Q1 2024 Fortive Corp Earnings Call
Dennis: Good day, my name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to Fortive Corporation's first quarter 2024 earnings results conference call. All lines have been placed on mute to prevent any background noise.
Good day My name is Dennis and I will be your conference operator today at.
Dennis: At this time I would like to welcome everyone to afforded corporations first quarter 'twenty 'twenty four 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.
Dennis: After the speaker's 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, press star one again. I would now like to turn the conference over to Ms. Elena Rosman, Vice President of Investor Relations. Ms. Rosman, you may begin your conference.
Dennis: If you would like to ask a question during that time simply press Star then the number one a lot more telephone keypad. If you would like to withdraw your question Press Star one again.
Dennis: I would now like to turn the conference over to MS. Elena Rosman, Vice President of Investor Relations. MS. Rosman, you may begin your conference.
Elena Rosman: Thank you, Dennis, and thank you everyone for joining us on today's call. With us today are Jim Lico, our President and Chief Executive Officer, and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non-GAAP financial measures on today's call. Information required by Regulation G is available on the investor 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.
Elena Rosman: Thank you Dennis and thank you everyone for joining us on today's call with US today are Jim Lico, our President and Chief Executive Officer, and Chuck Mclaughlin, Our senior Vice President and Chief Financial Officer at present, certain non-GAAP financial measures on today's call information required by regulation G is available on the investors section of our web.
Elena Rosman: Site afford a dot com or.
Elena Rosman: Our statements on period to period increases or decreases refer to year over year comparisons unless otherwise specified.
Elena Rosman: 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-K for the year ended December 31st, 2023. These forward-looking statements speak only as the data that they are made, and we do not assume any obligation to update any forward-looking statements. With that, I'd like to turn the call over to Jim. Thanks, Elena.
Elena Rosman: 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.
Elena Rosman: Information regarding these risk factors is available in our SEC filings, including our annual report on Form 10-K for the year ended December 31 2023.
Elena Rosman: These forward looking statements speak only as of the day is that they are made and we do not assume any obligation to update any forward looking statements with that I'd like to turn the call over to John.
John: Thanks Elena.
James A. Lico: Hello everyone, and thank you for joining us. I'll begin on slide three. We had a strong start to the year, exceeding our expectations for core revenue growth, margin expansion, earnings, and free cash flow in the first quarter. Our strategy to enhance our customers' safety and productivity across a number of vital sectors, from manufacturing to health care, is delivering more value for customers and more durable growth for Fortive. We deliver better-than-expected performance in each of our three segments, reflecting enhanced portfolio positions, the benefit of innovative new products, and our dedication to the Forte business community.
John: Hello, everyone and thank you for joining us I'll begin on slide three.
John: We had a strong start to the year exceeding our expectations for core revenue growth margin expansion earnings and free cash flow in the first quarter.
John: Our strategy to enhance our customers' safety and productivity across a number of vital sectors for manufacturing to healthcare is delivering more value for customers.
Normal growth for Florida.
We delivered better than expected performance at each of our three segments, reflecting enhanced portfolio positions the benefit of innovative new products and our dedication to the Florida business system.
James A. Lico: By harnessing our unique competitive advantages and strong execution capabilities, we are confident in our raised outlook for the year, which includes anticipated double-digit adjusted earnings and free cash flow growth. As we look ahead, the success of our strategy is reflected in faster and more profitable through-cycle growth, which, combined with the rigorous application of a differentiated business system, delivers the foreseen formula for value creation by compounding results year after year.
John: By harnessing our unique competitive advantages and strong execution capabilities. We are confident in our raised outlook for the year, which includes anticipated double digit adjusted earnings and free cash flow growth.
John: As we look ahead the success of our strategy is reflected in faster and more profitable through cycle growth, which combined with our rigorous application of a differentiated business system delivered support a formula for value creation by compounding results year. After year further evidence of our strategy to build a more durable collection of businesses and higher.
James A. Lico: Further evidence of our strategy to build a more durable collection of businesses and higher recurring revenue profile is shown on slide four. Today, revenues are split, with approximately half derived from highly differentiated products, helping customers harness the power of emerging technologies and embrace the energy transition. As a result, today roughly one-third of these revenues support customer investments in electrification and AI. Further, with the added benefit of diversification, approximately 60% of our product revenues have continued to grow despite select and market slowing.
John: Our recurring revenue profile as shown on slide four today reported revenues are split with approximately half derived from highly differentiated products businesses, helping customers harness the power of emerging technologies and embraced the energy transition.
John: As a result today roughly one third of these revenues support customer investments in electrification and AI.
John: Further with the added benefit of diversification approximately 60% of our product revenues have continued to grow despite select end market slowly.
James A. Lico: Moving to the right side, the remaining 50% of our revenue includes approximately $600 million of recurring health care consumables, which are benefiting from the go-to-market changes we made last year and improved global health care markets, driving faster and more profitable growth in 2024 and beyond. It also includes approximately $1 billion in software, which has grown by high single digits in the last few years and will continue to be accretive to our growth and profitability. As our safety and productivity solutions across the enterprise continue to help solve customers' toughest challenges, we expect sustained outperformance going forward. Turn to slide 5.
John: Moving to the right side, the remaining 50% of our revenue includes approximately 600 million of recurring healthcare consumables, which are benefiting from the go to market changes, we made last year and improved global health care markets, driving faster and more profitable growth in 2024 and beyond.
John: It also includes approximately $1 billion in software revenues, which have grown high single digit the last few years, and we will continue to be accretive to our growth and profitability.
John: As our safety and productivity solutions across the enterprise continue to help solve customers' toughest challenges, we expect sustained outperformance going forward.
John: Turning to slide five <unk> segment is really a full manifestation of our strategic playbook.
James A. Lico: The IOS segment is really a full manifestation of our strategic playbook, to evolve the company organically and inorganically, to reduce portfolio cyclicality, align investments to secular drivers, and increase through-cycle core growth. With almost $2.8 billion of revenue planned this year, iOS continues to build on its leadership positions in instrumentation, software, and data analytics, all benefiting from customer investments and key megatrends, keeping the world running safely, efficiently, and more Over the past few years, we have expanded iOS's addressable market to $30 billion, adding companies that play in strong, secular-driven markets, including the four bolt-ons last year.
<unk> evolved the company organically and inorganically to reduce portfolio cyclicality align investments the secular drivers and increase through cycle core growth.
John: With almost $2 8 billion of revenue plan. This year iOS continued to build on its leadership positions in instrumentation software and data analytics, all benefiting from customer investments in key mega trends, given the world running safely efficiently and more sustainably.
John: Over the past few years, we have expanded the iOS as addressable market to $30 billion, adding companies that play in strong secular driven markets, including the four bolt ons last year within iOS are scalable software businesses now over $800 million in revenue growing high single digit helping customers streamline and digitize.
James A. Lico: Within iOS, our scalable software business, now over $800 million in revenue, growing at a high single-digit rate, helping customers streamline and digitize their workflows. Today, roughly one third of the segment is now in recurring revenue models, and we have further built in durability through the intentional diversification of end markets and customer use cases that we serve. As a result, flucazine improved through cycle resilience with continued order and revenue growth despite contracting PMIs over the last 16 months.
John: Their workflows.
John: Today, roughly one third of the segment is now under recurring revenue models and we have further built and durability to the intentional diversification of end markets and customer use cases that we serve.
John: As a result fluke has seen improved through cycle resiliency with continued order and revenue growth despite contracting PMI over the last 16 months.
James A. Lico: In Facilities and Asset Life Cycle, new logo bookings have grown double digits over the last few years, underpinning continued strong multi-year growth. And in environmental, health, and safety, we continue to accelerate innovation and geographic expansion, driving faster growth in this platform. As you can see from the chart, this culminated in sustained strong performance at iOS, including over 700 basis points of adjusted operating margin expansion since 2019, providing an excellent blueprint for the future evolution of Fortive as we continue to execute our formula for value creation in AHS and PT. Turn to slide 6.
John: And facilities and asset lifecycle, new logo bookings have grown double digits. The last few years underpinning continued strong multiyear growth.
John: And in environmental Health and safety, we continue to accelerate innovation and geographic expansion driving faster growth in this platform.
John: As you can see from the chart. This has culminated in sustained strong performance at iOS.
John: Moving over 700 basis points of adjusted operating margin expansion since 2019.
John: Abiding and excellent blueprint for the future evolution of Florida, as we continue to execute our formula for value creation and IHS in PT.
John: Turning to slide six.
James A. Lico: You can see how our portfolio is at the epicenter of the proliferation of electronics and sensors, enabling a more intelligent and sustainable future. Electronics is solving power efficiency challenges across new and diverse end markets, benefiting from growing demand for high-performance computing systems, including academic and government institutions, defense agencies, energy companies, and the utility sector.
John: You can see how our portfolio is at the epicenter of the proliferation of electronics and sensors, enabling a more intelligent and sustainable future.
John: Tektronix is solving power efficiency challenges across new and diverse end markets benefiting from growing demand for high performance computing systems.
John: <unk> academic and government institutions.
John: Agencies energy companies in the utility sector.
James A. Lico: These new investment cycles start with semiconductors, then shift to infrastructure, and finally to software and services. In addition to VA, the market leader for high-power electronic test solutions will drive faster through cycle growth and precision technologies, increasing their exposure to energy storage, mobility, hydrogen, and renewable energy markets. EA is also benefiting from the rise in high-performance compute and the deployment of AI in networks, which makes it an excellent complement to Tektronix.
John: These new investment cycle start with semiconductors, then shift to infrastructure and finally, the software and services.
John: The addition of VA the market leader for high power Electronic test solutions will drive faster through cycle growth in precision technologies, increasing their exposure to energy storage mobility hydrogen and renewable energy markets.
John: <unk> is also benefiting from the rise in high performance compute and deployment of AI and networks, which makes it an excellent complement to tektronix.
James A. Lico: The transformation of the electrical grid is a long-term secular tailwind for both Falschow and Fluke. Falschow provides the world's energy grid with monitoring equipment and sensors to ensure the lights stay on, and customers are adding considerable capacity to support infrastructure investments and new sources of energy.
John: The transformation of the electrical grid as a long term secular tailwind for both volatile and fluke also provides the world's energy grid with monitoring equipment and sensors to ensure the lifestyle and customers are adding considerable capacity to support infrastructure investments and new sources of energy.
James A. Lico: Lastly, at Fluke, we are ensuring the power efficiency and reliability of these global infrastructure investments, including tools to support the installation and maintenance of solar panels and the reliability and performance of EV storage equipment, including chargers and stations. Turning to slide seven, our increased innovation velocity is a direct result of our world-class business and the work we've done to revamp our product development process to drive more consistent differentiated results. For example, in the last year, our teams identified over $1 billion of new revenue through the dream stage of our lean portfolio management process.
John: Lastly, a fluke, we're ensuring the power efficiency and reliability of these global infrastructure investments, including tools to support the installation and maintenance of solar panels, and the reliability and performance of EV storage equipment, including Chargers and stations.
John: Turning to slide seven our increased innovation velocity is a direct result of our world class business system and the work we've done to revamp our product development process to drive more consistent differentiated results for.
John: For example in the last year, our teams identified over $1 billion of new revenue opportunities through the dream stage of our lien portfolio management process.
James A. Lico: Leveraging benchmarking we did with other technology companies in our partnership with Pioneer Square Labs to incorporate best practices in early stage product development. As we prioritize new product development, we have reallocated roughly 25% of our R&D spend from the sustaining of legacy products to the funding of new product innovation. The Fortis software system is improving our feature-on-time delivery as our operating companies are seeing a greater than 20% acceleration in software development time using Gen-AI, creating bandwidth for higher-value work and enabling faster innovation for our customers.
