Good afternoon. Welcome to the Fortive portion of the 2025 Investor Day. I hope you all had a chance to enjoy the showcase highlighting our innovations across both Fortive and Vontier. Since this is now Fortive's time, we're going to talk about those innovations that are really driving safety and productivity for our customers. You're going to hear a lot about that unified theme today. Just some quick housekeeping: today's presentations do contain forward-looking statements, which are subject to a number of risks. Actual results may vary for reasons that we cite in our Form 10-K and other SEC filings. Turning to the basis of presentation, and this is really the big highlight for all of the analysts in the room, unless otherwise noted, all of the financials included in the Fortive presentation are representing new Fortive, excluding Vontier.
In the very back of the appendix and on the presentation online for those that are on the webcast, you'll find historical new Fortive financials on a continuing operations basis for the years 2022 through 2024 and quarterly for the last two years. Just quickly, a timeline reminder: the spinoff of Vontier will be effective on June 28. What that means is that both companies will be trading as independent companies on Monday, June 30. Following the spin, Fortive will continue to report two segments: Intelligent Operating Solutions and Advanced Healthcare Solutions. Maybe just to kick it off with a brief overview of the agenda, Olumide Soroye will give us his strategic vision for Fortive Accelerated.
Next, the presidents of our three largest businesses, ASP, Fluke, Facilities, and Asset Lifecycle Software, are going to dive into their businesses, give us a little bit of a peek at the market-leading brands that are aligned to really strong secular drivers, and how they're leveraging the power of FBS, Cliff, to drive faster and more profitable growth. Our CFO, Mark Okerstrom, will provide an overview of the new Fortive financial track record over the last five years, and then lay out his formula for our value creation strategy going forward. We will, of course, have a Q&A period, and we'll plan to end promptly at 4:00 P.M. With that, we're thrilled to kick off with a brief video highlighting our new Fortive.
For nearly 80 years, Fortive's iconic brands have pioneered new industrial and healthcare technologies. We've saved lives in the field and in healthcare settings, all while enhancing the productivity, reliability, and efficiency of the systems we depend on every day. Now, at the start of a new chapter, we are building on that legacy with a sharp focus and a committed team, 10,000 strong, powered by our Fortive Business System. Together, we have a singular purpose: innovating essential technologies to keep our world safe and productive. With leading competitive positions in attractive markets, Fortive's 10 brands are poised to accelerate transformative innovation and profitable growth. Through our 100,000 loyal customers, we impact the lives of billions of people worldwide.
In a rapidly changing world, as industries adapt and invest in new infrastructure to support growth, improve resiliency, and rewire global supply chains, as millions of new technicians join the workforce and maintenance teams race to modernize aging facilities, as hospitals around the world upgrade to higher standards of care amid a global shortage of medical professionals, our customers count on us for mission-critical safety and productivity needs. In industrial settings, when technicians maintain the systems that power our lives, they reach for our advanced instrumentation solutions. We prevent failures before they happen and fix issues fast. When workers put their lives on the line, our products are there to protect them from injury. We help build thriving communities by keeping the facilities we all depend on—offices, schools, and stores—operating at peak efficiency. In healthcare, leading providers trust our technology to ensure safety and productivity at the most critical moments.
We elevate the standard of care and reduce the risk of healthcare-associated infections. We ensure compliance and performance of life-saving devices, protect against radiation exposure, and deliver workflow software and AI-powered insights to help providers increase productivity through automation. We are accelerating innovation to extend our market leadership for decades to come. Today, with our differentiated culture of high expectations, transparency, and an ownership mindset, we do not wait for progress. We accelerate it. And we are just getting started. 10 iconic brands, 10,000 dedicated employees, 100,000 loyal customers shaping the future together. This is Fortive Accelerated.
Ladies and gentlemen, please welcome Olumide Soroye.
Thank you. Thank you for joining us. We appreciate your interest. We begin a new chapter at Fortive. Over the last nine months since we announced our CEO transition, I've had a chance to meet many of you in the room and joining us online. There's been a few frequently asked questions. What's going to be different about new Fortive? How are we going to accelerate shareholder value creation? Why should you be excited? We're going to tackle those questions head-on in the next few hours. I hope you leave our time together with clarity, confidence, and excitement about our path forward. There are five key messages you're going to hear from me and from the rest of our team today. I'm just going to walk through that to get us started.
Number one, we are a simplified, focused company with a track record of strong, durable financial performance, fortified by our 50% recurring revenues. We're going to be around $4 billion in revenues, 65% adjusted gross margins, 30% adjusted EBITDA margins, greater than 100% adjusted net income to free cash flow conversion. Over the last five years, we've delivered 4% core revenue compound annual growth rate. That's where we start from on day one. The second key message is that we're poised for acceleration, acceleration in our revenues, in our earnings, and in our shareholder value creation. I'm going to talk through the strategy that's going to power this acceleration. It starts with our high-quality operating brands that are lined up with attractive markets with favorable secular trends. That's supplemented by our very intentional, durable business. As a strategic choice, we've opted to build a company designed for durability.
You're going to hear that. You're going to hear that in the competitive advantage of our businesses. You're going to hear us in the diversity of the end markets and the geos that we play in. You're going to hear that in the recurring revenue % of the business. You're going to hear that in the fact that just about all of our businesses focus on the operating expenditures of customers rather than the capital expenditures. It's an intentional design for durability. The third key message is that the Fortive Business System is the engine of our success and will remain so. It gets better because we're very intentionally improving the Fortive Business System to make it even more potent for accelerating profitable organic growth.
We're doing that by infusing our AI capabilities that we've been incubating over the last seven years into the mainstream of the Fortive Business System, which means these tools and these capabilities become part of our day-to-day way at Fortive. Key message number four, we're a great company. We accelerate. Fortive Business System helps us do that. We generate so much free cash flow, $1 billion a year and growing. As a new Fortive team, we are committed to being excellent, disciplined capital allocators. That's a choice that we're making. You're going to hear that show up as a dedication to make sure that every single dollar of excess free cash flow we deploy to the highest relative risk-adjusted returns for shareholders in the medium term. Our priorities are clear. We invest in organic growth. We do M&A with a very high level of discipline, both unbiased but M&A nevertheless.
We are very confident in the quality of our company, and so we're happy to do share repurchases where it's a better return. M&A will have to compete with that. We will maintain a regular growing dividend. Importantly, you're going to hear us talk about a very rigorous process that we're putting in place to make that strategy happen every day. The fifth key message, and perhaps the one that I'm most excited about, is that we have a strong, energized, purpose-built team that is a fine blend of the history of Fortive and the Fortive Business System with a very intentional injection of capabilities with new talent where we need it for this strategy that we're describing. That's our story for the day. I'm just going to lay the landscape and run through each of us. First, why are we simplified and focused?
