BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - FORTIVE CORP

Explicit Guidance:

• Raised full-year core organic growth guidance to 5% (replacing prior expectations).
• Q3 core growth reported at 7.2%, demonstrating sequential acceleration.
• Medium-term financial framework includes a 50–100 basis points annual adjusted EBITDA margin expansion "guardrail" (currently near the midpoint of this range for the year).
• Pricing power anticipated to sustain historically at ~200 basis points, with potential for increased pricing intelligence or rate hikes driven by accelerated new product innovation.
• Free cash flow generation expected to continue north of $1 billion annually with adjusted net income to free cash flow conversion >100%.

Business-Segment Outlook:

• Intelligent Operating Solutions (IOS) Segment (70% of revenue):
  • iOS segment core growth projected at ~9% for the full year, led by broad-based momentum across all three pillars: Fluke, FAO (Facilities and Asset Lifecycle), and Gas Detection.
  • Fluke: Sustaining 17 consecutive quarters of core order growth; momentum expected to continue across data center, fiber optics, and industrial sectors. Specific product CertiFiber Max is currently sold out, necessitating continued capacity ramping.
  • FAO Platform: Service Channel and Gordian expected to sustain growth above or near iOS segment levels year-to-date; Gordian growth driven by Flash AI tool adoption and strategic account management.
  • Accurant: Transitioning from product remediation to commercial engine investment; focus on matching commercial intensity to the now "terrific" product set to drive P&L improvement.
• Advanced Health Solutions (AHS) Segment (30% of revenue):
  • Projected to "bend the growth curve up" from historical low single-digit growth, leveraging a "two-speed engine" where AHS has more upside potential than IOS due to current lag.
  • Provation: Continued growth expected via AI-powered voice documentation and expansion beyond GI specialties into orthopedics, ENT, and gynecology within ambulatory surgical centers (ASCs).
  • Sector Trends: Anticipated 10-year favorable circular trends in healthcare services, demographics, and care standards driving demand for "industrial-like" workflow solutions.

Market and Competitive Outlook:

• Data Centers: Long-term demand profile viewed as durable and resilient, transcending the initial build stage to focus heavily on operations, maintenance, and lifecycle upgrades; demand driven by technician volume and uptime requirements rather than just new construction.
• Software Defensibility: Anticipated sustained differentiation for software assets (20% of revenue) due to deep proprietary data, regulatory lock-in, system-of-record status, and two-sided networks, making them resistant to generic AI replacement.
• Pricing Dynamics: No signs of pricing fatigue; innovation velocity (accelerating vs. historical pace) expected to support continued pricing power and portfolio-level pricing optimization.

Macro / Industry Outlook:

• 2027 Setup: Management expresses high confidence in the 2027 outlook, citing strong momentum across end markets, geographies, and product categories.
• Economic Sensitivity: Data center business characterized as less sensitive to construction slowdowns than brick-and-mortar industrial firms, as ~80% of value is derived from post-build maintenance and upgrades.
• Inflation/Cost Environment: View that excess costs can be extracted and reinvested to drive growth while maintaining margin guardrails, utilizing the Fortive Business System for manufacturing productivity.

Strategic Initiatives:

• 40th Accelerator Strategy: On a "very strong start" 18 months post-launch; priorities include accelerating organic growth, disciplined capital allocation, and rebuilding investor trust.
• Capacity Expansion: Actively ramping manufacturing capacity to meet surging demand for key products like CertiFiber Max (output doubled year-to-date, still insufficient to meet demand).
• M&A Strategy: Continued focus on bolt-on acquisitions within existing platform footprints (e.g., Fluke, industrial scientific); high hurdle rates set for deals (must beat stock buyback returns).
• AI Implementation:
  • Customer-Facing: Accelerating AI features on hardware and software platforms (e.g., CertiFiber Max, Provation voice docs) to create value and extend contract terms.
  • Internal: Deploying AI in R&D and Customer Experience workflows to boost innovation output and productivity without significant spend increases; maintaining a 7-year-old AI Center of Excellence.
• Capital Allocation: Expect continued aggressive stock repurchases (already $2.3 billion repurchased, ~13% of fully diluted shares) as a primary use of capital.

Risks and Headwinds to Outlook:

• Supply Constraints: Current demand for CertiFiber Max vastly exceeds delivery estimates; capacity ramp is ongoing and may limit near-term revenue capture.
• Execution Risk: Margin expansion relies on successful cost extraction and reinvestment discipline; failure to sustain >5% core growth or manage investments could impact the 50–100 bps margin guardrail.
• M&A Hurdle: High bar for M&A success (must beat stock buyback yields) could limit inorganic growth opportunities.
• General: Actual results may differ materially from forward-looking statements due to risks outlined in the 10-K.

Management Tone on the Future:

• Confidence Level: "Highly confident" in the 40th Accelerator Strategy and ability to deliver the medium-term financial framework.
• Sentiment: Describes the company as being in the "early stages of a really compelling and exciting growth creation story."
• Comparative View: Expresses satisfaction with a "two-speed engine" where AHS has greater upside relative to the already high-performing IOS segment.
• Consistency: Reiterates that margin expansion is a managed "guardrail" rather than a passive outcome, signaling a disciplined approach to growth investments.

Miscellaneous:

• Recurring Revenue: Approximately 50% of total company revenue is generated via recurring revenue models, highlighting durability.
• Geographic/Product Spread: Current growth acceleration is noted as "broad-based" across geographies and product categories, reducing reliance on single markets.