John: Leveraging benchmarking, we did with other technology companies and our partnership with Pioneer square labs to incorporate best practices and early stage product development.
John: As we prioritize new product development, we have reallocated roughly 25% of our R&D spend from a sustaining of legacy products to the funding of new product innovation.
John: For the software system is improving our feature on time delivery as our operating companies are seeing a greater than 20% acceleration in software development time, using gen AI, creating bandwidth for higher value work and enabling faster innovation for our customers FBS lean tools are also driving continued adjusted gross margin and operating margin expansion and.
James A. Lico: FBF's lean tools are also driving continued adjusted gross margin and operating margin expansion and industry-leading working capital metrics. Over the last five years, we've expanded adjusted gross margins by over 400 basis points, operating margins by more than 600 basis points, and reduced net working capital as a percent of sales by 550 basis points, with improvements in both our hardware and software business. In summary, FBS is fueling growth and innovation, driving differentiated operating performance, including higher free cash flow generation, our currency to further accelerate strategy and compound results through the FortiFly wheel for value creation. I'll wrap up on slide A.
Industry, leading working capital metrics over the last five years, we've expanded adjusted gross margins over 400 basis points operating margins by more than 600 basis points and reduced net working capital as a percent of sales by 550 basis points with improvements in both our hardware and software business.
John: In summary, FBS is fueling growth in innovation and driving differentiated operating performance, including higher free cash flow generation, our currency to further accelerate strategy and compound results through the Florida flywheel for value creation.
James A. Lico: We're off to a strong start to the year. Quarter of our success has been the groundwork we've laid over several years to create more durable growth in each of our strategic segments. Including at IOS, we're seeing steady global demand for our products and technologies and continued high single-digit ARR growth. At PT, we knew coming into the year that the normalized demand in electronics and sensing would result in declining core growth in the first half, lapping strong multi-year growth rates.
John: I'll wrap up on slide eight we're off to a strong start to the year.
John: Quarter, our success has been the groundwork we've laid over several years to create more durable growth in each of our strategic segments.
John: <unk> and iOS, we're seeing steady global demand for our products and technologies and continued high single digit <unk> growth.
John: The PK, we knew coming into the year that the normalized demand in tektronix and sensing would result in declining core growth in the first half lapping strong multiyear growth rates in the quarter, we saw demand for electrification and AI hardware driver returned a positive book to Bill in Q1.
James A. Lico: In the quarter, we saw demand for electrification and AI hardware drive a return to a positive book-to-bill in Q1. At AHS, we are seeing continued momentum in growth and profitability, with continued consumables recovery and accretive software growth underpinning our outlook for the year. Turning to the right side, continued execution in 2024 sets us up well for the achievement of the long-term targets we laid out at Investor Day last May, driven by an acceleration of software and non-recurring product growth in 2025, underpinned by secular investment trends, continued strong margin expansion enabled by FDF-led innovation and operational improvement, and double-digit adjusted earnings and pre-cash flow growth consistent with our long-term track record since 2019.
John: Today IHS, we are seeing continued momentum and growth and profitability with continued consumables recovery and accretive software growth underpinning our outlook for the year.
John: Turning to the right side continued execution in 2024 sets us up well for the achievement of our long term targets, we laid out at Investor Day last may driven by an acceleration of software nonrecurring products growth in 2025 underpinned by secular investment trends continued strong margin expansion.
John: Mansion enabled by FTF led innovation and operational improvement and double digit adjusted earnings and free cash flow growth consistent with our long term track record since 2019.
James A. Lico: We remain focused on enhancing shareholder returns with ample firepower to fund attractive M&A opportunities that will continue to fuel the Fortive formula for value creation. And with that, I'll turn it over to Chuck to take us through the details on the first quarter financials and updated outlook for the year.
John: We remain focused on enhancing shareholder returns with ample firepower to fund attractive M&A opportunities that will continue to feel the Florida formula for value creation.
John: And with that I'll turn it over to Chuck to take us through the details on our first quarter financials and updated outlook for the year.
Charles E. McLaughlin: Thanks, Jim. And hello, everybody.
Charles E. McLaughlin: Thanks, Jim and Hello, everyone.
Charles E. McLaughlin: We're pleased with our Q1 performance, including 3% core growth, reflecting better than expected performance in all three segments. Total revenue growth of 4% included the benefits of acquisitions partially offset by approximately one point of unfavorable effects. Highlights of our first quarter of performance include record margins in the quarter. The 110 basis points of adjusted gross and operating margin expansion reflect outstanding operating performance. Adjusted earnings per share of 83 cents was over the high end of our guidance, with adjusted earnings up 11% year over year.
Charles E. McLaughlin: We're pleased with our Q1 performance, including 3% core growth, reflecting better than expected performance in all three segments total revenue growth of 4% included the benefits of acquisitions, partially offset by approximately one point of unfavorable FX.
Charles E. McLaughlin: Highlights of our first quarter performance include.
Charles E. McLaughlin: Record margins in the quarter with 110 basis points of adjusted gross and operating margin expansion, reflecting outstanding operating performance.
Charles E. McLaughlin: Adjusted earnings per share of <unk> 83, <unk> over the high end of our guidance with adjusted earnings up 11% year over year.
Charles E. McLaughlin: And free cash flow is $230 million, up 54% year-over-year, driven by strong execution across all three of our segments and some favorable timelines. The trailing 12-month free cash flow is $1.33 billion, representing strong momentum towards our full-year guidance of $1.39 billion.
Charles E. McLaughlin: And free cash flow was $230 million up 54% year over year, driven by strong execution across all three of our segments and some favorable timing.
Charles E. McLaughlin: Our trailing 12 months free cash flow is 133 billion, representing strong momentum towards our full year guidance of $1 39 billion.
Charles E. McLaughlin: Turning to slide 10 and the first quarter performance in each of our three sections, beginning with Intelligent Operating Solutions, IOS core growth was 5% in Q1, with consistent mid-single-digit core growth across all three platforms. M&A contributed one point to total growth, partially offset by unfavorable FM. Adjusted operating margins expanded 160 basis points to 31.8%, driven by favorable price realization and volume increases across the cycle. Additional highlights include stable growth at Fluke, driven by the benefits of innovation, customer adoption, and key growth verticals.
Charles E. McLaughlin: Turning to slide 10 in the first quarter performance in each of our three segments, beginning with intelligent operating solutions.
Charles E. McLaughlin: IOS core growth was 5% in Q1 with consistent mid single digit core growth across all three platforms M&A contributed one point to total growth, partially offset by unfavorable FX.
Charles E. McLaughlin: Adjusted operating margins expanded 160 basis points to 31, 8%.
Charles E. McLaughlin: Loan by favorable price realization and volume increases across the segment.
Charles E. McLaughlin: <unk> highlights include stable growth at fluke, driven by the benefits of innovation customer adoption in key growth verticals, environmental health and safety had steady growth in the quarter with strong operating margin expansion enabled by pricing uptake and FBS enabled efficiencies.
Charles E. McLaughlin: Environmental Health and Safety had steady growth in the quarter with strong operating margin expansion enabled by pricing uptake and FBS-enabled efficiency. Facility and Asset Life Cycles continued its pace of double-digit revenue growth, including multiple accruant cross-sell deals with Red Eye and ServiceChem customers. Overall, iOS is benefiting from a strong innovation pipeline, with several new product launches in the first half ramping as we move through the year. Moving on to precision technologies, core revenue in the quarter was down 2% driven by normalizing demand at Tektronix and Sensor.
Charles E. McLaughlin: Facility and asset life cycles continues its pace of double digit SaaS growth, including multiple at current cross sell deals with Redeye and service churn customers.
Charles E. McLaughlin: Overall iOS is benefiting from a strong innovation pipeline with several new product launches in the first half ramping as we move through the year moving.
Charles E. McLaughlin: Moving on to precision technologies core revenue in the quarter was down 2% driven by normalizing demand at Tektronix <unk>.
Charles E. McLaughlin: Total growth reflected the benefit of the EA acquisition partially offset by FX headwinds and the divestment of Certain Product Lines of the Independent. We've completed our hundred day integration plan for EA, and we are more confident in the strategic value of the combined business, having identified significant opportunities in the sales fund, some of which combine EA's power supply offering with Tektronix services to better serve customers.
Charles E. McLaughlin: Total growth reflected the benefit of the EBITDA acquisition, partially offset by FX headwinds and the divestiture.
Charles E. McLaughlin: Certain product lines at the end of the deck we have.
Charles E. McLaughlin: Completed our 100 day integration plan for EMEA, and we are more confident in the strategic value of the combined businesses, having identified significant opportunities in the sales funnel.
Charles E. McLaughlin: Some of which combined Eas commerce play offering with Tektronix services to better serve customers.
Charles E. McLaughlin: TT adjusted operating margins expanded 80 basis points to 24.4%, reflecting accretive EA margins and productivity. Additional color includes electronics declined mid-single-digit as expected, driven by normalizing demand in China and slower growth in the US due to delayed customer R&D and. Sensing Technologies was down mid-single-digit, with order trajectory improving as we moved through the quarter, while utility and food and beverage markets remained strong. Paxi, once again, had double-digit growth in the quarter.
Charles E. McLaughlin: <unk> adjusted operating margins expanded 80 basis points to 24, 4%, reflecting accretive EBITDA margins and productivity initiatives.
Charles E. McLaughlin: Additional color includes tektronix declined mid single digit as expected driven by normalizing demand in China and slower growth in the U S due to delayed customer R&D investments.
Charles E. McLaughlin: Sensing technologies was down mid single digits with order trajectory, improving as we move through the quarter, while utility and food and beverage markets remained strong.
Charles E. McLaughlin: Side, once again had double digit growth in the quarter.
Charles E. McLaughlin: Now on to Advanced Healthcare Solutions. Q1 growth was 6% driven by improved market conditions and consumables, adjusted operating margins expanded 200 basis points to 24.2% driven by strong volume growth and price realization more than offsetting FX head. Additional highlights include ASP is benefiting from the North America channel transition completed last year. Furthermore, as hospitals continue to focus on safety and compliance and the increased need for energy efficiency, ASP is gaining share with their proprietary hydrogen gas plasma technology that consumes 70% less energy per year than steam sterilizers.
Charles E. McLaughlin: Now on to advance health care solutions.
Charles E. McLaughlin: Q1 core growth was 6% driven by improved market conditions and consumable.
Charles E. McLaughlin: Adjusted operating margins expanded 200 basis points to 24, 2% driven by strong volume growth and price realization more than offsetting FX headwinds.
Charles E. McLaughlin: Additional highlights include.
Charles E. McLaughlin: Asps is benefiting from the North America channel transition completed last year further as hospitals continue to focus on safety and compliance and the increased need for energy efficiency ASP is gaining share with their proprietary hydrogen gas plasma technology that consumed 70% less energy.
Charles E. McLaughlin: Per year, then steamed sterilizers.
Charles E. McLaughlin: Luke Health benefited from growth in biomedical quality assurance equipment as well as supply chain and operational improvement. Our AHS software businesses continue their pace of double-digit SAS. Census is boosting sterile processing productivity with their next-gen AI-squared instrument recovery platform with strong new logo bookings in the court, and New Customer Wins at Probation were partially offset by lower year-over-year license revenue driven by a large customer order last Turning to slide 11, you can see total growth in the first quarter of 4% was driven by expansion in the core and positive M&A contributions, partially offset by an approximately one point of FX at, By region, we have low single digit core revenue growth in North America, with growth in all segments despite normalizing hardware product demand.
