested in your prepared remarks today. Where you walk through all of the different new AI products in your software offerings. And this is, as far as we are concerned, really important proof points on the AI as an asset, not a threat debate. And could you just step back and kind of give us a sense of where is Fortive in the rollout of these AI features? Is there any way that you can size the investment that you have made? And then even probably harder, how you measure enhanced functionality and benefits and so forth. But just further color on this would be really important to hear.

Yes, Deane, thanks for the question. So just maybe the context on this is for us, started with an AI Center of Excellence seven years ago before generative AI made it more fashionable. And so we at some level, for an industrial healthcare technology company, we have been ahead of the curve quite a bit. With some of the top companies as partners over several years. So that really gave us a head start. And what we have done across our six software brands is we have been able to very quickly figure out the best use cases for AI like real use cases, that deliver measurable returns for customers, i.e., we save them millions of dollars, we help them improve outputs in measurable ways And our teams have done a terrific job of really deploying those very quickly across our brands. And we have talked about some examples of those. I will say to you that it has been really terrific to see the adoption of those. We refer to the eMaint example in the prepared remarks this time. Every single month we have another one of those AI-enabled stories on our software platforms that are great. So we are well into it at this point. We are seeing customers adopting it. We are capturing value in terms of returns to your point in multiple ways. In some cases, it is an explicit additional sale that a customer pays for. And in some cases, those are outcome-based. In some cases, it is a pass-through of the token cost plus a markup. In some cases it helps kind of our overall NDR on the account and just deepens our presence with the customer. As you can imagine with FBS, we have got deep instrumentation and how we track the returns on each of these. The investment level has not been significant for us, again, because it was not a new initiative for us. We have had this Center of Excellence for a long time. We have been able to scale it by adding capacity in India and making sure that the partnerships we had give us good pricing in terms of any additional tools that we were using. So overall, it has been a great story for us. The fact that our software business has continued to do really well, is not exactly separate from how well we have been able to leverage AI. And we feel good about the setup. Deane Dray: Great.

And then just as a follow-up, and I will keep this one a bit more direct. Can you give us an update on Fluke? We are always interested in the sell-in versus sell-through inventory in the channel, so forth. Whatever you can share there is helpful. Thanks.

Yes. Thanks, Deane. And look, here's a big part of what we do. And if Fluke had another just terrific quarter in terms of performance and it was broad-based strength really across product lines and across both volume and price, which was great to see. So we are gaining share, we are capturing price. From a regional perspective, North America remained our strongest growth driver with sustained strong POS in terms of sell-through. We have talked about that now for several quarters and the strength continues. Europe was affected by some of the macroeconomic uncertainty. But really it was more a few channel customers that deferred purchases. If you look at the POS in Europe, it was actually the best we had seen in six quarters. So it really was a channel holdback in, which is good from an inventory point of view. Because we are leaving the quarter with a much better inventory, channel inventory position. APAC and Latin America both posted really solid growth at Fluke and really partially reflecting the increased commercial investments that we have referenced that we have been making in these regions the last few quarters. As part of our Fortive Accelerated strategy. And you know, orders grew modestly faster than revenues. So book-to-bill was nicely above one and we just we feel really good about the setup. But the Fluke team continues to drive just a terrific innovation funnel. We continue to have probably the best commercial intensity we have ever had in that business with a focus on some of the high-growth verticals like data center and defense and early-in-career professionals that now need to be tooled up and want them to start with Fluke and stay with Fluke all through their career. So we really like the performance trajectory and setup for Fluke, which again is well over 40% of our entire company. So we like that.

Great. Thank you for all the color.

Thanks, Deane.

Thank you. Our next questions come from the line of Andy Kaplowitz with Citi. Please proceed with your questions.

Hey, good morning, everyone. Olumide or Mark? AHS growth continued to be solid in Q2, but maybe you could talk about what is going on between consumables where the growth seems to be strong. And capital equipment where you said growth has been maybe a little more modest. Are you still being slowed down at all by tight hospital CapEx budgets? Are they starting to get better? what is the outlook there?

