My name is Brock, and I will be your conference facilitator this afternoon. I would like to welcome everyone to the Fortive Corporation's First Quarter 2025 Earnings Results Conference Call. All lines have been muted to avoid background noise. After the speaker's remarks, we will have a question-and-answer session. I will now turn the conference over to Ms. Elena Rosman, Vice President of Investor Relations. Ms. Rosman, you may begin your conference.

Thank you, Brock, and thank you, everyone, for joining us on today's call. I am joined today by Jim Lico, our President and CEO, and we are thrilled to welcome Mark Okerstrom, our new CFO, to the call. As he is in the process of ramping up, Jim and I will be addressing most of your questions today. We're confident Mark will also share some valuable insights and look forward to you getting to know him in the weeks and months ahead. We present certain non-GAAP financial measures on today's call. Information required by Regulation G is available on the Investors section of our website at fortive.com. Our statements on period-to-period increases or decreases refer to year-over-year comparisons unless otherwise specified. During the call, we will 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 may 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 for the year ended December 31, 2024, and quarterly report on Form 10-Q for the quarter ended March 28, 2025. These forward-looking statements speak only as of the date they are made, and we do not assume any obligation to update. With that, I'd like to turn the call over to Jim.

Thanks, Elena. Hello, everyone, and thanks for joining us. I'll begin on Slide 3. Fortive delivered a solid first quarter performance with strong operational execution, allowing us to deliver adjusted earnings per share of $0.85, in line with our expectations. Despite slightly lower-than-expected revenues, we expanded both adjusted gross and operating margins while continuing to invest for growth. Our operating performance and disciplined working capital management drove better-than-expected cash flow generation in the quarter. We also continued our pace of share repurchases, reflecting our commitment to value-enhancing capital deployment. These results were achieved amidst a more dynamic macro environment and demonstrate our team's dedication to the Fortive Business System and relentless focus on execution. Our accelerated pace of innovation and durable recurring revenue profile is helping to sustain top line momentum in our Intelligent Operating Solutions and Advanced Healthcare Solutions segments for what will be new Fortive. We saw customers in Precision Technologies, or what we'll call Ralliant, delay investments in light of increased political and macroeconomic uncertainty, putting a halt to the momentum we had seen in the second half of 2024. We came into 2025 knowing it was going to be a year of uncertainty, and we would need to stay flexible to adapt to changing market dynamics. Our outlook now incorporates moderating demand in PT as well as the net impact of current tariffs. Regarding the newly announced tariffs, we are deploying countermeasures using the playbook we started back in 2018. We've been on a multiyear journey to enhance our supply chain and manufacturing resilience, enabling us to reduce our exposure to imports from China by 70% since that time. Lastly, we continue to make progress towards the separation, which we're targeting to complete by the end of the second quarter. In March, we announced our new CFO, Mark Okerstrom. His expertise in accelerating profitable growth and being a disciplined capital allocator will help drive additional shareholder value as we transition into the next chapter of Fortive. He spent the last month in immersion and getting up to speed, and we're excited to have him with us on today's call. I'll turn it over to Mark to say a few words.

Thanks, Jim. Hi, everyone. Great to be here. I thought I'd start with a few brief remarks on my thesis for joining Fortive and some very early reflections on what I've seen so far after just over a month on the job. Firstly, I've long admired the principles and practices behind the rigor that runs through Fortive's DNA by virtue of its heritage and its leadership, but I wanted to experience it close up. And so far, based on what I've seen, it's impressive. The Fortive Business System is real and the entire Fortive team here lives and breathes it with remarkable discipline. Secondly, and with my investor hat on, I felt the stand-alone Fortive investment thesis was compelling. I was attracted by Fortive's strong portfolio of leading businesses with big moats and the secular tailwinds blowing at their backs in the markets in which they operate. I also like the near-term catalyst of the spin. Thirdly, to add to that base thesis I saw the personal opportunity to drive big impact and bend the returns curve up and to the right using levers that are largely in the CFO's hands. I was compelled by the opportunity to work alongside Jim for a few months and then with Olumide to find creative ways over the long term to accelerate organic growth across the business while maintaining the financial discipline that Fortive has come to be known for. And during my diligence work prior to joining, I also saw some real opportunities to unlock value in how we allocate the precious capital entrusted to us by our shareholders and how we work with our investor base. It's been just over a month and though it's early days, my thesis on Fortive remains well intact. I'm looking forward to meeting many of you in the coming weeks and months as I get on the road and at our Investor Day in New York on June 10. With that, I'll turn it back to Jim.