Fortive has been a public company now for nine years. It's been nine years of intensive portfolio transformation. Including the Vontier spinoff, we would have divested of $6 billion of mostly recurring revenues. We would have acquired about $2 billion of much more durable revenues. That's what we've gone through. We now emerge from that intense portfolio sculpting, a focused, simplified, durable growth company. I say that for three reasons. First, everything we do at new Fortive will have a unity of why. There's a single shared purpose. Second, everything we do will have a unity of how. There's a single set of core values and a Fortive Business System that applies to everything we do. Everything we do will have a unity of what. The financial profile of our two segments are strong and complementary.
is a strategic and financial coherence to new Fortive going forward. Let me give you a bit of a taste of those. The reason for our existence at new Fortive is to innovate essential technologies to keep our world safe and productive. Every single one of our 10 market-leading iconic brands is united in the pursuit of this mission. We may do it in different arenas, but it is the same mission. It is the same purpose that infuses every one of our 10,000 colleagues across Fortive with the passion they bring to our pursuit every single day. Many of them here in the room, you are going to see many of them on the video, and I hope you get a feel for that. There is meaning in what we do.
The 100,000 customers that entrust us every day with their mission-critical safety and productivity needs are all in the same pursuit. There is a unity in everything we have at new Fortive. There is a unity in the how, the set of core values that we have, exceptional teams for exceptional results, customer success inspiring our innovation, Kaizen as our way of life, and competing vigorously for shareholders. Those same set of core values applies to everything that we have at new Fortive. Our Fortive Business System is very much the engine of our success for every single one of our operating brands. There is coherence to our how. There is coherence to our what. On the left side of the slide, you see the financial profile of new Fortive as we emerge. That is where we start from.
Like Elena mentioned, we'll continue to report in two segments: Intelligent Operating Solutions, 70% of the company, focused on industrial operations; Advanced Healthcare Solutions, 30% of the company, focused on healthcare operations. I will point out that everything we do in healthcare is the most industrial-like aspect of a hospital. It is how you clean instruments, how you move them around, how you make sure that critical biomedical devices are compliant and functioning, and how you make sure you're tracking radiation to keep medical professionals safe. That could as well be in a steel plant. It is how you run your one-piece flow through a hospital. There is very clear coherence in terms of the problem we solve. Each of these segments also has the distinction that the majority of what we do comes from customers' operating expenditure budgets, not their capital expenditures.
That means that we are not exposed to the upswing and downswings of the CapEx cycle. That means we are field, maintenance, operations-oriented, things they have to do anyway every day and do very well every time because it matters. That is what both of the segments do. The financial profile of the two segments is very complementary and each very strong. In Intelligent Operating Solutions, we have grown a little bit faster. Our adjusted EBITDA margins are higher. I am excited about continuing to drive the recurring revenue percentage that we have in that segment, currently at 35%, much lower five years ago, continue that journey of increase. I am going to talk about how we do that. On the Advanced Healthcare Solutions side, we have an incredible platform with 80% recurring revenues. I am excited about continuing to accelerate the top-line growth and margin expansion in that segment.
These two segments together mean we have headroom in top-line growth, recurring revenue percentage, EBITDA margins flowing down to free cash flow, and creating so much value for our shareholders. We exchange talent across the segments. We share brands across the segments. We share strategies for growth across the segments. We share operating infrastructure across the segments. There is incredible coherence to what we have at new Fortive. Let me talk about where we start. On June 28, when this spin is complete, we start day one accelerated. This slide shows the last 12 months for Fortive, as you have known it so far. On the left and on the right is the last 12 months, the same period for new Fortive as it is going to be configured. You can see the acceleration in the top line just reflecting the reduced level of cyclicality from one portfolio to the other.
We've grown 4% core revenue CAGR the last 12 months in new Fortive. 50% recurring revenues, most of that in high incremental margins, software, and consumables means you see the benefit down the P&L. You see the better gross margins, the better EBITDA margins. Given our working capital discipline and capital-light approach to those businesses, you see the free cash flow benefit. We start day one accelerated. You look at the last five years for new Fortive, 4% revenue, core revenue, compound annual growth rate, 8% reported revenues, compound annual growth rate. We've expanded gross margins 300 basis points. You can tell the operating leverage in the business with 12% growth in adjusted EBITDA and 12% growth per annum each year in free cash flows. By the way, in this period, there's been a pandemic.
The PMI index in the U.S. and EMEA has been in contraction zone for a big swath of that period of time. There have been geopolitical disruptions. There have been supply chain disruptions. This is what durability by design looks like. That is why we are different. Now, we are better every day. That is what we think. We believe fundamentally we can do better than what our past suggests as prologue. We have an exciting moment here to bring that to life. I want to take a few minutes to share the strategy that is going to power this acceleration. There are four key pillars to our story. To underwrite the acceleration here, there are four things that you have to believe. The first one is that we have a high-quality set of brands. There are 10 of them. Each of these brands are aligned with attractive markets that have favorable circular trends.
Each of these brands, as you'll hear me talk about, are item number one or leaders in their categories. Many of them invented their categories. These are iconic brands. Number two is durability by design. We've made a strategic choice that a defining attribute of our company will be building everything for sustainability and durability. I'm going to talk about that in terms of the competitive advantages in our businesses, in terms of the diversity of our end markets and geos, in terms of our recurring revenue percentages, and frankly, in terms of the operating expenditure focus that we have versus CapEx and the pace of new product introduction that's become a big self-help component of why we're durable. Because we're launching so many new things that bring in incremental revenues, powers that durability, durable by design.
The third key pillar of our strategy is that the Fortive Business System, which has been the engine of our success over the last decade and for companies that came before Fortive was created, that we have a chance to amplify the impact of the Fortive Business System by, in a very focused way, improving its efficacy for accelerating profitable organic growth. I am going to talk through exactly what we are doing to make that happen. Importantly for us at new Fortive, as important as those first three pillars are, we are committed to being excellent at the fourth pillar. This idea that capital allocation excellence can be a point of differentiation for a company and a management team is one that we hold deeply as an objective. You are going to see us talk through how we are doing that and the process behind it.
Those are the four pillars. It starts with our 10 high-quality, iconic inventor brands. Each of these brands, number one, are leading players. A very similar template across all of these brands. We find markets, but not just markets. We segment that to find specific swim lanes within a big market that has the best growth characteristics, opportunity for differentiation, and large profit pools. We don't try to be everything to everyone. We pick swim lanes with the best characteristics. That's true for every single one of these brands. As you listen to the spotlight, you're going to hear that theme, how we look at a big space, but pick particularly the most attractive arenas in that space. The markets that we've picked across these brands give us an incredible opportunity. There's $45 billion of addressable market opportunity, a great runway from our $4 billion starting point.