Yes. Thanks for the question. We are really happy with what we saw in the AHS segment overall, frankly, and in ASP especially. And we, you know, we really see it as an opportunity to reach environments as we dig more into those businesses. They are just a lot of exciting initiatives that can deliver sustainable growth and profitable growth for years to come. So we really like what we are seeing there. In terms of Q2, the strength was broad-based. To your point, in ASP, the consumables and services business grew in every major region with particular strength in APAC and Latin America, was great to see. But every region grew on consumables and services To your point on the capital business, we have talked about the hospital budget pressure now for several quarters. There is still some of that, but it is continued to improve. And that capital business returned to growth this quarter. Which was great to see and the commercial pipeline remains strong and very healthy. And then the software parts of the segment continue to deliver strong growth led by Provation and our SaaS sales in North America. So it was a great quarter because the strength was really broad-based and across regions and components of what we do for customers.

Very helpful. And then I think last quarter, Olumide, you said that FAL growth was accretive to this segment. Is that still the case? And then I think you said ServiceChannel has led growth for you in FAL. But could you clarify what you are seeing between ServiceChannel, Gordian and Accruent?

Yeah. So, again, great quarter for the FAL platform overall. It was led by ServiceChannel, which continues to benefit from the robust demand in multisite facility maintenance solutions and marketplace software But every part of the FAL portfolio performed really well. Gordian, for example, had a solid quarter. As you know, Q2 is an important one for them for some of the state and local government year end. And it was a solid quarter for Gordian. So we like that. And Accruent continues on its improvement trajectory as well, which led us to an outcome where FAL delivered really strong growth, as did every other piece of the iOS segment. Frankly, we have talked about Fluke and the gas detection piece as well. So a good quarter for our team there.

Appreciate all the color. Thanks.

Thank you. Our next question is coming from the line of Chris Snyder with Morgan Stanley. Please proceed with your questions.

Thank you. I wanted to ask about back-half margins. And I understand that corporate is a headwind to the overall Fortive margin into the back-half. But it seems like if my math is right, it seems like you guys are calling for the segments to be maybe flat to down on margins into the back-half. So I guess, is that right? What are the drivers of that? Is that just investment coming through? Is there gross margin that remains down in the back-half? Just any kind of color on the segment margins. Thank you.

Yeah. Happy to provide a little bit more color, Christopher. I think you know, first of all, you know, we continue to operate the business in accordance with 50 to 100 basis point EBITDA margin expansion framework on an annualized basis. And I would expect that for this year. And again, it is part of the framework, so we will run it through next year as well. There are a lot of puts and takes in terms of just what is happening quarter by quarter this year. We talked about in Q3, particularly some EBITDA margin pressure. Part of that is driven by a tougher comp. From Q3 of last year. And then we also continue to see some of the mix shift dynamics on a gross margin basis across both segments as we look through third quarter as well. Q3 also is just a smaller quarter from a revenue perspective. So that is just on an OpEx base when we have again, small tactical incremental investments like we do that puts pressure on the margin as well. On a corporate cost basis, I would continue to think about corporate cost in the $26 million to $27 million zone per quarter. Was a little bit of a step up this quarter just due to some mark-to-market of some incentive compensation matters. And I think as you look through Q4, again, you have got the smaller selling days for 4 less selling days that creates an interesting dynamic. But you should see a better actually margin outlook in the fourth quarter compared to the third quarter.

Thank you for that. It makes sense. And then I also I wanna follow-up on Fluke. You guys are have been talking, think, couple quarters now about some data center opportunities there. And I guess kind of my question is, is there something new happening in data center? Because we did not really kind of associate that vertical that might. We did not hear a lot about that opportunity in Fluke, you know, going back a year or 2. And of course, data center has been strong for a long time. So is anything specifically happening? I am hearing about some maybe fluke opportunities within fiber specifically as that comes to market? So I do not know. Is it new innovation, new product? Why is that seems like it is coming through a little sharper now in the first half of 2026? Thank you.