Thanks Mark. With that, let's take a closer look at our first quarter results on Slide 4. Core revenue declined 2% in the quarter, slightly below our expectations. FX was a modest headwind, resulting in total revenue down 3%. Intelligent Operating Solutions and Advanced Healthcare Solutions came in as expected with core growth up 2.2%, which was more than offset by an 8.4% core decline in Precision Technologies. While trade and macro uncertainty is delaying the recovery in PT, we had overall orders growth with continued strength in secular growth markets. We delivered adjusted operating profit of $373 million and adjusted operating margin expansion of 20 basis points, led by performance in IOS, including accretive software growth and the benefits of our productivity actions. Adjusted EPS grew 2% year-over-year to $0.85, up 13% on a 2-year stack and we delivered better-than-expected adjusted free cash flow of $222 million. As a reminder, our 6-month growth in adjusted free cash flow was up 7%, reflecting our strong finish in Q4. We repurchased 2.5 million shares in the first quarter as planned. Moving to Slide 5, I will provide more detail on our segment performance for the quarter beginning with new Fortive. On a combined basis, core revenue grew 2.2% in line with our expectations of low-single-digit core growth, despite the roughly 200 basis point headwind from Fluke-related sales that moved into Q4 and fewer days in Q1 impacting consumable and services utilization rates. Adjusted operating profit margins expanded 80 basis points while continuing to invest for growth, highlighting the attractive incrementals of this business. Moving to the right, Intelligent Operating Solutions grew core revenues by 2%. Fluke was up low-single digit as expected in the quarter. We saw stable industrial demand particularly in North America with a more challenging macro environment in Europe and China. New product momentum in our high-growth market segments provided a tailwind to growth, including our solar and EV storage equipment commercialization efforts in addition to successful new data center product launches with LinkIQ. Combined with continued growth in software and services, this contributed to Fluke's durability in the quarter. Our Facilities and Asset Lifecycle group grew core revenue mid-single digit, driven by strong take rate revenue across our multisite retail product offering, partially offset by certain government customers curtailing spending as they navigate budget and policy changes. ServiceChannel is seeing traction on its slate of new products and enhancements in addition to increased demand for fully outsourced solutions, including an enterprise win with a large specialty discount retailer in the quarter. IOS segment adjusted operating margins expanded by 150 basis points in the quarter and over 300 basis points on a 2-year stack, enabled by continued accretive growth in our software and recurring revenue businesses. As you can see on the far right of the page, Advanced Healthcare Solutions grew core revenues by 2.5% in the quarter. After adjusting for the impact of fewer days in health care consumables, our infection prevention business grew mid-single digit, reflecting stable demand and continued traction in our new product introductions at ASP incentives. We continue to see strong win rates through expanded use of FBS sales and marketing tools. We also saw robust software growth at Provation, driven by continued share gains in SaaS conversions as large networks and health systems with disparate GI solutions look to consolidate and standardize platforms and cloud adoption continues to gain momentum. Positive volume leverage and accretive software mix were more than offset by growth investments, unfavorable FX, and the impact of two less days, resulting in 70 basis points of adjusted operating margin contraction. Adjusted operating margins were up approximately 125 basis points on a two-year stack. Overall, IOS and AHS Q1 performance reinforces the durable and profitable growth profile at New Fortive. Turning to Slide 6, the Precision Technologies segment. Going forward and consistent with how you'll see it represented in the published Form 10, Ralliant will report in two segments: Test and Measurement, which includes Tektronix and recently acquired EA, and Sensors and Safety Systems, which includes the Sensing Technologies and PacSci EMC businesses. For these purposes, we will refer to the new segment names. However, it is important to note this segment's results will differ from the presentation in the Form 10, which was prepared on a stand-alone carve-out basis and excludes approximately $80 million of annual Fluke-related service solutions revenue that is currently reported in the PT segment and will stay in Fortive going forward. On a segment basis, PT core revenue declined 8.4%, below our expectations of mid-single-digit decline driven by lower-than-expected orders in Test and Measurement and shipment delays in Sensors and Safety Systems. Test and Measurement core revenue declined by high teens in the quarter. Order momentum we saw in Q3 and Q4 of 2024 significantly slowed in Q1 as certain customers delayed orders due to increased policy and macro uncertainty. We saw further slowing in China and a significant decline in Western Europe, with weaker EV battery production and delayed semiconductor capacity expansion. This is being partially offset by continued strong demand in communications for high-performance computers and high-bandwidth memory, both tied to the growth in AI data centers. Sensors and Safety Systems saw continued robust demand in the utility sector for grid monitoring and in the defense sector for energetic materials with strong orders growth in both businesses. Record demand levels continue to pressure supply chain, increasing our backlog in the quarter. Overall, Sensors and Safety Systems had low-single-digit core growth, reflecting a continuation of the broad industrial recovery we saw in the second half of last year, partially offset by supply chain constraints and delays in government approvals curtailing defense-related shipments. We expect accelerated growth in this segment as we move through the rest of the year. Adjusted operating profit margins contracted by 260 basis points on lower test and measurement volumes, unfavorable mix, and FX, partially offset by strong margin expansion at Sensors and Safety Systems. Turning to Slide 7. The policy and trade landscape has evolved significantly in the past 30 days. We came into this year planning for a number of scenarios. We have taken several steps to mitigate the impact of tariffs across our portfolio. Since 2018, we started shifting to more of an in-region, for-region manufacturing and sourcing strategy, which reduced our exposure to imports from China by 70%. Coupled with our resilient market positions, including recurring software and services revenue, strong U.S. manufacturing footprint and reduced reliance on China, we believe we are well positioned to navigate the current environment. We estimate the gross tariff impact is in the range of $190 million to $220 million prior to our mitigation efforts. This is primarily from China as you