These markets for both of our segments are benefiting from strong, favorable circular trends. I'll just give you a few examples of those. In Intelligent Operating Solutions, a simple way to think about it, anything that expands the industrial capacity of the world means you've got to operate that capacity. You've got to maintain that capacity. Anything that increases the maintenance intensity of capacity in the world infrastructure means you need more of our solutions to do that. Think about what's going on in the world right now. The reconfiguration of global supply chains, the focus of nation-states and companies on trying to build resiliency by having local-for-local industrial capacity means there's so much going into expanding capacity. 200% increase in U.S. manufacturing construction investment since 2020. By the way, that's true for most countries in the world because everyone's trying to do local-for-local.
That means more industrial capacity. Not the investment itself is what drives a business. It's what you do after you build it. It's the operations. It's the maintenance of it. Great tailwind for our businesses. Think about a trillion dollars of deferred infrastructure maintenance backlog that's waiting to be unlocked. At some point, that infrastructure maintenance has to happen. When it happens, it drives value for our businesses. Great tailwinds for that business. On the healthcare side, anything that increases utilization of healthcare services, anything that raises the need for productivity amongst healthcare professionals is great for our business. Think about 20% of the U.S. population is expected to be, actually will be over 65 by 2030. It turns out 80% of our seniors have two or more chronic conditions that need healthcare services.
Combined that with the growing middle classes, 1.7 billion people expected to be added to the middle class by 2030. All of those come in with expectations of higher standard of care in healthcare. All of that drives up the need for healthcare services. All of that creates a flow of opportunity for our businesses. Combine that at the same time with the fact that we're facing a shortage, a global shortage of medical professionals, doctors, nurses, biomedical engineers, sterile processing department technicians. There is a 10 million shortage projected by 2030. The less people you have, the more productive tools you need. That's what we do for customers. We make them get more out of less. Not only do we have these great brands and these great market trends that are driving value for us, but we also are durable by design.
That comes from a few things. It starts with a competitive advantage that is built into each of our operating brands. You are going to hear Parker, Chad, and Arul bring that to life in the spotlight. The pattern is the same. We play with differentiated solutions. We do not do commodity businesses. The differentiation might be from our technology that is patented. It might be accelerating innovation. It might be proprietary data analytics and networks. We do things where we can distinguish ourselves. We combine that with deep customer loyalty. That might come from our iconic brands that invented categories. It might come from just superior customer experiences, deep integration into customer workflows, or it could come from just our recurring revenue percentage, which we have honed over time. That is not where the durability ends. Think about the diversity of the end markets and verticals that we serve.
This brings in resiliency on top of our advantages. That means we have stability through economic cycles. That means we have more ways to win and more vectors for growth. That means we have less exposure to any single variable. China is a great market for us. It is now going to be about 8% of new Fortive after the Spanish storm. It is double digit of Fortive today. That just narrows our exposure to any one vector. This is an important one for me because we have intentionally focused on recurring revenues. This lays out how over the last five years we have increased our recurring revenue percentage by 700 basis points. We are now going to start as new Fortive with 50%, but we are not done yet. We are not done yet because across all of our businesses, this is now a strategic question that is enduring.
We're asking every day, not just how do we get recurring revenues, but actually how do we deliver recurring value to our customers? Because that's what really leads to recurring revenues. We're doing that with hardware as a service offering to customers with our sufficient software. We're doing that with our razor razor blade consumable type models. We're doing that with AI-powered analytics that add additional insights for customers that they're willing to pay for. That's how we continue to drive up that recurring revenue rate. That's durability by design. Let me talk about the Fortive Business System. I've been at Fortive about four years, and I've had a chance to learn, practice, shape, and lead the Fortive Business System. It is the engine of our success. You have to live it to believe it. It is a thing.
We are excited about that passion for the Fortive Business System enduring. We believe very strongly that we can make it even better. We focus on a few ways to do that. First, we picked one objective, which is enable FBS to drive faster, profitable organic growth. We're doing that by infusing our AI capabilities right into the mainstream of the Fortive Business System. For the last seven years, we've had a separate center of excellence on AI that we call the Forte. We have merged that into the Fortive Business System, which means all of those AI use cases and tools are now available to all of our teams. They become part of our way every day. That means the pace of innovation picks up.
We have picked three specific areas: innovation, commercial, and recurring customer value, where we want to make the Fortive Business System more potent for helping our companies drive progress. I will just give you a few examples of what we are doing in each of those. In innovation acceleration, and this is all about, we want more new products for our customers that delight them and are very successful in driving incremental revenues, including AI-powered solutions. We are doing that by tuning our lean portfolio management, adding AI into our secure product development, including copilots and agents for all of our software developers. We have a new Fortive Innovation Studio that is focused on AI ideation and rapid prototyping and deployment of solutions for customers. We are not starting cold. We are already seeing some results from this: 3x increase in our new product funnel over the last three years.
You saw a number of our new products at the innovation showcase that came out of this process. Terrific traction, a lot more to do. On commercial acceleration, this is about gaining share in our core markets. It is about getting into new geos that are attractive and new verticals. We have tuned our complete toolset from digital marketing to inside sales to field sales to strategic partnerships to make all those better in driving progress. In the areas where we have applied them, we are seeing early success. High single-digit growth in the markets that we focused on last year as high-growth markets. You can see some specific examples where we had pockets of especially notable outperformance. Double-digit growth in our ASP life and business last year. Fluke has added $3 billion to the addressable market using these tools. You are going to hear Chad and Parker talk about some of those.
With respect to recurring customer value, which is one that I have a lot of passion about, because I believe our 50% number getting bigger is an important indicator of our progress on durability. We are taking all those ideas I talked about on ways to drive customer recurring value, turning it into a toolkit for the Fortive Business System to deploy more consistently. You see a few examples of early success points with a lot more to do. I'm especially proud of our double-digit growth in annual recurring revenues at Fluke over the last three years. That's a big piece. That's one piece of many reasons why Fluke is a durable company that fits square in the middle of the strategy for new Fortive going forward. That is what happens with the Fortive Business System to unlock this opportunity.
Let me spend a few minutes on capital allocation. I'll say this again. We are determined as a team to be excellent, disciplined capital allocators. We have to earn your trust on that, but we have that determination. It starts with the fact that we generate a terrific amount of free cash flow, a billion dollars a year, supported by our asset-light business model and our continued working capital discipline. Our priorities are very clear. We invest in attractive organic growth in a very disciplined way. Those same levers I just talked through. The next one is M&A. Now, to be clear on where we stand, we just went through nine years of transformational M&A, mega deals that changed the configuration of a company to set us up for success that I just described. We don't need to do those big transformational deals again.