Charles E. McLaughlin: <unk> benefited from growth in biomedical quality assurance equipment as well as supply chain and operational improvements are ahl's software businesses continued their pace of double digit SaaS growth.
Charles E. McLaughlin: This is boosting sterile processing productivity with their nexgen AI squared instrument recovery platform with strong new logo bookings in the quarter.
Charles E. McLaughlin: And new customer wins, the probation were partially offset by lower year over year license revenue driven by a large customer order last year.
Charles E. McLaughlin: Turning to slide 11, you can see total growth in the first quarter of 4% was driven by expansion in the core and positive M&A contributions, partially offset by an approximately one point of FX headwind.
Charles E. McLaughlin: By region, we had low single digit core revenue growth in North America with growth in all segments. Despite normalizing hardware product demand Western Europe core revenue was up mid single digit driven by backlog conversion and secular investments supporting energy transition.
Charles E. McLaughlin: Western Europe core revenue was up mid-single digit, driven by backlog conversion and secular investment supporting the energy transition. Asia was up slightly, driven by low double-digit growth in India, partially upset by a low single-digit decline in China, and growth in iOS and AHS was more than offset by expected slowing in PT.
Charles E. McLaughlin: Asia was up slightly driven by a low double digit Roe.
Charles E. McLaughlin: And India, partially offset by low single digit decline in China and growth in iOS and IHS was more than offset by expected slowing in PT, turning now to slide 12, and our guidance for the second quarter and the full year for the second quarter, we anticipate revenue growth of 2% to 3% with core flat to two.
Charles E. McLaughlin: Turning now to slide 12, and our guidance for the second quarter and the full year. For the second quarter, we anticipate revenue growth of 2 to 3%, with core flat to 2% driven by continued strength in iOS and AHS, partially offset by a core mid single-digit decline in PT, consistent with our prior view of the first half performance. The Adjusted Operating Profit Margin is estimated at approximately 26.7%, a 75 basis points year over year.
Charles E. McLaughlin: Percent driven by continued strength in iOS and IHS, partially offset by core mid single digit decline in PT consistent with our prior view of the first half performance.
Charles E. McLaughlin: Adjusted operating profit margin is estimated at approximately 26, 7% up 75 basis points year over year.
Charles E. McLaughlin: Just a diluted EPS guidance of $0.90 to $0.93, up 6% to 9%, and free cash flow of $270 million, reflecting double-digit growth in the first half. For the full year, we continue to expect core growth of two to four percent. Total growth is now expected in the range of 4.5% to 6%, including an approximate $60 million FX headwind versus the prior guide and the partial MBTEC divest, Reducing Revenues by Approximately $30 Million adjusted operating profit is expected to increase nine to 13% with margins of 27 to 27 and a half, We are raising adjusted diluted EPS guidance to $3.77 to $3.86 of 10 to 13% year over year to reflect the strength of the first quarter.
Charles E. McLaughlin: Adjusted diluted EPS guidance of 90 to 93 up 6% to 9% and free cash flow of 270 million, reflecting double digit growth in the first half.
Charles E. McLaughlin: For the full year, we continue to expect core growth of 2% to 4%.
Charles E. McLaughlin: <unk> growth is now expected in the range of four 5% to 6% including <unk>.
Charles E. McLaughlin: And approximate $60 million FX headwind versus the prior guide and a partial AMETEK divestiture, reducing revenues by approximately 30 <unk>.
Charles E. McLaughlin: Adjusted operating profit is expected to increase 9% to 13% with margins of 27 to 27, 5%.
Charles E. McLaughlin: We are raising adjusted diluted EPS guidance to $3 77 to $3 86.
Charles E. McLaughlin: Of 10% to 13% year over year to reflect the strength of the first quarter.
Charles E. McLaughlin: The effective tax rate is expected to be in the range of 14 to 14 and a half percent, in line with the average of the last. Free cash flow is expected to be approximately $1.39 billion, representing 11% growth year-over-year and a 22% free cash flow margin. Before we open it up for questions, I'll pass it back to Jim to provide some closing remarks. Thanks, Chuck.
Charles E. McLaughlin: The effective tax rate is expected to be in the range of 14 to 14, 5% in line with the average of the last two years free cash flow is expected to be approximately $1 39 billion, representing 11% growth year over year, and a 22% free cash flow March.
Charles E. McLaughlin: Before we opening up for questions I'll pass it back to Jim to provide some closing remarks.
James A. Lico: Thanks, Chuck. I'll wrap it up on slide 13. The strong start to the year and an enviable track record of improved through cycle performance are testaments to how our transformation execution and strategy to build a more durable company are playing out. Our strategy is reflected in the continued momentum of positive core growth over the last 14 consecutive quarters, even as demand slowed in select end markets, and the strength of our execution and dedication to FBS is reflected in 15 consecutive quarters of adjusted operating margin expansion, delivering more
James A. Lico: Thanks, Chuck I'll wrap it up on slide 13.
James A. Lico: The strong start to the year and an enviable track record of improved through cycle performance, our transformation execution and strategy to build more durable company is playing out power.
James A. Lico: However, our strategy is reflected in the continued momentum of positive core growth over the last 14 consecutive quarters, even as demand slowed in select end markets and the strength of our execution and dedication to FBS is reflected in 15 consecutive quarters of adjusted operating margin expansion delivering more value to customers.
James A. Lico: When taken together, we are confident in our raised outlook for the year, continuing our track record of compounding earnings and free cash flow growth double digits in 2024. By executing the Forte formula for value creation, we think the best is yet to come with an opportunity to roughly double our adjusted EPS and free cash flow over the next five years. With that, I'll turn it to Elena.
James A. Lico: When taken together, we are confident in our raised outlook for the year, continuing our track record of compounding earnings and free cash flow growth double digits in 2020 for executing the port of Formula for value creation. We think the best is yet to come with an opportunity to roughly double our adjusted EPS and free cash flow over the.
Atlanta: Next five years with that I'll turn it to Atlanta.
Elena Rosman: Thank you. We'll now take our first question.
Atlanta: Thank you gentlemen, we will now take our first question.
Unknown Attendee: Your first question is from the line of Julian Mitchell with Barclays. Please go ahead.
Atlanta: Your first question is from the line of Julian Mitchell with Barclays. Please go ahead.
Unknown Executive: Hi, good morning. Maybe just the first question around the precision tech revenue outlook. There's clearly some concerns from the commentary of one of your oscilloscope or instrument peers today. So I just wondered how you think about that precision tech revenue growth trajectory over the balance of the year, and particularly in Q2, and maybe any broad color on how those product hardware orders are trending versus what you'd expect.
Julian Mitchell: Hi, good morning.
Maybe just a first question around the precision tech.
Julian Mitchell: Our revenue outlook.
Julian Mitchell: And there's clearly some concerns from the commentary of one of your oscilloscope instrument peers today.
Julian Mitchell: So I just wanted to.
Julian Mitchell: How are you thinking about that precision tech revenue growth trajectory over the balance of the year and particularly in Q2, and maybe any broad color on how that product hardware orders.
Julian Mitchell: And how those have been trending versus what you'd expected.
James A. Lico: Yeah, good morning, Julian. Thanks for the question. I would say a couple things.
Speaker Change: Yes good.
Speaker Change: Good morning Julien.
Julien: Thanks for question I would say couple of things.
James A. Lico: We saw the quarter with a book to bill start at a sort of high level. We saw a book to bill of about one, and we anticipate that same book to bill in Q2. So we're starting to see the orders come back. Obviously, shipments, not yet, probably on a revenue basis, probably PTs low, you know, lower Q2 will probably be the low point. We don't have a huge step up from the first half to the second half. The first half is really playing out the way we anticipated.
Julien: Yes.
Julien: For the quarter.
Julien: It was a book to Bill, let's start with the sort of high level. We saw book to Bill of about one and we anticipate that book to Bill.
Julien: As well in Q2, so we're starting to see the orders come back.
Julien: Obviously shipments not not yet probably on a revenue basis, probably pts low lower Q2 will probably be the low point, we don't have a huge step up first half to second half. The first half is really playing out the way we anticipated.
James A. Lico: So in that sense, we're seeing an order book building. We're seeing, you know, we said last call that we would start to see orders start to move to growth at the tail end of the second quarter. Everything we've seen thus far would support that sort of trajectory. So, you know, we've seen some green shoots in some places. I can talk more about that. Things like at Tektronix, where our Keithley business, which has tended to lead the effort on the return, was the first to go down.
Julien: So in that sense.
Julien: We're seeing the order book building, we're saying, we're saying we said last call that we would start to see orders.
Julien: Start to move to growth.
Julien: Tail end of the second quarter everything we've seen thus far would support that that sort of trajectory.
Julien: We've seen some green shoots in some places I can talk more about that things like tektronix, where our keithley business, which has tended to lead the effort on the return and was the first to go down is now going to be high single digits revenue growth in the first half. So we're starting to see the things that would certainly point to that trajectory change I'll stop there and see.
James A. Lico: It's now going to be high single digit revenue growth in the first half. So we're starting to see the things that would certainly point to that trajectory change. I'll stop there and, you know, see if there's a follow-up.
Speaker Change: There's a follow up.
Speaker Change: Thanks, very much and I guess sort of.
Charles E. McLaughlin: Thanks very much. And I guess sort of broadly on the guidance adjustments, you know, you'd laid out your segment, sort of core growth guidance for the year, last quarter. Just wondered if any of those had changed this time. And I'm trying to understand sort of in the P&L guide, the adjustment to the interest expense guide, is that sort of a redeployment of divestment proceeds or something, just trying to understand that sort of net income raise with the adjusted EBIT guide slight reduction.
Speaker Change: Totally on the guidance.
Speaker Change: <unk>.
Speaker Change: You'd laid out Youll segment sort of core growth guide for the year last quarter.
Speaker Change: Just wondering if any of those had changed.
Speaker Change: This time is trying to understand sort of in the P&L guide the adjustment to the interest expense guide is that sort of a redeployment of divestment proceeds or something just trying to understand that sort of net income raise with adjusted EBIT guide slight reduction.
James A. Lico: Yeah, relative to the revenue guide, obviously what we saw in the quarter, a little bit stronger than we anticipated for Q1, we feel good about that. On the back of health, strengthening, we've had, you know, several good quarters now at health. That's a mid-single digit for the year, and we feel good about that. IOS, similarly, good strength there.
Speaker Change: Yes relative to the revenue guide obviously, what we saw in the quarter little bit stronger than we anticipated for Q1, we feel good about that on the backs of health strengthening we've had several good quarters now at health. That's a mid single digit for the year and we feel good about that iOS. Similarly, good good strength there.
Charles E. McLaughlin: We stood out in a number of places. Fluke has been very resilient, as we talked about. PT's down a little bit. So we're probably more down to the flat-ish, or slightly up. So we'll be able to, with the other two segments being better. And I think the other thing, just on absolute terms, is we absorbed, as we said, about $60 million worth of FX as well. So important to just kind of look at the total revenue growth here, as the ability to absorb that, I think really speaks to the strength that we've had.
Speaker Change: We stood out in a number of places fluke has been very resilient as we talked about PT is down a little bit. So we probably have more down to the flattish up slightly for so we will be able to with the other two segments being better.
I think the other thing just on the absolute terms as we absorbed as we said about $60 million worth of FX as well so important to just kind of look at the total revenue growth here.
Speaker Change: As the ability to absorb that I think really speaks to the strength that we've had and certainly as you see that in our Q, even with the weaker weaker PT. We were up 80 basis points of margin expansion. So I think the power. We're certainly seeing good growth in the two segments and we're managing exceptionally well the the trajectory of PT right now with <unk>.