can see on the left-hand side of the chart. We have assumed the tariffs that are in place now or are expected to go into effect on July 9 continue through the year. Total impact breaks down roughly 60-40 between New Fortive and Ralliant. Moving to our countermeasures. We have a proven playbook powered by the Fortive Business System, enabling us to move quickly to offset these headwinds. First, we are taking a strategic approach to pricing and have begun deploying price increases where appropriate. With industry-leading brands, we are collaborating with our distribution partners and customers. Coupled with our FBS pricing tools, we are quickly testing, refining and adapting to the current environment. We are also continuing to optimize sourcing and logistics to rebalance regional flows and are making select investments to localize manufacturing, which will further mitigate the headwinds over the medium term. We expect our mitigation plans to phase in over the course of the second quarter. Coupled with other productivity and cost actions, we expect to fully offset the estimated tariff exposure by the fourth quarter of 2025 and be neutral in 2026. As a reminder, we mitigated unprecedented supply chain challenges in the last few years while still expanding free cash flow margins by leveraging FBS tools to improve profitability and reduce working capital. We are utilizing the same playbook to problem solve and are confident in our ability to continue to deliver best-in-class net working capital performance. Moving to Slide 8 to talk about second quarter and full year guidance for total Fortive. We believe we've taken a pragmatic approach for the remainder of the year, adjusting our outlook to account for increased global uncertainty and the estimated impact of tariffs. Starting with the second quarter, adjusted EPS is expected in the range of $0.85 to $0.90, including a headwind from tariffs as our mitigation plans begin to ramp. From a segment perspective, we expect IOS and AHS to continue a steady pace of growth and PT to see a modest improvement from Q1. Let's discuss what this means for the year. For clarity, our 2025 adjusted EPS range of $3.80 to $4 is all in, including the impact of tariffs, net of mitigation actions as well as underlying demand moderation in PT. We now expect PT core revenues to be down low single digits, again, assuming lower demand in Test and Measurement, partially offset by new price actions related to tariff mitigation. We are maintaining our core growth outlook for New Fortive, which includes a contingency for more muted demand that can impact pockets of IOS and AHS in 2025 as government customers navigate budget uncertainty as well as new price actions to countermeasure tariffs. Our updated adjusted EPS guidance also assumes an incremental tailwind from FX rates as well as lower tax expense in the current environment. We expect to provide independent guidance for New Fortive and Ralliant post separation on their respective second quarter earnings calls in July. Now on Slide 9. We've undertaken deliberate actions over the last several years to create a more resilient Fortive, including further diversifying our product portfolio, identifying and expanding into regions and growth markets. The Fortive Business System has contributed to our success, innovating in markets with strong secular tailwinds for growth with increased demand for safer, more efficient and more precise solutions globally. We've increased our mix of recurring revenue businesses, which have compounded high single digits in the last five years. As a result, we've sustained continued revenue growth and margin resiliency in the face of a more dynamic macro environment. The progress continues. Today, Fortive is approximately 40% recurring revenue, which will expand to roughly 50% post separation and benefit from accretive software growth going forward. We continue to expand our addressable markets with new product introductions like Fluke's solar and thermal imaging tools and ASP's steam monitoring products. Total revenue from high-growth markets outside of China are now greater than our share of revenue from China and is growing at a high single-digit pace. Despite the delayed recovery we see in Precision Technologies, we have a diverse set of end markets with exposure to strong secular trends, and our consistent execution has resulted in differentiated double-digit adjusted earnings and free cash flow compounding over the last five years, demonstrating our ability to profitably evolve our portfolio to deliver in any environment. Turning to Slide 10. I want to provide a brief update on our separation plans before wrapping up. We continue to make progress and now expect the transaction to be effective by the end of the second quarter. In terms of upcoming milestones, we anticipate filing the Form 10 with the SEC in the coming days, announce a CFO for Ralliant, and host Investor Day in New York on June 10. Investor Day will be both in person at the New York Stock Exchange and webcast live through our Investor Relations website. Fortive and Ralliant led by Illumina and Tammy will present their respective businesses, management teams and priorities as two focused independent companies. We will host an innovation showcase, highlighting our exciting pipeline of new products and solutions to help our customers solve their toughest challenges. I'm incredibly excited about the future and confident both companies will showcase their tailored growth and capital allocation strategies to drive investor returns and unlock their full potential in the years to come. I'll now wrap up on Slide 11. As previously announced, I'll be retiring as President and CEO following the completion of the Ralliant spin-off. And I'd be remiss if I didn't take this opportunity to thank our extraordinary 18,000 team members who helped shape and create a more resilient Fortive today. Our greatest strength is the enduring passion and commitment of our teams who take great pride in how they show up with a deep belief in better every day. This next chapter is a manifestation of the strategy we laid out at our inception, profitably evolve our portfolio to deliver in any environment. Our enhanced portfolio positions, innovative new products and dedication to the Fortive Business System have allowed us to deliver consistent compounding performance in the last five years. As we navigate the more uncertain and dynamic year ahead, we are resolute in our commitment to supporting customers and delivering for shareholders. Our performance in the first quarter underscores our relentless focus on execution and our updated outlook for 2025 reflects our proven playbook for navigating dynamic market conditions. We remain focused on finding opportunities to expand our leadership positions in the markets we serve while protecting earnings and free cash flow resiliency. Looking ahead, we are diligently progressing toward the Investor Day on June 10, followed by the separation and successful launch of Ralliant. It's been an exciting nine years. Thank you for your trust and partnership over the years and I look forward to seeing many of you in New York in June. With that I'll turn it to Elena.