For that reason, our focus is on bolt-ons that build on our position of strength in those 10 high-quality operating brands. We believe we have a runway ahead of us to create incredible share of the value by building on our positions of strength. Our M&A strategy will have a bolt-on bias. Share repurchases will be a permanent piece of our capture allocation. We feel because we have a high-quality company, we're fine investing in ourselves. Anytime we're looking at the relative returns between share repurchases, any M&A we do has to be competitive versus that in terms of returns. You'll see us dynamically balance between M&A and share repurchases. That leaves us room to have a regular growing dividend as a part of our story.
Our M&A process will be more disciplined, rigorous strategic operational financial frameworks that reflect that bolt-on bias because it's a different thing looking at a bolt-on deal than looking at a transformational deal. Importantly, it has to fit strategically. It has to be accretive to our durability, to our growth rate on revenues, and to our margins. That's our new approach. As you can imagine, we've had to look at our entire M&A process to make sure it's oriented towards this new strategy. We will do that. Over the last few years, I just picked this few examples of bolt-ons that we've done second half of 2023. These four bolt-ons gives you a bit of an example of what we mean by bolt-ons. Four deals, not huge, but in combination, they grew revenues 25% last year. The return on invested capital in the second year is already mid-teens.
Not everyone would look like this, but that gives you an idea of what we mean. I also want to spend a minute on our Fortive Accelerated Financial Framework. I'm going to walk through this page from the left to the right. The first column shows you last 12 months Fortive as we are today, before the spin. The second column shows you we start day one after the spin with new Fortive Accelerated, 3-4% revenue growth, 29% EBITDA margins, and very strong, I just said, EPS growth rate even after adjusting for tax rates. We believe for the next few years, in spite of the uncertainty and all the things that are going on in the world, we have the durability to continue that revenue growth. 3-4% remains what we believe for the next two years will be our path.
The discipline around everything we do on operating leverage remains. So 50 to 100 basis points of adjusted EBITDA margin expansion each year. That leaves us room to invest in organic growth in a very disciplined way. And we believe, combined with the work we do on capture allocation and share repurchases, that sets us up for very strong adjusted EPS growth. That is all on the path to acceleration. If you listen to the strategy that I have described, that sets us up for much better. That is what we look at for the next two years. Let me spend a few minutes on our purpose-built team. This is our leadership team, and they are all here in the room today. I am incredibly excited about this team. Over the last nine months, I have focused on curating a team that fits the strategy we just described.
I'm excited about what we have here. It's a blend of Fortive and Fortive Business System experience leaders. There's 80 years of Fortive and FBS experience on this team. We have also injected some new talent where we needed it. Let me just spend a few minutes on some of the speakers you're going to hear about. Chad Rohrer leads the majority of our Advanced Healthcare Solutions segment. He's been instrumental to the transformation of our ASP business over the last three years. Chad has a distinguished career in the medical devices industry and the healthcare industry. He was also a varsity football linebacker before that, if you're interested. I look forward to him sharing the spotlight on ASP later on. Parker Burke now leads our Fluke business. We just appointed him. Parker has been with Fortive for over 15 years and our related companies.
He's a great example of joining us as a general manager development candidate, and he's had progressively increasing roles. Most recently, he led our Industrial Scientific business, where he was instrumental to driving a hardware transactional business to what's now more than 50% recurring hardware as a service business. He joined us after serving for six years as an officer in the U.S. Marine Corps. Arul, Olumide, has been with us for just 100 days, but he joined us after a 25-year career in the software industry, including 10 years at Microsoft, building a lot of the products that we love and use today. He now leads our facilities and asset lifecycle software business. I'm excited to see what it brings to our great team to elevate the performance of those businesses. Finally, Mark Okerstrom, our new CFO.
This was a role, as many of you know from our discussions, that I had a very high bar for, someone that will fit our culture, but also can execute the strategy I just described: discipline operationally, capture allocation, effectiveness, and shareholder effectiveness. Mark hit the mark from my point of view. He joins us with great public company CFO experience as a CFO, great track record of shareholder value creation, and delivering on expectations consistently. The big reason why he was Institutional Investor Magazine top three public company CFO in the internet sector for three years back to back. Excited to have this team together. Everyone on this page has a great story. That is backed up as well with a terrific and refreshed board of directors with highly relevant expertise. We have people that have been around high-growth businesses, people that understand capture allocation.
There are three CFOs or former CFOs on our board with a lot of passion around the discipline capture allocation that I described and just terrific oversight to make sure that we execute on that. Great expertise on both of the segments that we're playing. In the end, it's about our people. The thing that gives me personally a lot of joy, excitement, and a lot of humility is the quality of our team across Fortive. All 10,000 of our colleagues across this company are imbued with this passion, this meaningful passion of making our world safe and productive, and apply themselves to the Fortive Business System to make that happen every day. They're ready and fired up to execute the strategy, and that fills me with a lot of excitement as well.
That's our story: simplified, focused company, poised for acceleration, the Fortive Business System amplified to have impact, determined to be excellent discipline capture allocators, and a terrific purpose-built team, fired up, ready to go. That's where we stand today. I hope you join us on this journey. I'm excited to introduce Chad Rohrer to do our spotlight on ASP. As he comes on, we'll roll a video that just shows you a little bit about how we protect patients at their most critical moments. Thank you.
At Advanced Sterilization Products, our mission is clear: to protect patients in their most critical moments and elevate the standard of healthcare around the world. With one in 31 patients facing a healthcare-associated infection in the U.S. alone, providers rely on us to help them keep patients safe.
They depend on our solutions to reduce strain on hospital staff and increase productivity so they can treat more people and save more lives. We're up to the challenge. At ASP, our low-temperature sterilization solutions eliminate harmful microbes from valuable instruments like endoscopes and surgical robots. As the inventor of these solutions and the power of plasma technology, our offerings are unique and lead the industry in being tough on microbes and gentle on increasingly expensive and delicate instruments. Our field services team ensures an outstanding experience for customers every day. We know that in healthcare, standing still means falling behind. Our relentless commitment to protecting patients drives us to do even more, creating solutions that will shape the future of infection prevention and provider productivity. Our teams work closely with customers to understand their needs and keep up with rising demand.
With our Fortive Business System lean portfolio management tools, we are creating more innovative products that elevate the standard of care. The ASP Ultra GI Cycle is the result of years of customer feedback and collaboration. By using hydrogen peroxide gas plasma technology, we continue to drive industry-leading sterilization for the most complex scopes, starting with duodenoscopes. We know the stakes are high. Every instrument matters. Every procedure counts. Every moment is critical. Every patient is important. We are ready.
It is a privilege kicking off the afternoon spotlight sessions. I would like to start on what Illumi finished on, and that is a purpose-built team. I would contend that that is very much at the heart of everything that we do at ASP. You saw in the video, one out of 31 patients suffers from a healthcare-associated infection.