Yeah. No. Thanks for the question. I think the beauty of Fluke is the kind of durability that comes from the fact that we play in so many different sort of end users. Data centers have always been a part of what we did at Fluke, but it is one of many, many growth drivers for us within Fluke. So it is not--Fluke's not a data center company. it is just one of many things that we do. And Fluke already participates in the tool belt for data centers with a wide range of products from power quality monitoring to high voltage diagnostics and to your point, high density fiber testing, you know, electric ground fault detection. So we have always provided a lot of tools that have been used mostly, frankly, in the commissioning, but as well as operations and maintenance of data centers. What is new is that as part of all the things our team at Fluke is doing to drive innovation, they have actually pointed some exciting new products towards the data center use case. That has become a pull-through for everything else we already do. And so we have talked about the CertiFiber Max example which to your point on fiber testing that is for testing kind of cables that have tiny 32 fibers in them. And this tool essentially helps the certification process to go a lot faster. than the existing tool set that these technicians use. And as you know, one of the key things right now is everyone trying to get their data center off as quickly as they can. So these tools come in at a time that addresses a really unique need. And so what the team's then done is taken the demand for CertiFiber Max is way above our plan. And it is now pulling through other things that we have always done for data centers at Fluke. So it is really a good example of how our team can pivot when there is momentum in a particular market. that is one of many that we play in. And, you know, we have seen just incredible growth in the products at Fluke that are relevant and aimed towards data centers within our overall mix. So that is the way to think about it. I would not say, you know, data center is a new thing for us at Fluke, but we have certainly been able to leverage our existing strength plus innovation plus, obviously, the momentum in that space. to benefit from that. And the growth we are seeing at Fluke is quite exceptional, and it is not completely unrelated to how we have tapped into that velocity in the end market at data center.

No. Yeah.

Great to see all of that coming together and driving nice organic growth. Thank you.

Thanks.

Thank you. Our next questions come from the line of Andrew Buscaglia with BNP Paribas. Please proceed with your question.

Hey, good morning everyone.

Good morning.

Just wanted to touch on, you know, some of the comments you made in as it pertains to recurring revenue. And the thought I had is manufacturing complexities increasing in some of these areas, like semis and aerospace. Life sciences. You guys know, you kinda discussed those as faster-growing. Are you seeing any changes in how customers calibrate equipment or use the equipment that could provide more wear and tear that would require more upgrades and a higher velocity of repurchases. Just wondering if that is a I do not know, a new dynamic we are seeing out of Fortive these days.

Yeah. Look. I think that trend's been it has been building for several years in terms of how customers use especially some of these higher end tools. And what that means for the calibration cycle and do they calibrate it more frequently, less frequently? Do they do it themselves? with third parties, do they use Fluke. So that is always been an evolving space for us. The thing I would say is that we are seeing customers more interested in innovative ideas from Fluke both on the calibration side, on the service plan side and on the software side, that helped them get better outcomes and more productivity out of the entire tool Fleet. And that is again, we have talked about the recurring revenue at Fluke growing double-digits now for many quarters. And we are seeing that trend that you would kind of reference in a piece of that. As the underlying driver of why customers are more interested in do not just sell me a device. But actually help me with a lifetime experience that includes a calibration pattern, includes software, includes services And for a business like Fluke, that is as big and broad and global as we are, that is just a great chance to attach recurring revenue to an incredibly loyal customer base that we have and we like that.

Yeah. it is interesting. I guess as a follow-up, I think how does that inform where you go with your you know, these growth you talked about and/or M&A in that, like, some would argue that the hardware and the instruments are becoming more important. But you are kind of could argue arguably seeing more interest in your software in the software applications you provide, and then the you know, ability to help your customers optimize all these assets. I am wondering where you know. Where do you think is the more interesting place to go that sets you up for the next five years of growth?