Thanks, Jim. That concludes our formal comments. We are now ready for questions.

Thank you. We will now begin the question-and-answer session. Our first question today is from Scott Davis of Melius Research. Please go ahead with your question.

Good. I guess morning out there. Jim, we hate to see you go. It's been a pleasure and a great nine years. I hope you enjoy retirement. Don't be a stranger.

Thanks Scott.

But I'll see you in June anyway. So look I just wanted to beat this horse a bit on tariffs just because it's been on every call. You mentioned localizing production. Just wanted to kind of explicitly understand what you mean by that. Are you talking about building out new capacity in the U.S.? Or can you just modulate your capacity back to perhaps where it's needed?

Yes. Scott I think number one, as you know, we've been on this path over the last several years of derisking our supply gain and you've not seen any moderation or big increase in investment to do that. So we've done that in a way that's consistent with contract manufacturing and also current facilities. So we'll do that. And I would say the plans are really much more of accelerating what we were planning to do than any – particularly as it relates to China exporting into the United States. A lot of that has been taken on since 2018, as I said in the prepared remarks and it's just something we'll accelerate here in the coming months.

Okay. Makes sense. And just wanted to ask on Test and Measurement. I mean it's one of the bigger declines I've seen in that business I can remember and we take a pretty deep recession to find anything comparable to that. But how much of that business has just been kind of pushed to the right versus perhaps some real air pockets in demand there?

Yes. I would say – well, it's a couple of things. One, if we think about it from a – coming into the year, we obviously saw good orders in the second half of the year in 2024. So that led us to think through that things were starting to improve. I think what we saw is very much what you said with just a lot more delaying. Things stayed in the funnel in many respects but certainly the uncertainty. And it was really across geographies so it wasn't one particular geography. I would call it pretty consistent amongst all the geographies including North America. And it was really just customers deciding to take a pause. As you know many of our customers are semiconductor and electronics players, who obviously the tariffs have a more measurable impact in many cases given the typical China content. And I think a lot of our customers are trying to assess their own mitigation strategies. And so we just thought it prudent to sort of assume that that stuff probably doesn't correct itself immediately. And that will continue to – it will get better through the year but it's not going to mitigate it anywhere dramatically like we thought. And so maybe just back to first principles as you remember, we thought we would see some of those markets come back in the second half. We had a tough China comp in the first quarter as an example. And we just thought those markets would – assuming semiconductor would come back what we really said is hey, we think that recovery is probably pushed into 2026. So we'll continue to fight for every dollar. But we just thought it was prudent to sort of see what we – take what we saw in the first quarter and apply that to the remaining part of the year.

Makes sense. Thank you. I’ll pass it on.

Thanks, Scott.

Hey, guys. How are you?

Great.

Thanks again for everything. I think we've been to this before but thanks and good luck in the future. I'm just trying to figure out why I guess like the Test and Measurement industry just seems to be having a bit more volatility in and around the end of the quarter, call it, maybe some preordering or pausing. We're not really seeing that in the rest of the economy. What's your kind of take on why this particular vertical of devices is seeing this type of performance versus maybe the rest of the economy?

I believe several factors are at play. Firstly, consider the exposure to diversified electronics and semiconductors. As I mentioned earlier, many of these are investments that customers can postpone since they relate to research and development. Due to the economic uncertainty throughout the quarter, particularly following the initial tariffs implemented at the beginning of the year, customers have taken a step back. We’re not witnessing cancellations; our focus is on R&D rather than production testing tied to manufacturing cycles, making it easier for customers to defer their decisions. While I've noted some improvement in orders for the second half of the year, what we experienced this quarter was largely a pause. This behavior likely relates to the markets they are involved in, including the semiconductor and electronics sectors. Additionally, customers with government contracts face capital expenditure considerations, which make it simple to delay investments for a quarter. Many of our clients are navigating uncertainties, including tariff issues, and they are unsure when their purchasing cycles will resume.

Okay. Did you notice any unusual buying behavior in businesses like Fluke around the end of the quarter or the end of April? Was there anything unusual in those industrial and commercial types of businesses?