Charles E. McLaughlin: And certainly, as you see that in Q, even with the weaker PT, we were up 80 basis points in margin expansion. So I think the power, we're certainly seeing good growth in the two segments, and we're managing exceptionally well the trajectory of PT right now, with strong margin expansion and with things that are occurring that are gonna give us confidence that the second half improves a little bit. We don't need a big step up at PT in the second half, in terms of total dollars, and what we've seen thus far supports that. And I'll let Chuck talk a little bit about some of the other details.
Speaker Change: Strong margin expansion and with things that are occurring that are going to give us confidence that the second half improves a little bit we don't need a big step up at <unk> in the second half of the total dollars perspective, and what we've seen thus far supports that and I'll, let Chuck talk a little bit about some of the other details.
Charles E. McLaughlin: Julian, the interest expense came down primarily because, since the last time we guided, we went out and put a Euro bond in place. And so that came in better, you know, like a 3.7% coupon. So that's the major change that roughly offsets the impact, the OOP impact of the FX. And just to put that in dollar terms, that's about $50.
Julien the interest expense came down primarily because since last time, we guided we went out and put a euro bond in place.
Charles E. McLaughlin: And so that came in.
Better.
Charles E. McLaughlin: Three 7% coupon. So that's the major change that roughly offsets the impact or impact of the FX and just to put that in dollar terms, that's about $15 million of la.
James A. Lico: And just to put that in dollar terms, that's about $15 million of lower interest expense versus our previous forecast, about two of that was reflected in the first quarter. And then to Chuck's point about the $15 million roughly of OP hits that we then have from FX, so that's really the opposite.
Charles E. McLaughlin: Lower interest expense versus our previous forecast about two of that was reflected in first quarter and then.
Charles E. McLaughlin: Check point about the $15 million roughly out op hit.
Charles E. McLaughlin: Now from FX, So thats really the answer.
Speaker Change: Great. Thank you.
Unknown Attendee: Your next question is from the line of Jeff Sprague with Vertical Research Partners. Please go ahead.
Speaker Change: Thanks Joanne.
Speaker Change: Your next question is from the line of Jeff Sprague with vertical Research partners. Please go ahead.
Unknown Executive: Hello. Good day, everyone. Hey, Jeff. Hey, how's it going? Hey, just a couple things. Just on the comment on the FAL businesses, the group at single digits and kind of normalizing it, is that basically the trajectory you're expecting then for kind of the balance of the year and, you know, in that group of companies, sort of mid single digit growth?
Jeffrey Todd Sprague: Hello, Good day, everyone.
Jeffrey Todd Sprague: Hi, Jeff.
Jeffrey Todd Sprague: Hey, How's it going.
Jeffrey Todd Sprague: Just a couple of things just on.
Jeffrey Todd Sprague: The comment on the SaaS businesses.
Jeffrey Todd Sprague: Root mid single digit and kind of normalizing is is that basically what the trajectory you're expecting then for the kind of the balance of the year.
Jeffrey Todd Sprague: That group of companies sort of mid single digit growth.
James A. Lico: Now, Jeff, we'll get we'll get that. We'll be moving back to high single. We had a really big comp at Gordian in the first quarter.
No, Jeff, we'll get we'll get that will be moving back to high single.
Jeffrey Todd Sprague: Really big comp at <unk>.
Jeffrey Todd Sprague: And in the first quarter I think they were plus 25% a year ago. So so AOR growth for that.
James A. Lico: I think they were plus 25% a year ago, so ARR growth for that was about high single digits, roughly 9%. So good ARR growth that supports sort of high single digit growth for the year.
Jeffrey Todd Sprague: About high single digits is roughly 9%. So good AOR growth that supports sort of high single digit growth.
Jeffrey Todd Sprague: For the year.
Charles E. McLaughlin: And then just on EA's performance actually in the quarter, right, the M&A impact I think is You know, it was influenced by the divestiture, right? But so I'm just trying to kind of understand how EA's revenues actually performed in the quarter. You didn't own it last year, but maybe give us some sense of kind of what the growth trajectory was there.
Jeffrey Todd Sprague: And then just on the Eas performance actually in the quarter.
The M&A impact I think is.
Jeffrey Todd Sprague: It was influenced by the divestiture right.
Jeffrey Todd Sprague: Just trying to kind of understand how EAA actually revenues performed in the quarter you didn't own it last year, but maybe give us some sense of kind of what the what the growth trajectory was there.
Charles E. McLaughlin: Yeah, Jeff, a couple of things. FX pushed EA's revenue down a couple of million, and then divestiture of about 5 million, you know, with the agreement to separate some of them in the tech business shows up on that line. So.
Speaker Change: Yes, Jeff.
Jeffrey Todd Sprague: Couple of things FX.
Jeffrey Todd Sprague: It pushed out as revenue down a couple million dollars.
Jeffrey Todd Sprague: The divestiture of about $5 million.
With the agreement.
Separates some of them in the tech business shows up on that line. So.
Jeffrey Todd Sprague: I think he is.
Jeffrey Todd Sprague: Yes.
Jeffrey Todd Sprague: Impacted by those two things down down about seven.
Unknown Executive: So just the dollars from EA were obviously higher than the overall number.
So just.
Jeffrey Todd Sprague: The dollars from EMEA.
Jeffrey Todd Sprague: Obviously, we are higher than the overall M&A dollars in aggregate for Pts.
Unknown Executive: Yeah, great. All right. Thank you.
Unknown Attendee: Your next question is from the line of Jamie Cook with Truist Securities. Please go ahead. Hi.
Jeffrey Todd Sprague: Yes, roughly 35 million offset by about $5 million.
Speaker Change: Yes, yes, okay alright, thank you.
Speaker Change: Yes.
Speaker Change: Thanks, John.
Unknown Executive: Hi, good morning. Thanks for the question. Just to follow up on the PT revenue guide, I know last quarter you specifically guided to the 2.42 to 2.465 billion. I'm wondering, you know, on slide four, you implied PT revenue is 2.3 billion. So is that the actual revenue guide? And can you comment, given the lower revenue guide, on how you're thinking about margins relative to your prior guidance? And then my last question, just on the M&A front, I think before you were saying top line, M&A would add 4 points; now you're saying three points. Is that just FX and Invitec? Thank you.
Speaker Change: Next question is from the line of Jamie Cook with <unk> Securities. Please go ahead.
Jamie Cook: Hi, Good morning. Thanks for the question just a follow up on the PT revenue Guide I know last quarter, you specifically guided to the $2 40 to $2 46, 5 billion I'm wondering on slide four you implied <unk> two 3 billion. So is that the actual revenue guide.
Jamie Cook: And can you comment given the lower revenue guidance, how youre thinking about margins relative to your prior.
Speaker Change: And then my last question.
Speaker Change: Just on the M&A front I think before you were saying topline M&A would add <unk>.
Speaker Change: Four points now Youre, saying three points is that just FX and the tax thank you.
Charles E. McLaughlin: Yeah, so Jamie, just on the prior guide, yeah, so $30 million has come out of the PT revenues from Invita. And then, to your point, there's probably another 2% that's come out due to FX. Some of that is obviously for EA, as well as the core business. So that 2.3 is the midpoint of the PT revenue guide, as you pointed out.
Speaker Change: Yes, so Jamie just on the prior guide.
Speaker Change: Yes.
Speaker Change: 30 million, what's come out of the PT revenue.
Speaker Change: And then to your point there is probably another 2% that's come out data at that.
Speaker Change: Some of that is obviously for EMEA as well as the core business.
Speaker Change: That two three at the midpoint of that PT revenue guide.
Unknown Executive: Thanks, and then due to your margins on PT, can you give us an update there given the lower rip?
Speaker Change: As you pointed out.
Speaker Change: Thanks, and engineered margins on <unk> can you give us an update there given the lower rent.
Unknown Executive: Yeah, no, no change to the Unknown Speaker... Yeah, Jamie, I think that's a reflection.
Speaker Change: Yes, no no change to the expectation that margin.
James A. Lico: Yeah, Jamie, I think that's the reflection of, certainly, as we said, not a lot, no real change here to our, you know, not much change in the outlook relative to that, the first half playing out pretty much like we saw. We saw some business move into the second quarter, or second half, excuse me, but we've been able to manage the margin front exceptionally well based on, you know, a couple of scenarios that we thought the year would play out.
Speaker Change: Yeah, Jamie I think that's a reflection of I certainly as we said not a lot of no real change here too.
Speaker Change: Not much change in the outlook relative to that the first half playing out pretty much like we saw with servicing some business move move into the second quarter or second half Skus me, but but we've been able to manage the margin front exceptionally well based on a couple of scenarios that we thought the year would play out so number of places in PT that we've got strength in <unk>.
James A. Lico: So, a number of places in PT where we've got strength, at EMC, we talked about utilities, our food and beverage businesses, so we've got some good strength there in a number of places, and obviously that's helpful to the margin front as well.
Speaker Change: See we talked about utilities or food and beverage businesses. So we've got some good strength, there and a number of places and obviously thats.
Speaker Change: It's helpful to the margin front as well.
Speaker Change: Okay. Thank you.
Unknown Attendee: Your next question is from the line of Scott Davis with Mellius Research. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Your next question is from the line of Scott Davis with Melius Research. Please go ahead.
Unknown Attendee: Scott. Hey, Jim, Chuck, and Elena.
Scott Reed Davis: Hey, Scott Hey, yes.
Scott Reed Davis: Hey, Jim and Chuck and Elena.
James A. Lico: A couple of questions. So first, just if we want to start with M&A and kind of mark to market your Pipeline. Should we or could we assume that the EA type of deal is a valuation range of the kind of stuff that you guys are looking at and 24. I'm sure it's a wide range of properties, but trying to just narrow that down a little bit and, perhaps, just just a little bit of a mark to market on how that pipeline looks?
Scott Reed Davis: A couple of couple questions. So first just if we wanted to start with M&A and kind of mark to market your.
Scott Reed Davis: The pipeline is there.
Should we or could we assume that the EAA type of deal as it is in valuation range as kind of the type of stuff that you guys are looking at in 'twenty four.
Scott Reed Davis: I'm sure. It's a wide range of properties, but trying to just narrow that down a little bit in <unk>.
Scott Reed Davis: And perhaps just a little bit of a mark to market on on how that pipeline looks.
James A. Lico: Yeah, sure. I would say number one is that there probably is a wide variety of valuations out there right now. You've seen some, you haven't seen a lot of things trade, but there have been fully valued trades that have gone on relative to various things in the marketplace, both things we'd be interested in, but also things that, you know, just have occurred. I would certainly say that we're obviously going to stay very disciplined.
Speaker Change: Yeah sure I would say number one is there is a probably a wide variation of valuations out there right now you've seen some you haven't seen a lot of things trade, but there've been fully value trades that have gone on.
Speaker Change: Relative to various things in the marketplace, both things we'd be interested in but also things that just have occurred I.
Speaker Change: I would certainly say that we're we're obviously going to stay very disciplined.
James A. Lico: I think what we tried to highlight on the iOS slide and in the deck was the benefits of M&A and how that really has created that really durable segment with both from a standpoint of revenue growth but also really strong profitability. And we're going to look for those kinds of things. I think the four deals that we did, the bolt-ons we did in the fourth quarter relative to iOS, EA as an example, those are more than likely, but you know, there's a wide range of things we did, right? We did some software, we did some data, we did some hardware businesses. The funnel looks that way.
Speaker Change: I think what we tried to highlight on the iOS slide in the deck was the benefits of M&A and how that really has created that really durable.
Speaker Change: Segment with both from a standpoint of revenue growth, but also really strong profitability and we're going to look for those kinds of things I think the four deals that we did the bolt ons, we did in in the fourth quarter relative to iOS.