Yeah. Well, the way we think about it is we kinda go where we have the strength and the right to win. So for example, in this question you asked, the way we will think about it is, well, if you think about our business at Fluke, it is a business that has an incredible footprint of hardware. And then we have some services and we have some software. And so if we see a piece of software that can attach to our extensive footprint of hardware and we think we can deploy to half our hardware footprint that will be interesting because nobody else can do that. With our software asset. If we see a piece of hardware that is aimed towards a really attractive end market and it is differentiated, we will be really interested in that because it extends our installed base. And so we really think about it in terms of not just whether it is hardware or software services, but is it something that fits with our strength? And is it something where we have a real commercial plan to scale it in a way nobody else can. I think what you would find is given our footprint is more than 70% differentiated hardware and maybe just about 20% real software and, you know, a little bit that is a mix of data and integrated services that we are going to skew towards hardware in the M&A that we do. But any software we do will have that kind of advantage to our natural strengths.

Okay. Very interesting. Thank you.

Thanks.

Thank you. Our next questions come from the line of Quinn Fredrickson with Baird. Please proceed with your questions.

Thanks. On ASP, there is some mixed feedback out there regarding the impact of ACA expiration on elective procedures. I am curious if you think you are seeing any impact or expect to see an impact on either capital equipment or consumables demand based on your conversations with customers?

Yeah. Thanks for the question. Look, as you know, the healthcare reimbursement space has been a dynamic one for a while. So we feel quite good about proximity to customers and their decision process and their funnel. I guess what I would say on that specific question is, it is totally comprehended in the way we think about ASP right now, which is it is in recovery Q2 of last year from a capital point of view was the epicenter of the One Big Beautiful Bill causing these hospitals to holdback on procurement. that is been opening up as they consider a whole bunch of other things. They have concluded that they actually have to keep enabling the operating rooms to run. So we are seeing those orders flow through. And we expect that will continue to be the case. And procedure volumes as well have to recover and continue to recover because that is in the end what drives the economics of this hospital. So we see that continue to get better, and we continue to deepen our presence with our key customers including some of the investments that Mark referred to that is making us even deeper with them and something like the UV Smart bolt-on that we did gives us something else that we bring to this customer. So we feel good. I think all the ACA and other movements is within a broader range of changes all of which I think we like the way it sets us up at ASP.

Thanks. And on the FDA clearance you mentioned you received in the quarter, can you just expand on what that means for you? Is this enabling you to go after new robotic surgery OEMs? Or just any color you can share?

Yes. So this is really for our main sort of low-temperature sterilization on capital equipment that is called STERRAD. And with the approval we got is to be able to run things more than up to 50 pounds through the chamber in these machines. And so what that does is for a lot of our customers most of the robotic equipment that they need to sterilize generally need something that can handle that weight range. So now we have an addressable market in terms of this equipment for robotic surgery that is bigger than we had before. And so what that means is, you know, customers that were maybe saying, well, if you had that, we will be interested, we now have a compelling offer for them. So we are excited about it. Our teams out there, it is going to show up as increased win rates and expansion in that funnel. And better growth in the business.

That is helpful. Thank you.

Thanks.

Thank you. Our next questions come from the line of Jamie Cook with Truist Securities. Please proceed with your question.

Hi, good morning. I guess just two questions. Just on the guidance, Mark, it looks like just based on putting everything together, like the EBITDA margin expansion this year should probably be more like, I think, at the lower end of 50 basis points. I just want to confirm that. And I guess my longer-term question is understanding we are making investments, in particular in AHS and sounds like those investments might be going into it sounds like lower-margin product lines, etcetera. I am just wondering when we start to see the payoffs of that and just sort of set up for 2027 on margins. You know what I mean? Just given the margins where margins are coming out this year on what I would argue probably better than you expected core organic growth? Thank you.