Yes, it's interesting. Even at Tek, the core industrial business performed well. It remained stable, but considering the conditions in other sectors, it was notably better. We've seen solid revenue growth in industrial sensing as an example. The Sensing business experienced growth in both orders and overall performance when accounting for stability. In response to your question about Fluke, it continues to show strong resilience. We did notice some purchasing activity in March for various reasons. Some of our customers, like WESCO and Grainger, reported decent numbers in several sectors we operate in, which is encouraging. North American point-of-sale for Fluke was positive, showing mid to high-single-digit growth, while the rest of the world remained flat. North America is definitely a driving force for Fluke. Overall, Fluke has demonstrated greater durability over the past few years, and we expect this trend to continue throughout the year.

Great. Thank a lot for the color, as always.

Yes. Thanks Steve.

Hi Jim. Thanks very much for the help, and I wish you well in retirement and also welcome to Mark. Maybe just wanted to start I suppose with Q2, because that's the last sort of full quarter of Fortive in its current condition. So just to understand the guide a little bit it's sort of embedding I think what maybe a low-single-digit sequential revenue increase in both New Fortive and Ralliant, and then maybe kind of flattish margins sequentially, because you've got a big tariff headwind. Is that the right way to think about it that Q2 you get maybe I don't know $0.06 or something of the $0.10 tariff headwind that you guided for the year?

Hey Julian, this is Elena. On the outlook for Q2, we're assuming that New Fortive will continue to grow at the same pace call it low-single-digit. We've accounted for a bit more of the uncertainty in the macro environment in that expectation. We think that the Precision Technologies segment will still be down have a core decline call it maybe more like mid-single digit, but an improvement as you mentioned sequentially from Q1. And margins because of the impact of tariffs and our phasing in of countermeasures will be dilutive to the margin rate sequentially. They'll then get better as we move through the back half of the year. But from an all-in sort of tariff net of countermeasures considering the phasing effect you're right it's probably in that $0.06 range for tariff.

That's great. Thanks very much. And then just my second quick follow-up would be around the Healthcare business. So you had some margin decline in the first quarter year-on-year with sales up. I see the reference to FX and probably that effect goes away the balance of the year. But is that reinvestment element something that lasts all year that will weigh on the Healthcare margins or it's something specific in early in the year?

So Healthcare margins do typically start off lower in the first quarter. They do tend to ramp. We expect them to ramp sequentially throughout the year. Q4 is our highest margin rate quarter for Healthcare. In the first quarter specifically, we did have some transactional FX headwinds. You've seen that before in the Healthcare segment. That did impact us. We wouldn't expect that. We obviously don't forecast that obviously to reoccur. And from a growth investment perspective we are intending to continue the growth investments but still be able to grow margins both sequentially in Healthcare throughout the year.

As we assess the year, part of the impact this quarter was due to having fewer days. The high consumables also contribute to a strong margin outcome. We’re optimistic about Healthcare margins, which are at a favorable rate when you adjust for foreign exchange and consumables. The team is performing well, and businesses that are profitable, like Provation, are doing well. We're confident about the margin trajectory for Healthcare moving forward.

Hi everyone. Hope you're all doing well. Can I start with PT? Could you walk us through where they are manufacturing and how that stacks up against the competition? I'm curious if adjusting prices for tariffs creates any competitive imbalance compared to a competitor that might be manufacturing in the United States.

We have manufacturing facilities around the globe, which allows us to address various challenges facing the business. Our operations in the U.S. are significant, with companies like EMC producing all their goods domestically. As a result, they don't face much impact from tariffs since nearly all their sales occur within the U.S.

I'm more talking Tek, I apologize for that.

We have manufacturing options globally for PT. Specifically for Tek, we produce in Southeast Asia, China, and the United States, which gives us flexibility in our manufacturing processes. Our competitors also manufacture worldwide, including in Southeast Asia and Europe. We have been working to address challenges that have arisen. Many of the expenses associated with tariffs from the U.S. to China involve IP-protected items, so we are likely to relocate that manufacturing to countries where we can maintain IP protection, with NATO countries being a prime example of this strategy. We plan to expedite the strategies we already have in place. This has been especially true at Tektronix, where our global supply chain and manufacturing strategy is closely tied to our product launches. We will adjust resources as needed to minimize reinvestment and feel confident we can effectively navigate this throughout the year. This is a key reason for our confidence in mitigating tariffs by the fourth quarter.

On AHS I mean I know there's a little bit of a couple of fewer days and that makes sense the comments you just made on the margins. But I think on the core growth side I doubt anyone had 2.5. Like was that below what you guys were thinking? Like I think the view was kind of comfortably in the mid-singles there. So if there's anything that's...

Yes, the number we knew was going to be low single based on when you add the days back you're in the mid single-digit range. I think we talked about that in the first quarter call. So certainly you lose that many days the math is pretty easy. So in that sense we feel like from the revenue perspective AHS came in right where we thought they would.

Hi. Thanks. Good day, everyone. Jim best of luck in whatever is next. Just coming back to tariffs and I'm sorry I was on a touch late and got dropped off the call. Is the number you're sharing with us today the annualized rate or the in-year rate? And can you just clarify how much of it you think you're offsetting in 2025?

