Today's call will begin with a brief overview of our consolidated Q2 results which include the results of our Precision Technologies segment. Please note that we will defer any questions related to Precision Technologies to the Ralliant team who will hold their earnings call on August 12th, 2025. Today, we are also initiating guidance for Fortive's continuing operations reflecting our full year outlook and consistent with our new Fortive approach of providing clear and simplified guidance and disclosure. Finally, we remain focused on executing our Fortive PACS-related strategy introduced at our Investor Day seven weeks ago and designed to drive faster profitable growth and strong shareholder value creation over the medium term.
Our free cash flow grew 8% and free cash flow conversion on adjusted net income was 105%. From this point on, all figures and comments will refer to Fortive's continuing operations excluding the results of the Precision Technologies segment. MU40 begins in Q3 as a simplified and focused company with a track record of strong, durable financial performance fortified by our 50% recurring revenues as shown on this slide. Our strategy is built around three core levers for profitable organic growth acceleration, innovation acceleration, commercial acceleration and recurring customer value, all powered by our amplified Fortive Business System.
Our new disciplined capital allocation approach seeks to enhance this organic result with maximizing medium term equity returns as our North Star. For example, Fluke's 1670 Series multifunction installation tester with TrueTest software, Fluke Connect and wireless connectivity was named Most Valuable Product in Control Engineering's 2025 Product of the Year awards. At Gordian, we're seeing strong adoption of a new cloud-based assessment and capital planning module driving double-digit orders growth in that product category. Moving to commercial acceleration, our Latin America growth strategy continues to run, delivering double-digit Q2 growth in the IOS segment in the region.
| Metric | Period | Current guidance |
|---|---|---|
| Adjusted EPS guidance approach (continuing operations) | FY2025 / back half | Initiating annual adjusted EPS-only guidance with modeling help; no quarterly or organic growth guidance (New simplified approach) |
| Gross tariff impact (continuing operations) | 2H 2025 | Approximately $40 million-$55 million (Increased since Q1 call) |
| Gross tariff impact (continuing operations) | Annualized | Approximately $80 million-$120 million (Increased since Q1 call) |
| Annual effective tax rate | FY2025 | Approximately 14%-16%, dropping to single digits in Q4 on discrete items |
| AHS back-half growth rate | 2H 2025 | Expected consistent with Q2 decline given ongoing reimbursement pressure |
| Total / IOS core growth | 2H 2025 | Broadly consistent with first-half core growth rates, with Q4 rebound on seasonality, tariff countermeasures, and FX |
| Metric | YoY | Note |
|---|---|---|
| Total revenue (continuing operations) | Down 0.4% (core down 0.7%) | End-of-quarter customer demand pullback in late June from tariff uncertainty, constrained government spending, and healthcare reimbursement dynamics. |
| Adjusted EPS (continuing operations) | Up 4% to $0.58 | Stable adjusted EBITDA, lower interest expense on lower debt, and the positive impact of share repurchases. |
| Trailing-12-month free cash flow | Up 14% to $939 million | Operating leverage and cash generation strength supported by the Fortive Business System. |
| Intelligent Operating Solutions revenue | Essentially flat (below expectations) | Late-June order mix shift to longer lead-time products at Fluke and weak state/local government year-end spending at Gordian. |
| IOS adjusted EBITDA | Up 2% to $236 million (margin 33.8% vs 33.3%) | Lower operating costs more than offset a modest gross profit decline driven by tariff cost pressure. |
| Advanced Healthcare Solutions revenue | Down 1.3% (core down 1.9%) | Deferral of US hospital capital expenditures on healthcare equipment amid reimbursement policy uncertainty, partly offset by software outperformance. |
| AHS adjusted EBITDA | Flat at $86 million (margin up to ~26.9% from 26.6%) | Modest gross profit growth from favorable pricing and software mix reinvested into R&D, sales, and marketing. |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Ralliant spin-off and launch of New Fortive | Announced September 2024; Investor Day seven weeks prior | Completed June 28th, 2025; now a simpler, more focused company executing the Fortive Accelerated Strategy | Rising |
| Tariff impact and uncertainty | Discussed at Q1 call | Higher estimated gross impact; drove late-June demand deferral; countermeasures becoming a slight positive by Q4 | Rising |
| Disciplined capital allocation and bolt-on M&A | Outlined at June Investor Day | Activating the bolt-on M&A engine with elevated, rigorous deal scrutiny while continuing share repurchases and a growing dividend | Rising |
| Recurring revenue and software growth | — | 50% recurring revenues; double-digit ARR growth at Fluke; strong net dollar retention across software businesses | Rising |
| Healthcare reimbursement and capital spending | — | Hospitals deferred capital equipment purchases ahead of the July 4 bill; management expects a shift toward higher-value OR procedures, not single-use | Rising |
| Simplified investor guidance and disclosure | — | Moving to annual adjusted EPS-only guidance with modeling help to support a multi-year value creation plan | Rising |