Speaker Change: As an example, those are or is unlikely, but there is a widespread of things. We did right. We did some software we did some data we did some hardware businesses the funnel looks that way, but we'll remain disciplined right now around valuation and I think we're we're well served to sort of continue to be active but at the same time be selective around the opportunities. So I think.
James A. Lico: But we'll remain disciplined right now around valuation, and I think we're well served to sort of continue to be active, but at the same time, be selective around the opportunities. So I think we can get some things done for sure. But by the same token, I think we're going to remain disciplined. And, you know, we like the fact that, well, you know, the revenue for EA has come down a little bit for the year.
Speaker Change: We can get some things done for sure but by the same token I think we are going to remain disciplined and we like to Wow, the revenue <unk> come down a little bit for the year.
James A. Lico: We really feel good about that deal. We're still going to, the accretion on that is still going to be the same as it was relative to our original thought process. So it's still going to be a very creative deal and a really good deal at 25. So those are the kinds, certainly the kinds of things we'd be active in for sure.
Speaker Change: We really feel good about that deal we're still going to the accretion on that is still going to be the same as it was relative to our original thought process. So it's still going to be very accretive deal and a really good deal into 25. So those are the kind of certainly the kinds of things we'd be active in for sure.
Unknown Executive: Okay, helpful. And then just to go back to the guide, and honestly, I never talk; I never ask about a specific guide in this way. But if you look at your comps, if you look at the commentary, or just think about, you know, what you've said over the last hour, and then think about where ASP is at, I would think that that guide for the year and the rest of the year seems a bit on the conservative side.
Speaker Change: Okay helpful. And then just to go back to the guide and honestly I never I never ask about.
Speaker Change: Specific guide in this way, but if you look at your comps if you look at the commentary or just think about what you've said over the last hour and then think about where asps is that I would think that that guide for the for the year rest of the year seems a bit on the conservative side.
Unknown Executive: Is that it? Would you characterize that as, you know, is it perhaps just being a little bit cautious on China, or, you know, or, or, or, or just general global macro? Or, or, or am I in the right ballpark that maybe this is just being a little bit, a little bit conservative. And, you know, if nothing changes, perhaps you'd be at the higher end of that, if not higher?
Speaker Change: Is that would you characterize that as it is it perhaps just being a little bit cautious on China or.
Speaker Change: R R.
Speaker Change: Just general global macro or or am I in the right ballpark that maybe this is this is G. I was just being a little bit a little bit conservative in.
Speaker Change: If nothing changes, perhaps you'd probably at the higher end of that if not higher.
James A. Lico: Well, I, you know, we just beat our first quarter guys, so that's the first thing. And there was an operational beat there of about a penny. And, you know, they're really two cents.
Speaker Change: Well, we just beat our first quarter guidance. So that's the first thing and there was an operational beat there of about about a penny.
Speaker Change: And there really <unk> when you look at we offset the FX and then a penny of corporate costs. So it was a good I think it was a good start to a very good start to the year I said that in our prepared remarks, I think if you said, Hey, Hey, Jim would you like to get out of the gate at a 110 basis points of gross margin and operating margin.
James A. Lico: When you look at how we offset the effects, and then a penny of corporate costs. So, you know, it's a good start to a very good start to the year. I said that in our prepared remarks. I think if you said, Hey, hey, Jim, would you like to get out of the gate at, you know, 110 basis points of gross margin and operating margin expansion? Would you like to drive EPS at 11%?
Expansion or would you like to drive EPS at 11% I'd say, that's a really good start and I'd say, our full year looks a lot like that too. So we liked the guy.
James A. Lico: I'd say that's a really good start, and I'd say our full year looks a lot like that, too. So we like the guy. And what we tried to highlight is, yeah, there's there is, there is some uncertainty. I would tell you, I was with the China team a week ago, and they're feeling better about where they are versus, call it, eight weeks ago when I was with them. For the first time in the year, they were much more optimistic. You know, we talked about some of the quality productive forces investments that China is talking about. So we still have a, you know, we still sit right now in our guide embedded in our guide is trying to be down.
What we tried to highlight is yes. There is there are there is some uncertainty.
Speaker Change: I would tell you I was with the China team, a week ago, and they're feeling better about where they were versus call. It eight weeks ago I was with them. The first time in the year. They were much more optimistic and we've talked to some of the the quality productive forces investments that China is talking about so we still have we still sit right now in our guide embedded in our Guy.
Speaker Change: China being down.
James A. Lico: But, you know, at the same time, there's probably some opportunity for some of the Chinese government's active investments to occur because those are in places that are very, later important to us. Our other high growth markets are already growing. Interesting enough, our other high growth markets, which are bigger than China, are growing mid single digits. There is probably some opportunity there. So it's still early.
But at the same time, there's probably some opportunity of some of the Chinese government.
Speaker Change: Active investments occur because those are in places that are very <unk>.
Speaker Change: Subsequent important to us or other high growth markets are already growing interestingly enough. Our other high growth markets, which are bigger than China are growing mid single digits, probably some opportunity. There. So it's still early and certainly theres a lot of things out there that you could say could go another way but.
James A. Lico: And certainly, there's a lot of things out there that you could say could go another way, but we really got out of the gate really well and feel really good about it. And, you know, we're working; we're working every day to make it better for sure. Let's see where we get in the second quarter. But, yeah, there's certainly some opportunities we tried to highlight, like energy transition. The percent and product revenue are, you know, places where there's certainly opportunity for us to continue to do well.
Speaker Change: We really got out of the gate really well and feel really good about it and we're working on where we work everyday to make it better for sure, let's see where we get through in the second quarter, but yes. There is certainly some opportunities we tried to highlight like energy transition AI the percent in product revenue is.
Speaker Change: Places, where there is certainly opportunity for us to continue to do well.
Unknown Attendee: Okay. Best of luck, Jim. Thank you for the call.
Speaker Change: Okay Best of luck, Jim Thank you for the color.
Unknown Executive: Thanks, Scott. It's great talking to you.
Thanks, Scott Great talking to you.
Unknown Attendee: Your next question is from the line of Dean Dray with RBC Capital Markets. Please go ahead.
Speaker Change: Your next question is from the line of Deane Dray with RBC capital markets. Please go ahead.
Unknown Attendee: Thank you. Good day, everyone. Hi Dean. Hey, just following up there. I heard yet another AI reference. There are a lot of references in the prepared remarks. So where would you rank them in order? You don't have to go through them all. But, you know, what are the most important exposures where you have, you know, near-term real-time leverage on the AI buildup?
Deane Dray: Thank you good day everyone.
Deane Dray: Hi, Dave.
Deane Dray: Hey, just following up there I heard yet another AI reference a.
Deane Dray: A lot of references in the.
Deane Dray: Our prepared remarks, so where would you rank order you don't have to go through them all but.
Deane Dray: What are the most important exposures where you have.
Deane Dray: Near term real time leverage to the AI buildout.
James A. Lico: Well, yeah, I think where we showed on the slide and high-performance compute and data center expansion, the chips that are going to go into data centers, an example, next generation, we got an eight-digit order from Keithley as an example for that in the quarter that will ship later in the year with some semiconductor manufacturers in Taiwan. So, I would say, first and foremost, we're seeing it on the chip build out. We're certainly seeing that. We're certainly seeing it again with utility infrastructure and grid infrastructure growth at Qualtrol and Fluke.
Deane Dray: Well, yes, I think where we showed on the slide and high performance compute and data center expansion. The chips that are going to go into data centers and an example next generation we got to we got an eight digit order from at Keithley as an example for that in the quarter that will ship later in the year with what's in semiconductor.
Manufacturers in Taiwan, So so I would say first and foremost we're seeing it on the chip Buildout. We're certainly seeing that we're certainly seeing it again with utility infrastructure and grid infrastructure growth is volatile and flu those would certainly stand out as direct investments relative to the preparation of AI in the future of the world.
James A. Lico: Those would certainly stand out as direct investments relative to the preparation of AI for the future of the world. So, and then on the flip side, we're starting to launch AI solutions. Dean, so when we think about what we're doing, a census probation, Gordian, the Gordon, we just announced the Gordian platform, which allows for us to integrate all of our data and solutions together.
Deane Dray: And then on the flip side, we're starting to launch AI solutions gain so when we think about what we're doing a census probation gordian the corner, we just announced the Gordian platform, which allows for us to integrate all of our our data and solutions together. So we'll start to see some of those those are revenue basis, selling AI solutions as well so on the <unk>.
James A. Lico: So, we'll start to see some of those in our revenue base selling AI solutions as well. So, on the front end, we're seeing the early stages of that investment, and primarily with, you know, in PT, we'll start to see that play out. We're starting to see that play out in Keithley. We'll start to see that play out in tech in the second half. And then, and then obviously, with Qualtrol and Fluke, certainly as those data centers and things get built, we're, we're gonna, we're gonna certainly participate in that relative to both the, you know, the electrical grid infrastructure needed to support that as well as the tools needed to sort of build those data centers and maintain them as well.
Deane Dray: Front end, we're seeing the early stages of that investment.
Deane Dray: And with primarily with MPT will start to see that play out we're starting to see that play out in Keathley, we'll start to see that play out of tech in the second half and then and then obviously with cultural and fluid certainly with without those data centers and things get built.
Deane Dray: We're going to certainly participate in that relative to boats.
Deane Dray: Look the electrical grid infrastructure needed to support that as well as the tools needed to sort of build those data centers.
Deane Dray: Maintain them as well.
James A. Lico: Great, those are really specific data points, so I appreciate your sharing them. And then as a follow-up, and I might have missed it in your answer to Julian's question, but the weakness in Tektronix you referenced, what was the delayed customer R&D in the U.S.? Is that just, is it product cycle related? Is there anything related to worries about the election that's starting to read through some hesitation in order Yeah, you know, Dean, I
Speaker Change: Great those are.
Speaker Change: Real specific data points. So I appreciate you sharing and then as a follow up and I might have missed it in your answer to Julians question, but the weakness in Tektronix you referenced what was the delayed customer R&D in the U S is that just is it product cycle related is there anything really.
Speaker Change: <unk> two.
Speaker Change: Worries about the election that starting to read through some hesitation in orders.
James A. Lico: Yeah, you know, Dean, I think, well, you know, the first half is going to play out at tech close to, almost identically to, you know, exactly how we thought it would play out. So I don't want to, I don't want to, I want to, I should say that first.
Speaker Change: Yeah.
Speaker Change: Dana I think.
Speaker Change: The first half sort of play out attack.
Speaker Change: Almost identically to exactly how we thought it would play out so I don't want to I don't want to I want I should say that first.
James A. Lico: I would certainly say that what we're seeing is some delay on what I would call MilGov investments that we typically start to see early in the year. They're still in the funnel. They're now showing up maybe later in the year.
Dana: Well certainly what we see is some delay on what I would call 1000 Gov investments that we typically start to see early in the year. They are still in the funnel that are now showing up maybe later in the year.
James A. Lico: That's both, you know, direct government customers, as well as some of the primes. So that's a, that's a, that's a movement toward that. The good news on that is we're seeing them in the funnel, and they're growing in the funnel. So, you know, and we're all starting to see some of those orders, hence the book to bill is over one. So, we're certainly starting to see those things.
Dana: That's both.
Dana: Direct government customers as well as some of the prime.
Dana: That is a movement of that the good news on that is we're seeing we're seeing them in the funnel and they are growing in the funnel. So.
Dana: We're starting to see some of those orders, hence the book to Bill is over one so so we're certainly starting to see those things.