The number is in the 2025 impact call it $200 million at the midpoint and we're assuming we're going to offset about 80% of it Jeff.

And then the U.S. exports to China are those Fortive finished goods to Chinese customers where actually maybe that $90 million to $95 million isn't really a cost item but it's just sort of a demand destruction item? Can you just clarify that?

No, it's a manufactured product that we produce in the U.S. for Chinese customers. We can reduce the impact of this, which constitutes less than 2% of our revenue. Historically, we have managed similar situations effectively, and as I mentioned earlier, these issues are often related to intellectual property or involve our core technology and manufacturing capabilities. We have the ability to address these challenges, like in the case of Fluke calibration. Additionally, we have manufacturing capacity outside of the U.S. and China that allows us to navigate these concerns. Therefore, consider that figure as a tariff impact rather than as a measure of demand destruction in relation to your question.

And then also just some further clarification on what you're expecting here. Jim you mentioned July 9. Are you expecting that the tariffs that are on 90-day hold actually come back fully on July 9? Can you just clarify what you...

We are we are. We're pretty much saying hey everything that we know today is going to continue through the remaining part of the year.

So wouldn't the rest of the world so everything has got kind of a base 10 then right? I mean wouldn't those rest of world numbers actually be even more than that? Maybe it's de minimis?

No, they're at the higher number. They believe it will increase. We also believe everything will rise. We're taking a more cautious stance. We assume that the mitigation announced during the 90-day reprieve will revert back to the original rates.

So this $200 million this year assumes all-in the full-blown...

Exactly. To be clear, the numbers mostly reflect China. If that number decreases, it won't provide significant benefits. Additionally, we anticipate strong performance in Mexico. There's been a lot of discussion regarding the Mexico tariffs, but we do not have any manufacturing there. Therefore, we believe this is a comprehensive figure.

Hi. Good morning, guys. This is Brad Hewitt on for Nigel Coe.

Hi, Brad.

Hi, Brad.

Just curious if you could walk through your assumptions by segment both for Q2 and the back half of the year in terms of core growth and margins.

Yes, I provided some general comments earlier. We’re not offering specific guidance on growth and margins at this moment due to the fluctuating impact of our tariff countermeasures, which significantly include pricing. Directionally, we mentioned that New Fortive's core growth for Q2 is expected to be in the low single digits, while the PT segment might decline by about mid-single digits. For the entire year, we anticipate that New Fortive's core growth will remain at a low single-digit increase to mid-single-digit increase, and the PT segment is now expected to decline by low single digits for the year, which is a more significant drop than our initial expectation of it being flat for the year.

You should consider that really the change in the year is really in PT. Really what we're saying about New Fortive is a little bit of de-risking relative to sort of some of the government spending, but at the end of the day right to where we thought we'd be in what would now be called New Fortive.

And then maybe just on the margin side again I'll comment. We expect margins in the second quarter to be down sequentially from the first quarter. That reflects lower demand in PT as Jim just referenced as well as the effect of tariffs that are largely somewhat not offset by countermeasures by the second quarter. Moving into the second half though, we would expect margins to improve then sequentially. And again historically, Q4 is our strongest margin quarter and that would be true across all of the segments.

Yes, we had a good quarter in FAL, led by ServiceChannel, which produced one of the best NDR numbers we've seen in a while. We're optimistic about developments in FAL. Gordian also performed well, aligning closely with our expectations, although some customers showed a bit of hesitation. Overall, the sales funnels are strong. We'll observe how state and local agency activity unfolds in the second quarter. Some of our cautious outlook for the second quarter stems from this uncertainty, especially since it is typically a significant quarter for Gordian. Thus far, things look positive based on our observations this quarter. For instance, Gordian's procurement in the first quarter was in double digits, indicating no major reluctance. We did notice some uncertainty among municipalities and government agencies in FAL, but the mid-single-digit overall number we reported is robust. We’re confident about the business's trajectory for the rest of the year.

Hi, good afternoon. Good morning Jim. Thank you for all your help over the years. It's been a pleasure. Thanks so much.

Thank you.

Just to clarify so Tek orders were positive in the first quarter and you haven't seen things worsen in April, but you are assuming fewer deals in the pipeline convert in the rest of the year. Is that right? Just to clarify that.

Andrew, just to be clear, PT orders were positive in the quarter in the first quarter. And that really if you think about Test and Measurement down sort of high teens and Sensing and Systems up. So think about that.

Okay, got you. And just could you remind us just how is Tektronix different versus Keysight or Anritsu? Because I think Anritsu reported March quarter Keysight get it like a couple of months back but just there is a disconnect. What end market really differentiates you from the competitors? Just remind us.

I believe there are a few key points to consider. Firstly, our focus is primarily on research and development. We don't engage as much in traditional telecommunications communications, which sets us apart. Our offerings in RF products and technologies differ from those of Keysight, which leans more towards software. These distinctions highlight the different segments of the market we operate in. Additionally, analyzing two-year trends and our backlog over the past few years can provide clarity on our performance relative to others. This approach helps align our numbers with the overall market perspective.