We are happy to tackle those. You know, I think I would just start by saying that we are very happy with the margins of the business, gross margins at 63%, I think that is a pretty good indicator of, you know, the strength of the brands, differentiated products, FBS's ability to drive down manufacturing costs, I think it is a good indication of what we would expect for a full-year basis. And I think EBITDA margin is in around 30% that we saw in the quarter. Again, good strong cost discipline while reinvesting in the quarter, and I think that is a good range to be in for a full-year. We do continue to expect to operate within that 50- to 100-basis-point range. And we are going to continue to do that, you know, through, you know, 2026, and we expect to do that in 2027 as well. The investments that we are making I would not necessarily assume they are going into lower-margin products. I think we saw in the second quarter particular strength from lower-margin products due to strong customer demand. We saw that at ASP. We saw that in the iOS segment as well. But, you know, a number of the products that we are launching, including the CertiFiber Max, for example, it is a highly differentiated product, has, you know, very strong margins and margins, you know, at or better than the Fleet. And as we look around at innovation just generally, we are going to innovate on products that have those similar characteristics just strong innovation, which is in high demand, from our customers and that command premium prices. And then as is the case always with Fortive and FBS, over time, margins just generally improve, because we continue to find ways to drive costs out of manufacturing, overall. So we feel good about the margin trajectory of the business, both gross margins and EBITDA, and we are going to continue to drive price through innovation. We are going to continue to drive commercial acceleration and recurring customer value. All in line with the Fortive Accelerated strategy.

Thank you.

You are welcome.

Thank you. Our next questions come from the line of Chigusa Katoku with JPMorgan. Please proceed with your questions.

Hi, good afternoon. Thanks for taking my question. Just following up on the margins, I also think that I also see you trending maybe towards the lower end for this year. Just if you could give a little bit more color on why you could do more in the range of 50 to 100 in 2027 I think Roper talked about some margin pressures. as they are making investments in AI, but are you seeing any of those?

Yeah. You know, I would just remind you that the 50- to 100-basis-point is something that we have on a rollover. We use it as a framework to guide our investment frameworks. We are investing you know, very tactically against high-return initiatives, you know, across the three pillars of the accelerated organic growth pillar of the Fortive Accelerated strategy. We have seen you know, four quarters of sequential growth acceleration. And on a normalized basis, I think, as we talked about when we gave our updated expectations for core growth, of 4% for the year, you know, we, at least based on what we see today, seem to be trending at least for this year, near the higher end of our core growth framework that we laid out at Investor Day. So the margin expansion story continues to be in line with the framework. We are driving organic growth, you know, quite frankly, ahead of where we expected. And I think that gives us opportunity for margin expansion and also for increased investment levels. And that gives us confidence that, you know, our aspiration, which is ultimately to grow faster than our framework is in 2027 and beyond is definitely in sight for us.

Great. Thanks for the color. And then a little bit on organic growth. Is it directionally correct that third quarter you expect organic growth around the same range as the full-year, around 4%? I will leave it there. Thank you.

Yeah. I think you are, I think you are in the zone. I think it is just as a reminder for everyone, there are a number of year-over-year comparable and calendar impacts that are impacting just the year-over-year comparisons this year, as a reminder, in the first quarter, we had four extra days. That was about a 150-basis-point tailwind to that 5.3% core growth. This quarter, we had a slightly easier comp relative to last year. If you remember, the impacts that Olumide mentioned in the second quarter of last year, Q3 does look like a more normalized quarter for us. And then as a reminder, in Q4, you get the opposite impact we had in Q1 which is about a 150-basis-point headwind to core growth of $15 million to $20 million on a reported basis. Think the important thing to say is that on a normalized basis, this is a business that is gathering momentum and we see the broad course and speed of the businesses as one of accelerating. And it is really a testament to the good work that our teams have been doing to implement the Fortive Accelerated strategy across all 10 of our iconic operating brands.

Okay. Thanks for the color.

You are welcome.

Thank you. Have reached the end of our question-and-answer session. I would now like to hand the call back over to management for any closing comments.

Well, thank you, everyone, for your interest in Fortive. We are excited about the acceleration in our business over the last year. Our entire organization is aligned and energized about our Fortive Accelerated strategy and our Fortive Business System that is enabling us to execute that. And, we are laser-focused on delivering a strong 2026 and setting the foundation for an even stronger performance and shareholder value creation in the years ahead. And thank you for joining us today and we look forward to speaking with you next quarter. Have a great day.

Thank you so much, ladies and gentlemen. This does now conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.