James A. Lico: Generally, we would have been able to convert them to revenue maybe a little sooner, but because the funnels moved and because some of those things came a little bit later in the, you know, end of the second quarter, then, then, you know, that really presents it for more of a second half opportunity. But at this point, we wouldn't see those canceled, and I don't think we should tie those to the election.
Dana: Generally we would've been able to convert into revenue, maybe a little sooner, but because it's a funnel it's moved it because some of those some of those things have come a little bit later in the.
Dana: End of the second quarter.
And that really presents it for more of a second half opportunity, but at this point, we wouldn't see that was canceled and I don't think we tie those to the election I think we probably tie that more to just investment decisions that people have made with some uncertainty as the year started out may be delaying some of those investments as you well know.
James A. Lico: I think we can tie that more to just investment decisions that people have made with some uncertainty as the year started out, maybe delaying some of those investments. As you know, sometimes those investments can get delayed for a quarter or two, but ultimately, I think if you said our customer base or the leading technology companies in the world, would they not invest in technology and innovation? I think it's a good bet they're going to do that. Thank you.
Dana: Sometimes those divestments kicking can get delayed for a quarter or two but ultimately I think you said are our customer base are the leading technology companies in the world are they going to not invest in technology and innovation I think it's a good fast theyre going to do that.
Speaker Change: Thank you.
Unknown Attendee: Your next question is from the line of Steve Tusa with J.P. Morgan. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Your next question is from the line of Steve Tusa with Jpmorgan. Please go ahead.
Unknown Executive: Can you just delve a little bit more into Tektronix and the book-to-bill there? I know you guys mentioned the hardware in total, book-to-bills, but maybe just give us an update on, you know, maybe where the, I guess, access backlog is, if that's even a thing still, kind of where the access backlog sits, and then...
Steven Eric Winoker: Hey, guys how are you.
Steven Eric Winoker: Let's see.
Steven Eric Winoker: Can you just delve a little bit more into tektronix and the book to Bill There I know you guys mentioned the hardware in total book to bills, but maybe just give us an update on <unk>.
Steven Eric Winoker: Maybe where the.
Steven Eric Winoker: I guess the excess backlog, if that's even a things still kind of where the excess backlog sits and then tektronix book to Bill.
Steven Eric Winoker: And then what you'd expect for growth for the rest of the year there at this stage.
Unknown Executive: This is Steve. Tektronix spoke to a bill of 0.95 in the quarter for PT sensing and tech combined with 1.0 and for hardware products overall with 1.0.
Yes, let's see Tektronix book to Bill <unk> 95 in the quarter FERC <unk> sensing and.
<unk> laid out and for hardware products overall with some cleanup.
And then we talked about tektronix revenue being down mid single digit and afford our expectation would be that tektronix revenue for the year will be down mid single digit, but that's always been reflected in our outlook for the year.
Unknown Executive: Okay, so no change there. And then maybe just sticking to book to bill. I think it's a little bit hard to like calibrate these EA revenues, I guess we had expected something a little bit more than where it was. And I'm not sure we've quite bridged the gap on that. But what's I guess the book to bill for that business just to kind of, you know, help us understand what kind of run rate they're going at?
Steven Eric Winoker: Okay. So no change there and then maybe just sticking on book to Bill I think it's like a little bit hard to like.
Calibrate. These these EEA revenues I guess.
Steven Eric Winoker: You'd expect it's something a little bit more than than where it was and I'm not sure we'd quite bridge the gap on that but whats I guess the book to Bill for that business just to kind of help.
Steven Eric Winoker: Help us understand what kind of run rate there theyre going out on the EDA side.
Charles E. McLaughlin: Yes, I'll just really quick on the numbers for EA and then I'll let Jim comment on the acquisition overall. We had expected revenues for EA for the year to be, you know, call it $190, $195. That's come down; it's probably closer to $180 to $185. Part of that is foreign exchange, and part of that is some pushing out of larger projects in the year. Specifically in Q1, right, revenue, we talked about $35 million again. Planned for something in the low 40s for the quarter. There is a seasonal component to that. And maybe, Jim, you want to talk a little bit more about, you know, certainly the kind of what.
Steven Eric Winoker: That new acquisition.
Bill: Yes, well I'll, just really quick on the numbers and then I'll, let Jim comment on the acquisition overall.
Bill: We had expected revenues for EMEA for the year to be 190, 185, that's come down probably closer to 180 to 185 part of that is foreign exchange and part of that is some push outs.
James A. Lico: On larger projects.
In the year, specifically in Q1 right the revenue that we talked about the $35 million again.
Plan for something above $40 for the quarter. There is a seasonal component to that and maybe Jim you want to talk a little bit more about certainly the kind of the 100 day yeah.
James A. Lico: Radio and give some color on the acquisition.
James A. Lico: Yeah, Steve, I would say a couple things. One is that we said the prepared remarks. One of the things that's really evident, and certainly have been around the world, not only with the US view of this, but China, India, a number of other places, we clearly see a great product that customers really like. So I think, you know, as we start out, we really affirm the fact that the product and the technology are really, really strong.
James A. Lico: Steve I would say a couple of things one as we said the prepared remarks.
We are one of the things Thats really evidenced and certainly have been around the world not only with the U S view with us, but China, India number of other places, we clearly see a great product that customers really like so I think as we as we start out we really affirm the fact that the product and the technology is really really strong.
James A. Lico: As Elena said, a little bit less revenue in the first quarter. I mentioned this in a couple of places in the first quarter that getting the backlog out in that business has been a little bit more challenging than anticipated in terms of that. So, book to bill, I think, was over one in the first quarter, but our opportunity to sort of continue to work FBS and make the factory a little bit more flexible is certainly work we're in the process of doing. We'll come down a little bit on what we think the revenue will be for the year. We still think the accretion rate is the same.
James A. Lico: <unk>.
James A. Lico: As Elena said, a little bit less revenue in the first quarter I mentioned this in a couple of places in the first quarter that getting the backlog out.
James A. Lico: And that business has been a little bit more challenging than anticipated.
James A. Lico: So book to Bill I think it was over one in the first quarter.
James A. Lico: But our opportunity to sort of continue to work FBS and make the factory a little bit more flexible is certainly work we're in the process of doing will.
James A. Lico: Will come down a little bit on the on the on what we think the revenue will be for the year. We still think the accretion is the same. So so we're still going to deliver from an earnings perspective, and a very good place and we feel good about the business, so mobility and a little bit slower we anticipated the mobility would be slow this year that was certainly in our view.
James A. Lico: So, we're still going to deliver from an earnings perspective in a very good place, and we feel good about the business, so mobility is a little bit slower. We anticipated that mobility would be slow this year.
James A. Lico: That was certainly in our view. And so that's played out, but the data center opportunities are very good. And quite frankly, the funnel with Tektronix is building well. So, we said we were going to build that funnel in the first half. We'll start to see that revenue in the second half, and we feel good about the funnel bill thus far. We mentioned one of the opportunities in the prepared remarks around how now we're linking their sales with our services with a large-scale order that we'll get here shortly.
James A. Lico: <unk>.
James A. Lico: And so that's that's played out but the data center opportunity.
James A. Lico: Very good and quite frankly, the funnel with Tektronix is building well. So we said we needed we were going to build that follow the first half we would we would start to see that revenue in the second half and we feel good about the funnel built thus far we mentioned one of the opportunities on the prepared remarks around how now we're linking their sales with our services.
James A. Lico: With a large scale order, but we'll get here shortly we feel really good about the synergy opportunity as well so maybe taken a little longer to get started simply because of maybe some of the things in the marketplace, but feel really good about it right now and.
James A. Lico: We feel really good about the synergy opportunity as well. So, maybe it's taking a little longer to get started simply because of some of the things in the marketplace, but we feel really good about it right now. And we're in a good position for that business as it stands to finish the year and move into twenty-five.
James A. Lico: We're in a good position for that business as it stands but finished the year and move into 'twenty five.
Unknown Executive: And where's the access backlog stand today? That's my last one. Thanks.
James A. Lico: And where does the excess backlog stand today, that's my last one thanks.
Unknown Executive: Yeah, I'm not for free. I'm not sure what that number is. But it's probably in the, you know, I guess in the, you know, 10 million ish range or something like that. Okay, so I normalize
James A. Lico: Yes.
I'm not sure what that number is but it's probably in the.
James A. Lico: I guess in the $10 million ish range or something like that okay. So normalized alright. Thank you.
Unknown Attendee: Okay, so I normalized it. All right. Thank you.
Unknown Attendee: Your next question is from the line of Andy Kaplowitz with Citigroup. Please go ahead.
James A. Lico: Your next question is from the line of Andy Kaplowitz with Citigroup. Please go ahead.
Unknown Executive: Hey, good afternoon, everyone. Jim, just in AHS, I know you did well in the quarter, and you know maybe you talked about some potential upside there. You did mention maybe some probation headwinds still. Is there anything that's still holding you back at all from even better performance, given that it was quite good in the quarter?
James A. Lico: Yes.
Hey, good afternoon, everyone.
Andrew Kaplowitz: Hey, Andy.
Andrew Kaplowitz: Jim just I know you did well in the quarter and maybe you can talk about some potential upside. There you did mention maybe some probation headwinds still is there anything that's still holding you back at all from even better performance with the understanding that it was quite good in the quarter.
James A. Lico: Yeah, I mean, we're really, really happy about the quarter. And, you know, if you think about the number of quarters here, obviously, we had the transition in North America last year.
James A. Lico: Yes, I mean, we're really we're really happy about the quarter and.
James A. Lico: You think about the number of quarters here, obviously, we have the transition in North America last year, but if you look at what we've done multi year in high growth markets exceptionally well.
James A. Lico: But if you look at what we've done in multi-year and high-growth markets exceptionally well, the strength of the strategic nature of what we wanted to do is really playing out well. So we feel very good about where ASP is at; we feel good about the broader segment. Relative to probation, we had a large-scale licensed software business in the first half of last year, and we have an order that we're going to work through in the first and second quarters. That business will still grow well this year.
James A. Lico: The strength of the strategic nature of what we wanted to do it.
James A. Lico: Really playing out well so we feel very good about where asps that we feel good about the broader segment.
James A. Lico: Whilst the information we had in the first half of last year, we had a large scale license software business.
James A. Lico: Our order that we're going to work through in the first and second quarter that business will still grow well. This year SaaS is growing double digit in the business. So we really feel good about where promotions, but we do have to work through that large licensed.
James A. Lico: SAS is growing double digits in the business. So we really feel good about where probation is, but we do have to work through that large licensed customer that, you know, it's kind of a, you know, plays out a little bit more of a one-time opportunity. The good news about that is it's a very large license deal that we're going to be able to convert fast over the next several years. So in terms of opportunity, there's still great opportunity on probation.
James A. Lico: <unk> that.
James A. Lico: It's kind of plays out a little bit more of a one time opportunity maybe it's about that it's the very large license deal that we're going to be able to convert to SaaS over the next several years.
James A. Lico: So in terms of opportunity, there's still great opportunity to probation. So so we feel good about where the segments out.
James A. Lico: So we feel good about where the segment is at. You know, we mentioned in some of the prepared remarks about some of the things we're seeing around our plasma strategy and the efficiency and efficacy of how we do hydrogen peroxide and all that. So the product and innovation wheel that we started to talk about, steam sterilization, BI biological indicators, a number of the things that we've really been trying to work through over the last couple of years, we're starting to see the innovation flywheel get started at ASB. And so we feel good about where the segment is at and where it's going to go through the year.
James A. Lico: We mentioned in some of the prepared remarks about some of the things we're seeing around our plasma strategy and the efficiency.