Really appreciate it. And just a follow-up on your footprint. So are you keeping CapEx and I know it's still for the combined entity and I know we're going to separate. But is the implication that the CapEx for 2025 staying flat, going up, going down when all is said and done with your actions? Thank you.

Yes, it will be flat. I believe our capability to maintain low capital expenditures is strong, as we primarily focus on final assembly and testing. There may be some minor shifts in our prioritization of capital expenditures, but that’s the extent of it. Regarding the relocation of manufacturing, we will collaborate with partners, which also helps keep capital expenditures low. Therefore, specific to capital expenditures, it won’t significantly impact us for the rest of the year as we adjust our supply chains and manufacturing operations.

Good morning everyone. Thank you for your help, Jim. Welcome, Mark. I think Jim...

Thanks Andy.

…you mentioned Sensors and Systems. You said increased backlog, but can you talk about the shipping delays you saw on the defense side? I think that's not necessarily a new phenomenon for you. So, what's the visibility you have to that improvement that I think you talked about in the second half of the year?

We've experienced significant growth in that business, leading to some fluctuations from quarter to quarter. We're addressing a record backlog and achieving record quarters. However, this month, we encountered some issues related to validation and verification processes required by the U.S. government before shipping products. We experienced more variations in these processes than usual, which impacted us. We are confident in the manufacturing capacity we are developing for this business, and we have a strong team working diligently on these challenges. There has been much discussion about the supply chain in the Defense industry, and we are focused on enhancing supply chain resiliency while building the necessary capacity to meet the anticipated record demand in the coming years.

Very helpful. And then, Jim, I just want to dig into the sales by region for Fortive. I know prior to this quarter you already expected China to be down. What are you thinking now and what are you thinking for North America and Western Europe?

I believe North America is going to perform well and be our strongest market. If you look at our growth this quarter, it was robust and consistent across the board. For instance, consumables in North America showed strong average selling prices. Our Asymmetry business also did well, and we experienced good healthcare outcomes in North America. Most of our software operations are based here, contributing positively as well. Fluke reported solid numbers in North America, and New Fortive had favorable results as well. We maintain our belief that North America will be one of our top markets moving forward. Regarding China, we now anticipate a decline in the high single digits for the year, taking into account pricing and tariffs, which presents more challenges than we initially expected. Therefore, we foresee difficulties in the Chinese market. Western Europe has also proven challenging, particularly in the PT sector, where the market has been tough. In summary, we expect North America to remain strong, while Western Europe will face more difficulties, especially for Ralliant, and China is likely to be a tough market. On a positive note, we saw success in the high-growth markets, with a strong performance in Latin America that we expect to continue. Other non-China high-growth markets are larger than China at this point and will likely grow further, so we are investing in regions like India. We believe these trends will support our guidance moving forward.

Thank you. I want...

Hi Chris.

Hello. I hope you're doing well. I appreciate all your support and wish you the best going forward. Regarding the $200 million growth, you mentioned an 80% recovery. So, out of that, which amounts to $160 million, can you clarify how much of it is attributable to price? How does the pricing impact play out over the next few quarters? Also, when you refer to fully mitigating the tariffs by 2026, are you speaking in terms of margin percentage or a dollar amount? Thank you.

I appreciate your question, Chris. To start, from a tariff mitigation perspective, the impact will be seen in dollar amounts rather than percentages. The dollar value we need to offset is significant, especially when considering our gross margins. Therefore, we do expect some decline in gross margin and operating margin, as Elena mentioned earlier. The tariff impact is estimated to be around $0.06 to $0.07 for the second quarter, and we previously discussed a total impact of $0.10. This provides a likely pattern where the biggest effect occurs in the second quarter, followed by a smaller impact in the third, and then mitigation occurs in the fourth quarter, emphasizing that this is measured in dollars. Regarding pricing, about two-thirds will come from price adjustments. While some of this will be driven by surcharges, the majority will be true price increases. The second quarter does not benefit from mitigation because it takes time to implement pricing changes with channel partners and customers on a global scale. We are actively working on these pricing strategies, and we are confident in our approach that leverages the strength of our brands and innovations. Customers have recognized that these situations arise with certain tariffs.

Yeah. No, absolutely. I appreciate all of that color. And then maybe following up on Precision Tech. Could you provide an update on EA Elektro? I would imagine that turning organic here in Q1 led to some of the pressure on PT organic in the quarter. So any just color on how that business did in Q1? And then what does the guide assume for EA Elektro for the full year? Thank you.

Yes. I believe that as we consider everything together, we are increasingly seeing the integration between Tek salespeople and EA salespeople. You're correct that the toughest organic challenge happened in the first quarter, which was driven by the conditions in that quarter. This is a significant factor influencing our discussions about Test and Measurement. We estimate that business to be around $20 million to $25 million each quarter. Additionally, part of the issues we noted in Western Europe is related to electric vehicle investments from European automakers. We've incorporated this into our guidance, which suggests that instead of achieving mid-single-digit growth for EA this year, we might be closer to a flat performance. We will monitor how things develop, but we are seeing positive progress in some areas. However, the broader uncertainty I mentioned regarding customers is also relevant in the automotive sector. This has been evident with GM's recent announcement about their outlook. Therefore, it's clear that the global automotive business is facing challenges concerning investments, a trend we expect to persist throughout the year.