Think about the strain on population health, the cost to the health systems across the globe with those types of statistics. For many of us at ASP, it's personal. It was ourselves who experienced it or a family member or a member of our community. We know we are united in our purpose. If you talk to anybody at ASP, they'll be able to recite to you our mission. That is to protect patients in their most critical moments. I have three key messages for you here today. The first is a market leadership position in low-temperature sterilization that we are very proud of and is underpinned by clear clinical differentiation. Second point, we have a highly recurring revenue base, intentional strategy to continue to develop our recurring revenue base and strong secular tailwinds.
You heard Olumide talk about the growing middle class and other trends that are driving sterilization. Last but not least, we are poised to accelerate our top and our bottom line performance. Let's take a snapshot at our numbers. We're roughly a $900 million business, but perhaps more importantly, we have 80% recurring revenue. I love how Olumide put it. Recurring revenue is wonderful, but we want recurring customer loyalty. That is what you see in terms of 15,000 global customers. Many of these customers, they're coming back to us after renewing one or two or three different cycles. That is something we have to earn each and every day. I also like looking at our market potential, our addressable market under this lens.
If you look at the total number of surgical procedures, there are 30 million, we estimate 30 million procedures that happen annually, that those medical devices are best suited to be reprocessed in a low-temperature sterilization. The exciting part is that number should continue to grow if there are more indications of use for medical devices being reprocessed in our sterilization modality. I love talking about who we are by looking at our innovation timeline. I bring you back to 1993. At this time, the awareness of healthcare-associated infections was rising. The complexity of medical devices was continuing to become more and more important. Frankly, the devices could not tolerate the high-temperature steam modality. Now, there was a solution. It is known as ETO or ethylene oxide. There was more and more research outcoming showing that ethylene oxide could be a possible carcinogenic.
Based on the risk to the operator, in many cases, it was not appropriate in a healthcare setting. This set up the opportunity for us to introduce our iconic inventor brand. That is when we introduced STERRAD in the low-temperature sterilization space to the world. We did not stop there. We also ventured into the software side of the healthcare arena. In 2002, we introduced the world's first web-based instrument tracking system. That SaaS business has continued to give us opportunities as we grow and be more intimate with our customers. Most recently, we introduced what we call Sensus AI Squared. This is a productivity tool. What we are able to do here is we are able to give real-time insights to the sterile processing leaders to make better real-time decisions in their department. That drives productivity, which supports our mission as a company.
You look onto the top right of the slide, Ultra GI. You had a chance to see it in the video. Hopefully, you had a chance to see it in the innovation showcase. This is a really big deal. Many of the headlines you may have seen, the newspaper clippings of health systems that had to deal with outbreaks, painful outbreaks, bad PR, of course, but more importantly, you think about the patients that are behind those outbreaks. In many cases, that was caused from endoscopes in the GI space. Prior to the launch of Ultra GI, there was no ability to sterilize GI scopes, zero ability to sterilize GI scopes. This is the highest standard of care. Sterilization gives a larger margin of safety to protect patients.
Last but not least, if you look at the bottom right of our slide, many regulators around the world require sterilization assurance. Basically, they want to make sure the sterilization process actually worked. Prior to this introduction of the BioTrace Instant Steam, best in class was a 20-minute read time. It took 20 minutes after the cycle was over to verify that that cycle was effective. We have taken that 20 minutes to 7 seconds. That is productivity at its best and what we continue to strive to do as a company with our innovation. Let's look at it from a little bit different lens. These are our categories. I first start with terminal sterilization. This is where our low-temperature sterilization space lives. I mentioned 1993, we introduced the market.
I'm proud to say that even today, we still remain the strong market share leader in the terminal sterilization space. You see our iconic brand there in our STERRAD unit. This is very much a razor-razor blade approach. I'll tell you exactly how this works. Every time there's a procedure, the medical device goes through the procedure itself, needs to be reprocessed and sterilized. Every single time, that process requires a proprietary ASP cassette in order to make that process run. It also requires sterilization assurance, as I mentioned earlier, as far as biological and the chemical indicators. I draw your attention down to the instrument tracking software and AI, the third line. We talked about the Sensus business and the opportunity that we have there. We also have our exciting startup opportunity within the advanced healthcare segment. We went after a really big problem.
We are using computer vision to analyze surgical trays to see where there may be waste, where there are instruments that the surgeons never use, and ensuring that we provide the right instrument to the surgeon at the right time, but no more. That reduces excess. There is a strong return on investment. This is an example of where we are placing bets on future growth opportunities. Last but not least, you see our large services organization. We have nearly 30,000 install-based units today. Those units last over a decade in some cases. Because of that, we have preventative maintenance that regularly needs to occur. This is an advantage. This is an advantage for us to get close to our customers and keep the customer intimacy as we aspire to be true, trusted advisors.
That service team, our field service engineers that visit with our customers, you saw some of it in the video, is a major competitive advantage for us at ASP. This is another way to look at it. Everywhere we see an illuminated dot, this is where we have an active STERRAD unit. You'll see it's in all the developed countries around the world, but also many of the developing countries around the world. 30,000 install-based demonstrates a strong market share leadership position in low temperature. It's not just the quantity. It's also the quality that matters. U.S. News & World Report every year publishes a top 25 hospital list. I'm pleased to say that every one of those top 25 hospitals utilizes our STERRAD technology. You look at our win rate.
We are winning 70% or greater of our deals and competitive opportunities. This shows that we have enduring customer value, that we are able to demonstrate our clinical differentiation, and one of which we can continue to grow and build our customer base over time. I'd like to look at where we play and talk a bit about our marketplace and where we have opportunities in terms of procedural growth. We have a $5 billion addressable market. More exciting, you look at our priority categories. I talked about that very important GI endoscope space, 100 million procedures. Again, as mentioned, high-risk space, a big cause of many of the hospital-acquired infections that are happening or associated infections in our hospitals. Prior to Ultra GI, no ability to sterilize.
As you can think of more and more products in that 100 million procedures being able to be sterilized, there is an increasing market opportunity. The same can be true with robotics. There is, of course, a lot of talk and energy out there as far as soft tissue robotic entrance. This is growing double digits. These are highly sophisticated devices that require low-temperature sterilization. We can grow with robotics. You have general MIS or minimally invasive surgery that continues to grow in many of these other segments that we are very well positioned. Why do we win? Perhaps one of the most important concepts we are going to talk about today. I talked about true clinically differentiated technology. It really all starts and ends with us in terminal sterilization with a concept that we talked about at ASP is the power of plasma. What does that mean?
Our system uses hydrogen peroxide gas plasma. The hydrogen peroxide is injected into the chamber through our cassettes. At the end of the process, plasma is activated. What does plasma do? What plasma does is it dissipates the sterolin. It allows us to safely inject more sterolin than anybody else on the market. That gives us the ability to be more effective, but then protect the caregiver and the environment. As you heard on the video, we like to say that our products are tough on germs, but gentle on instruments and gentle on people. We have two peer-reviewed publications in medical journals talking about clinical evidence demonstrating this effectiveness and this advantage. We intend to continue investing more proof points for our customers. Accelerating innovation. We have had six MPIs introduced with 510Ks in the last 18 months.