James A. Lico: And the efficacy of how we do hydrogen peroxide and all that sort of the product and innovation wheel that we started to talk about steam sterilization.
Biological indicators number of the things that we're really we're trying to work through over the last couple of years, we're starting to see the innovation flywheel gets started at Asps. So we feel good about where the segments.
James A. Lico: Great, and then I know you reiterated it, but when I think about the 450 for next year, there's a fair amount of moving pieces nowadays, you know, FX 7a, as we talked about, you know. So what's your confidence level, Jim, at this point, and what do you need to do to sort of get there? Plotting number one.
James A. Lico: It's going to go through the year.
Speaker Change: Great and then I know you reiterated it but like when I think about the $4 50 for next year like it was a fair amount of moving pieces Nowadays FX M&A as we've talked about so what's your confidence level, Jim at this point and what do you need to do.
Speaker Change: To get there.
James A. Lico: Well I think number one.
James A. Lico: Well, number one, I think the first quarter affirms what we're able to do right with the growth rate that we had in the quarter. We still drove strong EPS growth and strong free cash flow growth. And our guide demonstrates that.
James A. Lico: I think the first quarter of firms.
James A. Lico: We're able to do right with with the growth rate that we have in the quarter, we still drove.
Strong EPS growth and strong free cash flow growth. Our guide demonstrates that so we get to the end of the year double digit earnings growth double digit free cash flow growth.
James A. Lico: So we get to the end of the year, double digit earnings growth, double digit free cash flow growth, really strong operating margin expansion. A great setup for, you know, on a little bit of, you know, not quite mid single digit growth yet. So as we move into mid-single-digit growth and our track record of earnings growth, free cash flow growth, and margin expansion, I think those are the things that give us confidence.
James A. Lico: Strong operating margin expansion of.
James A. Lico: A great set up for.
James A. Lico: On a little bit.
James A. Lico: Not mid single digit growth yet so as we move into mid single digit growth in our track record of earnings.
James A. Lico: <unk> free cash flow growth and margin expansion I think those are the things that give us confidence now again, it's it's April of 'twenty four we're talking about 2025.
James A. Lico: Now, again, it's April of 24. We're talking about 2025; I guess it's May. But at the end of the day, or we'll be in May here shortly. So I think at the end of the day, we're in a very good place to talk about 25. But But obviously, we're very focused on 24 here. So, and I think what we'll see through the quarters is the demonstration of that, you know, the kinds of numbers that I think really support our multi-year past, which has been very good, and also our multi-year future.
Rick.
Speaker Change: But at the end of the day.
Speaker Change: It will be made here shortly so I think at the end of the day.
Speaker Change: We're in a very good place to talk about 'twenty five, but obviously, we're very focused on 24 here.
Speaker Change: And I think what we'll see through the quarters is the demonstration of that those are the kinds of numbers that I think really support our multiyear past, which has been very good and also on a multi year future.
Speaker Change: I appreciate the color.
Unknown Attendee: Your next question is from the line of Nigel Coe with Wolf Research. Please go ahead.
Speaker Change: Your next question is from the line of Nigel Coe with Wolfe Research. Please go ahead.
Unknown Attendee: Hi, good morning, everyone. Oh, good afternoon.
Nigel Coe: Hi, Good morning, everyone. Good afternoon evening.
Unknown Executive: So, hey, guys, I hate to like retread the ground that has been trodden on already, but Elena, you mentioned, you know, tech down mid-single digits. That was in the plan from day one. Down mid-singles in one queue. I'm just curious why things wouldn't get better in the second half of the year, just given the comps. And therefore, my question really is, in the second quarter, is tech down sort of high singles, maybe a bit worse than that, and PT down maybe mid-singles? Just thinking about how we should think about the, you know,
Nigel Coe: So.
Nigel Coe: Hey, guys.
Nigel Coe: I hate to retread.
Nigel Coe: That's been thrown around already but.
Nigel Coe: You mentioned.
<unk> down mid single digits that was in the.
Nigel Coe: From day one.
Nigel Coe: Diamond signals in <unk> I'm, just curious why things would get better in the second half of the year just given the comps and therefore my question really is in the second quarter has ticked down sort of high singles, maybe but within that some PT down maybe mid singles to thinking about how we should think about.
Nigel Coe: The way this has come through the year.
Unknown Executive: Yes, that's right, Nigel. And we said in our prepared remarks that we expected PT to be down, you know, mid-single digit for the quarter, and that would include tech to be down, you know, slightly more than that. So in the, probably in that
Speaker Change: Yes, that's right Nigel and as we said in our prepared remarks that we expected <unk>.
Speaker Change: It would be down in a mid single digit for the quarter avid include tech to be down slightly more than that.
Unknown Executive: Okay, and then I would say that, you know, your point about inflecting is getting a little bit better. That's the book to build that we talked about that, you know, continues to get better.
In that mid to high single digit range for taxes in Q2.
Speaker Change: Okay, and then I would say that.
Speaker Change: Your point your point around inflect, even getting a little bit better. That's the book to Bill that we talked about that can continue to get good keithley is a good leading indicator of the PMI as a good leading indicator our sales funnel are a good leading indicator and so we'll step through a little bit better performance as we get through the second half I think okay.
Unknown Executive: Keithley's a good leading indicator. The PMIs are a good leading indicator. Our sales funders are a good leading indicator.
Unknown Executive: I think the other thing to consider, right, is that TACF did continue...
Speaker Change: Sure.
Speaker Change: <unk> did continue to grow revenues throughout all of last year.
Unknown Executive: Path did continue to grow its revenues.
Unknown Executive: Right, okay, that's clear. And then the pricing of PT, I think it was about one change, 1% or so, for the quarter, a bit of a decel versus the run rate. Is there a risk that that could go negative or flatten out completely, you know, given the weakness in volumes?
Speaker Change: Right. Okay. That's clear and then the pricing of <unk> I think was about one one change 1% or so.
Speaker Change: For the quarter, it's been a bit of a T cells. This is the run rate is that a risk that that could go negative for flatten out completely given the weakness in volumes.
Charles E. McLaughlin: and Nigel is Chuck. We wouldn't I wouldn't expect that to be the case. I think there's a little bit of timing here, but as we move through the year, we expect and that probably in PT you add I think one to two percent and, you know, gradually going up as we we move through Nigel.
Nigel This is Chuck Lewis I wouldn't expect that to be the case I think there's a little bit of timing here, but as we move through the year, we expect.
Charles E. McLaughlin: It probably <unk> I think 1% to 2%.
Charles E. McLaughlin: And congratulate <unk> going up as we move through the quarters and Nigel just to add the bright spots is in a good place. So when you look at the margin expansion that we did a PT in the first quarter.
James A. Lico: Nigel, just to add, you know, price cost is in a good place. So, you know, when you look at the margin expansion that we did in PT in the first quarter and, you know, the anticipated margin expansion through the year, we probably get a little bit less price when the top line's like that. It's not unnatural to maybe not, maybe give a little bit up, but the price/cost stance is really good. So we're in a good position to be able to do that and still grow margins.
And any anticipated margin expansion through the year, we probably get a little bit less price when the top lines like that it's not unnatural to maybe not maybe give a little bit up but the price cost.
Charles E. McLaughlin: Stance has really good so we're we're in a good position to be able to do that and still grow margins.
Unknown Executive: That's great. I'm sorry, a quick one on EA. The 1Q seasonality is for kind of the full year. Is this a business that typically has a week in 1Q and then a back out floating in the plan? Yeah, I, you know,
Speaker Change: That's great I'm, sorry, a quick one on the <unk>.
Speaker Change: <unk> seasonality of full kind of full year is this a business that typically has a weak <unk> and then the back half floating and in the in the plan.
James A. Lico: Yeah, you know, we're new to it. So we've got some multi-year history. But you know, you have the numbers; you don't always have the history. It's certainly a business that has historically been back in the weeds, that's for sure. And, you know, so that, you know, private companies sometimes don't necessarily push everything until, you know, make sure the end of the year. So that's not unusual. And, you know, we'll get the cadence here improved every quarter as we work through the integration. Great. Thanks, Jim.
Speaker Change: Yes.
Speaker Change: We're new to it so we've got some multi year history, but you have the numbers you don't always have the history. It's certainly a business that has historically been back end weighted thats for sure.
Speaker Change: Okay.
Speaker Change: So thats.
Speaker Change: The company is sometimes don't necessarily push everything until make sure at the end of the year. So that's not unusual.
Speaker Change: Get the cadence here improved every quarter as we work through the integration.
Speaker Change: Great. Thanks, Jim.
Unknown Attendee: Your next question is from the line of Joe O'Day with Wells Fargo. Please go ahead. Joe, Joe, Joe, your lines are open, please go ahead.
Speaker Change: Your next question is from the line of Joe O'dea with Wells Fargo. Please go ahead.
Joe O'dea: Hi, Joe and Joe.
Joe O'dea: Joe Your line is open. Please go ahead.
Unknown Attendee: Hi, thank you for taking my questions. I wanted to start on the, you know, the 60% of revenue you talked about growing through the industrial slowdown and the PMI, which I think primarily related to fluke. But the question really is around, you know, the ability to grow through PMI slowing and to what degree you attribute that to outgrowing end markets or other factors that were at play for, you know, fluke to post, you know, more stable trends through some of those headwinds.
Joe O'dea: Hi, Thank you for taking my questions.
Joe O'dea: I wanted to start on the.
60% of revenue you talked about growing through the industrial slowdown and the PMI.
Joe O'dea: Primarily related to to fluke.
Joe O'dea: But.
Joe O'dea: The question really around the.
Joe O'dea: The ability to grow through PMI slowing and to what degree.
Joe O'dea: You attribute that to outgrowing end markets or or other factors that were at play for fluke to post more kind of stable trends through some of those headwinds.
James A. Lico: Well, I definitely think we're performing in the market, and I think Fluke's done a great job when you look at a number of things, obviously, you know, an outstanding global franchise presence in pretty much every country in the world. Team does a great job on the innovation front.
Joe O'dea: Well I definitely think we're outperforming the market.
Joe O'dea: And I think <unk> done a great job, but when you look at a number of things obviously.
Joe O'dea: An outstanding global franchise with <unk>.
Vince and every pretty much every country of the world team does a great job on the innovation front, we had four four new product launches just in the first quarter alone.
James A. Lico: We have had four new product launches just in the first quarter alone. Our E-Mate business is doing really well. So our fluke reliability growth, E-Mate, was up 17% in the quarter. So just as we look over the last several quarters, our ability to outgrow PMIs has really been the long-term work we've done to make the business more durable. And that really is an end market story. Our solar and EV bit product lines grew by over 30%. So it's really been redirecting.
Joe O'dea: Our EMEA business is doing really well so our reliability.
Joe O'dea: Growth was up 17% in the quarter so.
So just as we look over the last several quarters, our ability to outgrow PMI has really been the long term work, we've done to make the business more durable.
Joe O'dea: And that really is the end market story or our solar and EV product lines grew over 30%. So it's really been redirecting, we talked about and one of the prepared slides about our lean portfolio management, our product development process and how we're really designating those R&D investments towards more secular dry.
James A. Lico: We talked about in one of the prepared slides about our lean portfolio management or our product development process and how we're really designating those R&D investments towards more secular drivers. Fluke is certainly a good example of that in terms of what they've been trying to do over the last few years and the two bolt-on deals that they did in the fall, which really have supported and helped around those same secular drivers.
Speaker Change: Look it's certainly a good example of that.
Speaker Change: In terms of what they have been trying to do over the last few years and the two bolt on deals that they did in the fall, which really has supported and health.
Speaker Change: Around those same secular drivers.