Great. Thanks. Best of luck, Jim. You and I go way back to your Danaher days, so I appreciate it. And welcome to Mark. My question is on, just given the headwinds at PT, I didn't hear anything about taking any cost out repositioning, given these headwinds. The FBS playbook would be to kind of try to manage decrementals in line with fall off in demand. I know, you've got a spin happening so maybe that complicates things. But just can you address about any opportunity here to take some costs out?

We announced around $20 million in restructuring at the start of the year, and we've proactively made changes to prepare for that. Some of the effects will certainly improve as the year progresses. We've also eliminated various costs to balance out some of the impacts. Tek is one of our more profitable segments due to its high gross margins. Additionally, addressing tariff issues will require some adjustments that will involve a bit of investment. Overall, I believe the team is handling the situation well and we're in a solid position. We'll see how things unfold. The priority is to implement pricing strategies in the market and to alleviate tariffs, as these are crucial. The quicker we can establish pricing and address tariffs, the more beneficial it will be compared to further restructuring efforts. I'm confident that Tammy and the team are being thorough in considering investments and managing challenges, and I believe they will keep finding solutions throughout the year.

Got it. And just a last quick one that was in the comment in the prepared remarks about growth investments. Can you size that? Where is it across the segments? And have you throttled any of those back?

I would say the growth investments, particularly on the New Fortive side, have been ongoing. We specifically noted this in the Healthcare segment, where we have allocated resources toward R&D. In the Healthcare business, especially recently in the fourth quarter, we discussed several 510(k) approvals that we achieved in the second half of last year. We are continuing to invest in multiple areas of innovation that will develop over the next year. There are definitely some investments in the IOS segment as well. I would describe these growth efforts primarily on the New Fortive side, estimating them to be in the $10 million range, possibly a bit more. You will gain more insight into how this will unfold during Investor Day in June.

Hi, good morning everyone.

Hi Andrew.

I was hoping you could provide an update on the software trends you're observing. It appears that Advanced Healthcare is performing well, although it's difficult to see it reflected in the margins due to increased investments. In IOS, however, the margins over the past couple of years have been more apparent. There seem to be conflicting comments throughout the software industry. While I'm not a software analyst, I've noticed some mixed trends. I'm curious about how those businesses are managing the tariff situation. Could you share the latest insights on that?

Yes. In short, there isn't really a tariff impact on our software businesses. Our Facility and Asset Lifecycle software segments are performing well. While there's some uncertainty, I believe our team has done a great job with innovation and commercialization. I'm optimistic about our position. For instance, ServiceChannel is a strong example. On the Healthcare side, both Provation and Censis had good quarters, with Provation performing particularly well as a high-margin business. Overall, we feel confident, though there are some variations with certain customers. We secured some significant orders this quarter in various areas. There's uncertainty, but it's balanced by our innovations, and we're managing the businesses very well. There may be some potential upside that we haven't fully accounted for, particularly if tariffs affect input costs, specifically at Gordian and in some of ServiceChannel's pass-through business. If tariffs increase input costs, we may see benefits in our pass-through revenue. It's still too early to say how this will unfold, and we expect to see more clarity in the second half of the year. The well-managed approach in our FBS continues to contribute to the resilience and durability of our businesses, which Olumide will address further at Investor Day in June. Yes. That includes our buybacks, and I think we will be buying back more shares in the second quarter due to market dynamics. We feel very positive about our free cash flow generation. We are demonstrating strong free cash flow generation, which allows us to invest more capital for our shareholders, whether that means increasing our buyback, making investments in growth opportunities, or considering dividends and other options.

Okay, thanks Jim.

Thank you.

Yes, sir, this concludes our question-and-answer session. I'd now like to turn the call back over to Jim Lico for closing comments.

Thank you, Brock. I appreciate all the kind words. I'm not going anywhere and I'm still working hard with Tammy and Olumide to wrap up the second quarter and prepare for the upcoming launches. I'm incredibly proud of our team, especially over the past month, as we’ve tackled numerous challenges. Ultimately, when we look at our progress in true Fortive Spirit, our businesses are managing well and demonstrating the strength of FBS in various aspects. While we haven't highlighted our strong free cash flow, this will continue throughout the year, positioning both independent companies exceptionally well for the latter half of the year and into 2026 as we build two great enterprises. Thank you for your time and questions today. We know you have a busy schedule, and we value your engagement. We look forward to following up with our IR team, Mark, and myself. We're excited about seeing all of you in June to discuss our two great companies and the enthusiasm and passion our teams will share. It's going to be an exciting day on June 10. See you then. Thank you, everyone.

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines and have a wonderful day.