Some of those were on the slide you saw. There were others that we can't talk about yet. We have really, truly restarted that innovation machine at ASP. We talk about partnering with our customers through our life cycle, 80% recurring revenue, and we have over 100 countries served. With the advantage we have on this, you heard a little bit of talk about the rising standard of care, the rising middle class. As those people demand higher quality healthcare, we are there. We are there to support them, and we are there to grow our business while also making the world a better place. It's a great combination, and it's a great position for us to be in as an organization. We're leveraging FBS to accelerate our results. If you go back to the time of our acquisition from Johnson & Johnson, this was a new concept.
They did not have a business system. It took a few years to get ingrained. I am happy to say that it has become part of our culture now. It is how we talk. It is how we work together. We are seeing proof points of how we are accelerating growth. We have seen in recent years our ability to accelerate faster than market growth. That just gives us reason to believe into the future. Let me give you a little bit of a case study. This is a great example. This is analyzing our overall consumable business. If you go back a couple of years ago, we were growing at a steady rate outside of the U.S. In the U.S., we were modestly losing some market share. We analyzed, what is our opportunity here? What can we do to accelerate growth?
Part of what we learned is that we had a customer intimacy issue because our consumables were being distributed through a list of distributors. It was taking the direct contact from our team and our customers away and adding unnecessary costs to the system. This is a big deal because you're talking about the customer experience of your most important product line. We knew we couldn't get it wrong. We deployed a set, a very focused FBS tool, starting with voice of customer, making sure we understood the expectation, value stream mapping. I'm happy to report that it was a resounding success. Nearly 100% of our customers converted to the direct model, a 2,000 basis point acceleration in North America consumable growth. It is a 200 basis point operating margin expansion. Now, some of this was a one-time impact because we eliminated the distributor fees.
What it did is it put us on a solid foundation. As we introduce more innovations to the marketplace, continuing to grow recurring revenue, we can get an impact from that innovation faster in a direct model. We'll talk about three other drivers: innovation acceleration. We have an opportunity here to expand device indications. What I mean by that is we are partnering with medical device companies across the world. We're working with them to say, how can we help have more of your product be sterilized in our low-temperature modality? Everyone recognizes this increases the margin of safety. We have a lot of cooperation. We are working dedicated here because if we can get more medical devices indicated for our application, it grows our market opportunity. Commercial acceleration. We have some great examples of where we can grow with adjacencies.
I take that steam biological indicator market. I spoke about that instant steam earlier. This is a market that we did not participate in, zero. We had zero participation prior to that introduction. It is a $650 million market. We have now entered this market, not only entered it, but entered it with differentiated technology going from the 20 minutes down to the 7 seconds. That gives us growth opportunities into the future. Last but not least, I highlight our recurring customer value. We aspire to be trusted advisors to our customers. We are going to be working with thought leadership, partnering with key opinion leaders, working with our regulatory bodies to help influence standards that we believe make the world a better place in making sterilization available for a greater portion of the world's population. I leave you with three key messages.
We have a market leadership position with clearly differentiated technology that we believe is a sustainable competitive advantage. We have a durable by choice, highly recurring revenue business, as well as strong market tailwinds. We are poised to accelerate our top and our bottom line growth. It's a privilege to be with you all here today. I'm going to introduce our next speaker, Parker Burke, who leads our Fluke business, who's also going to start off with the video. Thank you.
At Fluke, our mission is simple. We keep the world up and running. Since 1948, Fluke has been at the forefront of innovation. From the world's most advanced precision calibrators to handheld tools trusted as the gold standard by technicians across multiple industries, we've earned the reputation for distinction. What really sets us apart?
It's our passion for reliability and customer success. It is deeply rooted in our DNA. It shows up in every multimeter, every analyzer, every calibrator, every software update, and every service plan we deliver. There is a high standard for everything and everyone who bears the Fluke name. We have expanded to serve over 150 countries, building a world-class portfolio and a deeply loyal customer base. We do not stand still. Using an affordable business system, we are always moving forward and evolving our impact in the world. We have expanded into new high-growth verticals and geographies. We have enhanced our portfolio with software and services our customers count on. We have made strategic acquisitions to broaden our reach and accelerate our growth. With FBS growth tools, we have expanded our innovation pipelines fivefold. In just 18 months, we launched more than 20 new products.
We've launched our first set of AI-powered innovations, analyzing years of data in milliseconds, detecting variation where human eyes can't see, predicting faults before they happen, saving customers millions in downtime. We've launched the world's most advanced electrical calibrator. That's innovation you can actually measure. We're breaking into new markets, tackling fresh challenges, and setting a standard for what's next. As solar and renewable energy accelerate and data centers grow at an unprecedented rate, Fluke is there, delivering the tools and insights that keep it all running.
We ensure the infrastructure and operations keep running smoothly, detecting abnormal heat, humidity, and network output before they cause critical outages.
Through it all, our commitment stays the same: bound by precision, defined by innovation and reliability. This is the legacy that we have built, and it's a future we command. Our best is yet to come. Our best is yet to come. Our best is yet to come.
Good afternoon. Having used the FBS toolkit for the last 15 years, I am both a student and a practitioner of the Fortive Business System. I value our lean tools, our growth tools, and our innovation tools. I have had the opportunity to make a measurable impact on a number of our operating companies leveraging this incredible toolkit. At Fluke, our FBS culture continues to enable us to outperform. Outperform for our employees, for our customers, and ultimately our shareholders. I am pleased to share with you a bit about the story today. Today, I could not be more proud to represent the 3,500 Fluke employees who wake up each morning with an unmatched focus on serving those people who trust us. Our people understand the work that our customers do because we spend time with them.
We study how we can make their lives safer and more efficient. In turn, electricians, facilities, and maintenance workers reach for our tools every day to keep the world up and running. We are their trusted partner to keep them safe and productive in every moment. Today, I'm going to touch on three key points about Fluke and the incredible opportunity that's ahead of us. First, Fluke instruments are the gold standard for professional instrumentation. Further, as the leading experts in metrology, which is the science of measurement, we are well positioned as a key player in defining industry standards in an increasingly complex world. Secondly, we play in a large addressable market. Our strategy, both organic and inorganic, has doubled the market opportunity ahead of us, enabling us to take advantage of durable secular tailwinds.
Today, I can tell you Fluke is a resilient business that will continue to deliver a consistent growth performance. Let's take a look at some of the details of our business. We're a $1.7 billion business with 15% of our revenues recurring. Those recurring revenues are coming from our software as a service and services attached to our professional instrumentation. We have over 50,000 customers around the world, with more than half of them outside of the United States, which is a testament to our global brand and the fact that people around the world trust Fluke. Finally, innovation will continue to drive the sustained growth, led by our over 2,000 patents and growing, which enables us to keep an increasingly complex world up and running. See at Fluke, we're a story of pioneers. Founded in 1948 by John Fluke Sr., Mr.