James A. Lico: So I think we're in a really good position in the business because we've been intentional about the innovation investments. We've been intentional about our commercial investments, and that's playing out. And certainly, market share is always a tough thing because most of their competitors are regional companies in various countries, so we don't have great numbers on market share. But as we look at our, as you know, a good chunk of that business is with channels. And our channel partners are certainly excited about our partnership and what we can do together. That's usually a good sign of how we're performing.
So I think we're in really good position in the business because we've been intentional about the innovation investments we've been intentional about our commercial investments and Thats playing out certainly share is always a tough thing because most of their competitors are regional companies in various countries. So we don't have great numbers on market share, but as we look with our.
Speaker Change: As you know a good chunk of that business is with channels and our channel partners are certainly excited about our partnership and what we can do together that's usually a good sign of how we're performing.
Speaker Change: Thank you and then also wanted to ask on <unk>.
Unknown Executive: And then also wanted to ask about ASP. I think consumables in North America were up 7% in the fourth quarter, just, you know, looking for what you saw in the first quarter. And as you serve on the other side of the transition through go-to-market, you know, how that's coming together to drive some of the consumables. Yeah, for ASP.
Speaker Change: ASP.
Speaker Change: Consumables in North America was up 7% in the fourth quarter, just looking for what you saw in the first quarter and as you serve on the side of the transition through go to market.
Speaker Change: How that's coming together to drive some of the consumables demand.
Unknown Executive: Yeah, for ASP specifically in Q1, I think we were up 11% in Q1. Now, as we move through the year, because that transition, you know, happened over the year, that's going to moderate some of that, but right on track and delivering the growth we expected and are pleased to see, as well as, importantly, the margin.
Yes for Asps, specifically in Q1, I think we were up 11%.
Speaker Change: And in Q Q1, pretty much right, where we expect it to be here as we move through the year because that transition happened.
Speaker Change: Over the year, that's going to moderate some of that but right on track and delivering the growth we expected.
As well as importantly, the margin expansion.
Speaker Change: Got it thank you.
Unknown Attendee: Your next question is from the line of Joe Giordano with T.D. Cowan. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Your next question is from the line of Joe Giordano with TD Cowen. Please go ahead.
Joseph Giordano: Hi, Joe Hey, guys Hey.
Unknown Attendee: Hey, Joe. Hey, guys. Thanks for taking my questions.
Joseph Giordano: Thanks for taking my questions.
Joseph Giordano: On fluke, obviously that business has been remarkably resilient.
James A. Lico: On Fluke, obviously, that business has been remarkably resilient. Is that business, like you mentioned, solar, at risk for an election if policy changes shift, or can that just be offset by more positive trends within data center electrification, things like that? How would you kind of handicap that in an election if the administration changes?
Speaker Change: Is that.
Joseph Giordano: Is that business you mentioned solar is there a risk going to.
Joseph Giordano: And in election risk there is.
Joseph Giordano: Policy changes shift or is that just could not just be offset by more positive trends within data center electrification things like that how would you kind of handicap that into into an election, if the administration changes.
James A. Lico: Well, I think number one is we're more tied to the maintenance of them than we are to the construction of them. So, in many respects, it's what's out there today. And so that's number one.
Joseph Giordano: I think number one is we are more tied to the maintenance of those than we are to the construction of them. So in many respects, it's what's out there today.
James A. Lico: Number two is I think when you look around the world, you certainly take a global view of solar, too, and you have a very good global opportunity. I would say the same thing about electrification. And it's really more the maintenance of those systems than the construction of those situations. So we're much more tied to the maintenance, the field maintenance of all of that. So I would say we feel very good about the opportunity, and I think if you think longer term over the next few years, you'd probably bet on those things continuing to be pretty good. So yeah, I think we're much more tied to the maintenance of those things, the field maintenance of all of that.
Joseph Giordano: And and so Thats number one number two is I think when you look around the world certainly take a global view of solar to it.
Joseph Giordano: Yes.
Joseph Giordano: Very good global opportunity I would say the same thing about electrification, so and it's really more of the maintenance of those systems under construction are those statements those situations. So much more tied to the maintenance the field maintenance of all of that so I would say and feel very good about about the opportunity and I think if you think longer term over the next few years.
Joseph Giordano: You can probably bet on those things continue to be pretty good. So yeah. I think we're much more tied to the I think the bottom line is we're much more tied to the maintenance of those.
Unknown Executive: Okay, and then just curious with the numbers on EA and lowering the top line a little bit. Is that business still like 40 plus EBIT A margins at the lower revenue rate? Yeah.
Joseph Giordano: Maintenance of all of that.
Joseph Giordano: Okay.
Joseph Giordano: And then just curious what the.
Joseph Giordano: The numbers on.
Joseph Giordano: On EMEA and lowering the topline a little bit.
Joseph Giordano: That business still like 40, plus EBIT EBITDA margins at the lower revenue rate.
Unknown Executive: Yeah, yes, came out very strong. And actually, that's also why we're seeing that margin expansion of PT. That's part of the story.
Joseph Giordano: Yes.
Speaker Change: Yes came out.
Speaker Change: Strong and actually it's also why we're seeing that margin expansion of PT, that's part of the story.
Unknown Executive: Today's final question will come from the mind of Andrew Biscaglia with BNP Pariva. Please go ahead.
Speaker Change: Great. Thanks, guys.
Thanks, Jeff.
Speaker Change: Today's final question will come from the line of Andrew Buscaglia with BNP Paribas. Please go ahead.
Unknown Attendee: Hey guys, you talked to some good people on PT, getting through the rest of the year, you know, in your margins, really. Your margin of guidance really implies quite a step up in the back half. You know, what are some other contributors, specifically with an AHS that might help that? And then specifically in iOS? Your incrementals have been outstanding, but what's a normalized incremental as we get through 2024?
Andrew Burris Obin: Hey, guys.
Andrew Burris Obin: You talked to.
Andrew Burris Obin: I think you gave some good color on PT getting through the rest of the year.
Your margins really.
Andrew Burris Obin: Margin guidance really implies quite a step up in the back half.
Andrew Burris Obin: What are some other contributors physically with NHS.
Andrew Burris Obin: That might help that.
Andrew Burris Obin: And then specifically in iOS.
Andrew Burris Obin: Your incrementals, even outstanding, but what normalized incrementals as we.
Andrew Burris Obin: Get through 2024.
Unknown Executive: Andrew, I think the couple of things to think about. We generally think about incrementals at around 40% in the base case. So that's probably a good place to start.
Speaker Change: Andrew I think.
Andrew: Couple of things to think about it we generally think about incrementals at around 40% in the base case, so that's probably good place.
Charles E. McLaughlin: When you're talking about the step up as we move through the year, we've got the top line with 48% of revenue in the first half and 52% in the second half. So there's always this upward, you know, trajectory in terms of seasonality from the first half to the second half, and that drives through, you know, more volume. And that's the biggest, biggest key to expanding the margin. When you look here over a year, the 100 basis points that we saw in Q1, you know, it steps up through the year because of volume and normal seasonality.
Andrew: When you're talking about the step up as we move through through the year.
Andrew: We've got the top line with 48% of their revenue in the first half and 52 in the second half. So there's always this.
Andrew: Upward.
Andrew: Trajectory in terms of seasonality from the first half second half and that drives through.
Andrew: More volume and that's the biggest.
Andrew: The biggest key to expanding the margins when you look year over year.
Andrew: 100.
Andrew: 100 basis points that we saw in Q1.
It steps up through the year because of volume and normal seasonality.
Charles E. McLaughlin: We, we, guided to, you know, 75 basis points for the year, and I think, or more with the Productivity Initiatives. Health is off to a great start with 200 basis points. So we got a lot of things going the right way, but it's really the volume falling.
Andrew: We guided to 75 basis points for the year.
Speaker Change: And I think or more.
Speaker Change: With that.
Speaker Change: Okay.
Speaker Change: Productivity initiatives helped us is off to a great start with 200 basis points. So we got a lot of things gone the right way, but it's really the volume flowing through at closing.
Unknown Executive: Yeah, okay. And stay with, you know, just touch on AHF. The distributor transition is definitely helping you guys. Can you talk a little bit more about, you know, that business as we progress through the year? I think Yeah, I think with the way that your incrementals have been strong there, you know, can you talk a little bit more about how that continues or sustainability there?
Speaker Change: Yes, okay.
Speaker Change: And same with <unk>.
Touch on IHS distributor transition.
Speaker Change: Its definitely helping you guys can you talk a little bit more about.
Speaker Change: That business as we progress through the year I think.
Speaker Change: Yes, I think I think with the way that.
Speaker Change: Your incrementals have been strong there.
Speaker Change: Can you talk about little bit more about how that how that continue the sustainability there.
Unknown Executive: We've got healthcare, keep in mind it's early in the year, but 125 basis points for the year. But in Q1, you're seeing the full benefits show up with the dealer transition here in Q1. If you remember Q4 last year, it also saw the full benefit. And as we move through the year, there's going to be a little bit of stuff that we're getting into tougher margin expansion. But we expect to be over the 125. Margin Expansion for the year at AHS. Very pleased with another strong quarter of really strong margin expansion and growth here. We expect to continue that through the years. Right?
Speaker Change: Yes.
Speaker Change: We've got for health care, if you keep in mind, it's early in the year, but 125 basis points for the year, but.
Speaker Change: In Q1, Youre seeing the full benefits show up.
Speaker Change: With the dealer transition here in Q1, if you remember Q4 last year. It also saw the full benefit and as we move through the year, there's going to be a little bit.
Speaker Change: Stuff that we're getting into tougher margin.
Speaker Change: Expansion, but we expect to be over the $1 25.
Speaker Change: Margin expansion for the year at IHS very pleased with another strong quarter.
Really strong margin expansion and growth here and we expect to continue that through the quarter.
Speaker Change: Through the years right.
Unknown Executive: Or through the years. All right.
Speaker Change: Alright, Thanks Chuck.
James A. Lico: This concludes the question and answer session. I will now turn the call back over to Jim Lico for closing remarks.
Speaker Change: This concludes the question answer session I will now turn the call back over to Jim Lico for closing remarks.
Unknown Executive: Well, thanks everybody for the opportunity to spend some time today. We, hopefully, you hear it from us, feel really good about the first quarter, we feel really good about the full year, obviously some puts and takes relative to everything, but the guide holds, and it is raised, and so we feel operationally we're executing very well. From a margin expansion, from an EPS perspective, and free cash flow, we're executing really well. We love the fact that the trajectory on health, now after several quarters, is in such a good position and we've got a number of opportunities here that are really playing out, and we're excited about. So hopefully that comes through, we look forward to the follow-up calls, I know our team will be available, and we'll see you on the road here shortly. Thanks, everyone.
James A. Lico: Well, thanks, everybody for the opportunity to spend some time today.
James A. Lico: Hopefully you hear from us so really good about the first quarter, we feel really good about the full year, obviously, some puts and takes relative to everything but the guide holds and it has raised and so we feel operationally, we're executing very well.
James A. Lico: From a margin expansion from an EPS perspective free cash flow.
James A. Lico: We are executing really well, we love the fact that the trajectory on health now after several quarters in such a good position and we've got a number of opportunities here that are really playing out. We're excited about so hopefully that comes through and we look forward to the follow up calls I know our team will be available and we'll see on the road here shortly thanks, everyone.
Unknown Executive: This concludes Fortive Corporation's first quarter 2024 earnings results conference call. Thank you for joining us. You may now disconnect.
James A. Lico: Yeah.
Speaker Change: This concludes forward Air Corporation's first quarter 2024 earnings results Conference call. Thank you for joining you may now disconnect.
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