Fluke ingrained a passion for innovation in our company, which we continue to build upon today. Since our founding, we have built market-leading positions across a variety of professional instrumentation and software-based condition monitoring. Over the last 10 years, we have accelerated both our organic innovation and our M&A, resulting in a higher growth, much more durable business. Starting in 2016 with the acquisition of eMaint, we created our Fluke Reliability business, our asset condition monitoring business, which contains a significant software and recurring component. As Olumide indicated earlier in the presentation, more recently, we acquired Solmetric, which gave us access to the solar market, and Azima DLI, expanding our AI condition-based monitoring offerings. This expansion into attractive, high-growth vertical markets has resulted in a strong return on invested capital and contributed to our above-market growth rate. When you leave here today, I challenge you.
Ask any electrician in the world. Perhaps it's somebody who may come into your house to do some routine maintenance around your home. Maybe it's somebody in your office who's doing work on the escalator or the elevator. Or perhaps it's an industrial worker working in some of the riskiest high-voltage situations. I challenge you. Ask them, "Do you have a Fluke instrument in your toolkit?" I guarantee they'll either smile and show you the latest technology they've invested in, that they trust each and every day to do their work, or they'll lament that they wish that they had one, and they'll share with you which one they're targeting with their next investment in their toolkit. Our unmatched portfolio of professional instrumentation, software, and services is critical to keeping our customers' sites operational and running efficiently.
Further, standards writers around the world trust Fluke and our products to define industry standards for measurement in an increasingly complex world. Quite simply, electricians, facilities, and maintenance workers, and standards writers around the world will tell you that Fluke sets the gold standard for professional instrumentation. The great news is that our market is large, and it continues to grow, led by favorable secular tailwinds, including the energy transition and the increased consumption of power in all parts of the world, growth in key markets like the maintenance and operation of data centers, and the proliferation of connected systems around the world. For the last five years, we've expanded this market opportunity by deliberately targeting segments with durable macro tailwinds. Solar, where we help customers install and maintain solar photovoltaic plants or solar farms.
EV charging, where we provide equipment for maintaining the charging infrastructure and are working with regulators to define standards for safe and efficient operations. Finally, data centers, where we've leveraged our expertise across condition monitoring and professional instrumentation to help with the build-out of this growing critical infrastructure. As a result, we're a very durable business, and we're poised for growth through volatile industrial cycles. At Fluke, we can say we win quite simply because we are an iconic inventor brand who has earned the trust of our customers for having the highest standards of safety, accuracy, and reliability. We've built on this through a recurring pattern of disruptive innovation focused on solving our customers' hardest problems and most mission-critical needs. Secondly, we have an unmatched portfolio depth and breadth, as evidenced by our incredible patent portfolio and the new-to-world groundbreaking technologies that we bring to market each year.
Our customers trust Fluke. They continue to invite us into their workflows with our instruments and software, where we help make them safer and more productive. I have just touched on our incredible brand, our unmatched technology, and the software tools and how they can work together to help solve challenging customer problems. A great example that I am excited to share with you on this is in our partnership we have with NTT Data. As one of the largest data center operators, NTT Data needed a partner to work on their site optimization. We have the opportunity to work with them across our instrumentation and software portfolio, enabling them to dramatically increase their uptime, which helps them earn the trust of their customers each and every day.
Secondly, we create standardization across their workflows, enabling them to optimize their operations and total cost of ownership across their thousands of assets. As data centers continue to grow and proliferate around the world, I'm proud that Fluke, our software, and our tools will stand alongside those who are building, operating, and maintaining this critical infrastructure. Having studied and benchmarked Fluke as a part of Fortive for the last 15 years, I'm excited to share with you about our FBS journey and where we're heading in the future. I've seen the power of the Fortive Business System transform Fluke many times over. These tools, our lean tools, our growth tools, and our innovation tools have led to incredible results. Most recently, the expansion of our recurring revenue profile, enabling us to weather the cyclicality in industrial markets.
Secondly, building on what were already world-class operating margins, expanding them each of the last five years. Finally, the continued expansion of our working capital, demonstrating how FBS not only fuels our growth and our profitability, but helps us multiply our free cash flow. One of the best elements of FBS is that its runway and impact only accelerates as an FBS culture matures. This is something that the Fluke team exemplifies. Most recently, I'm excited to share with you Fluke's deployment of our FBS tools focused on innovation. These tools have enabled us not only to meet the evolving needs of the markets we serve and the customers that are in them, but also in building a much more durable business. In 2022, we implemented our lean portfolio management tool, a tool that we co-designed with some of the world's leading innovators.
This tool focuses our teams on efficiency and prioritization, ensuring that we are working on the things that are most important to our customers and the things that ultimately are most important to our business. In 2023, we doubled down on innovation. We started to focus on really deeply understanding the customer problems that we can go and solve by studying them, spending time with them, and understanding the workflows. We innovated, we iterated, and we prototyped to determine if we could build software, we could build technology, or devices that help meet our customers' needs. In short, could we solve with technology the problems that they were asking us to solve? Finally, we validate. We validate our business model. What are customers willing to pay for these new innovations?
How can we maximize not only the value that we create for them, but optimize the value that we capture? Our focus over the last three years has led to an incredible increase in our active innovation project funnel and, more importantly, revenue from new products that we've launched in the prior 12 months. As we look to the year and the years ahead, innovation will drive our success at Fluke across three incredibly important frontiers. First, we will reflect user-friendly interfaces. We'll enable the next generation of technicians to do their jobs effectively while leveraging AI and our Azima product to continue to drive innovation. Next, we'll develop tools that solve customer problems in the fastest-growing and our most attractive markets, including solar, electric vehicle infrastructure, and the data center build-out, operation, and maintenance.
Finally, we will continue to move from discrete tools to integrated decision engines using software and AI to enable the technicians who trust us to be more efficient and draw more powerful conclusions from the data that we are able to provide to them each day. As I close, I'd like to invite all of you to be a part of what we're building at Fluke and across Fortive and reiterate three important points. First, Fluke instruments are the gold standard for professional instrumentation. Further, we're a key player in defining the industry standards for measurement across an increasingly complex world. Secondly, we play in a large addressable market. Our strategy over the last few years has enabled us to double this market opportunity to take advantage of durable secular tailwinds.
Today, I can tell you Fluke is a resilient business, and we will continue to deliver a consistent growth performance. Thank you for the honor of letting me share with you a little bit about the work that the Fluke team has done over the last few years and, more importantly, where we'll go in the future. As we welcome my colleague Arul to the stage, please enjoy a video on how our facility and asset lifecycle group is enabling the built environment and supporting thriving communities around the world. Thank you.
We've built an incredible world, physical spaces where our lives happen. They're where we work, where we connect, where we grow. In the United States today, trillions of dollars of aging infrastructure needs upgrading.
To meet this demand, we expect hundreds of millions of skilled maintenance, construction, and facility management workers to join our workforce in the next decade. How can we connect these things, the work that needs to be done, with the people who do it, the big-picture data with the decision-makers? How do we build faster to serve our communities? How do we bring facilities and assets into the digital era and enhance essential workflows with AI? These are the challenges we solve. We are three operating brands: Gordian, Accruent, and Service Channel, with a shared mission. We deliver technology that helps our customers manage the built environment, creating outstanding experiences, enabling safe, productive, and thriving communities. Our software supports every stage of the facilities and asset lifecycle. Customers manage new construction with Gordian, drive efficient operations with Accruent, and maintain their spaces with Service Channel.
For more than 25 billion sq ft of non-residential spaces, we empower customers to take action in critical moments. From universities renovating their facilities, staying on time and under budget with our capital planning solutions, to the retailer with a broken refrigerator who finds a certified plumber in seconds through our marketplace, to the advanced manufacturing plant that can't afford downtime using AI-powered insights to predict failures before they happen. We connect more than 80,000 builders and contractors, operators and service providers, buyers and sellers with aggregated real-time data and AI-powered solutions. This is more than software. It's a living, learning ecosystem of technology, insights, and expertise. An ecosystem that is ensuring the spaces we rely on and the places we love are ready to open their doors each and every day.
Powered by the Fortive Business System, we continue to raise the bar on market-leading innovation, outstanding customer experiences, and superior operating performance. This is where infrastructure meets innovation and where our shared future is being built every day.
Schools that our children go to on a daily basis, grocery stores and warehouses that stock supplies critical for our sustenance, hospitals where lives are saved, these are what we call built environments. The purpose of the facilities and asset lifecycle group is to manage these built environments to deliver outstanding experiences for the owners, operators, workers, and visitors. Three key messages about FAL: we are three leading software brands serving targeted workflows in the facilities and asset lifecycle where we are differentiated to win. Number two, our differentiation comes from deep industry expertise, proprietary data, and network effects.
As we look forward, our growth accelerators are in product innovation in SaaS and go-to-market capabilities improvement. The FAL group drives $700 million in revenues on an annual basis. 60% of that is recurring in nature. That number goes up to 85% if we include multi-year recurring purchases. We are growing at mid-single digits. The impact of what we deliver is in the scale at which we operate. 25 billion+ sq ft of commercial real estate are being managed by our solutions. 80,000+ businesses, including contractors, service providers, are connected using our software. That is the impact that we are having. The group is made up of three iconic category-creating brands: Gordian, Accruent, and Service Channel. Gordian pretty much created this category called job order contracting. With the addition of RSMeans data, it became the de facto and gold standard for construction procurement in many sectors.
Accruent pioneered real estate management and expanded into asset management and document management. Service Channel made the best of network effects, bringing together a two-sided marketplace consisting of owners and service providers who were highly fragmented and thereby automating the end-to-end maintenance lifecycle. How do these brands come together to solve the problems of a facilities and asset lifecycle? I will break it down for you. In its simplest form, any physical structure goes through a lifecycle. It is being built. There are day-to-day operations, and there is ongoing maintenance of the facilities themselves, as well as all the equipment that are housed in them. What do we do? We bring together these three iconic brands to go and automate targeted workflows where we specialize.
We focus on workflows that are mission-critical in nature, in industries where budgets are allocated on a resilient basis due to the criticality, and where we are differentiated to play and win. In specific, in the built workflows, we focus on construction, planning, estimation, and procurement. Think about projects like school buildings needing a new roof or a hospital going through a multi-year renovation. Our Gordian software enables facilities managers to go and complete these projects on time and under budget and to code. In the facilities operations side, using Accruent software, we specialize in workplace management, running facilities such as factories, office spaces, or hospitals. We also specialize in asset management, monitoring and tracking all the way from a simple light fixture to a refrigerator or a very expensive medical equipment.
Finally, document management, thousands of documents, including leases, contracts, engineering drawings that facility managers have to deal with. That is being done with our Accruent software. Finally, in the maintenance phase, we are automating the end-to-end maintenance workflows. This could be just the scheduling of an annual refrigerator maintenance that has to happen across hundreds of locations, or it could be the rapid response needed when an HVAC or a plumbing system breaks. That is done using our SaaS solution, which is Service Channel. The markets that we play in can be broadly categorized into three. This is a $11 billion opportunity growing at mid-single digits. The first is construction planning technology. Here, things like smart buildings or rising energy costs are leading to renovations beyond just routine maintenance. The second category has to do with workplaces and sites.
Return to office, we all know what that is doing to workplaces. Customer experience modernizations, they are driving spend in this market category. Finally, in asset management, where it is becoming a norm to do predictive maintenance, to do remote monitoring, and AI is opening up new opportunities for technology providers like ourselves. While we think about all these secular trends, there is something that goes unnoticed. That is the amount of catch-up that we need to do. The maintenance backlog in commercial real estate that Olumide alluded to is north of $1 trillion. You know what is more bothersome? The scarcity of labor, people with the right experience, the right expertise to get these jobs done. That creates a perfect storm, and that is where we come in. There are many vendors who solve this space with software alone. Software can automate the workflows.
In order to make that unlock true value, we need the data and the analytics. We need industry context tuning, and that is where we are differentiated. We are unique in bringing proprietary data, and we are differentiated in our industry context. The durable value that we deliver to our customers is grounded in the principle that we meet customers where they are with software and services that they are increasingly consuming as SaaS and via flexible consumption models. Above all that, what makes us stand out is the benefits of the network effects that we bring to our customers. 80,000+ businesses are growing and offering services on our platform, and our customers are increasingly tapping into that network for the expertise. Let me bring this to life with a customer example: Sam's Club, 600+ mega warehouses. Sam's Club has invested in tagging all their assets across the country.
Today, they have a single source of truth and a universal view of all these assets. If you are a facilities manager, your worst nightmare is when something breaks, a technician shows up, and they're unable to fix the issue because they do not have the right data or they do not have the right expertise. With our solution, Sam's Club is able to match the right service provider for the right job. The impact? The first-time resolution of maintenance tasks went up by 40%. That is increased productivity. Understanding that the temperature in a refrigeration unit is spiking and doing the maintenance that prevents the milk or the meat from becoming harmful to consume, that is increased safety. That is what our technology does. In addition to this technology, when we step back and think, what makes us deliver the superior value and differentiation?
The answer is in our culture of FBS. As our customers are making this transition from on-prem to SaaS to flexible consumption models, the FBS mindset, the value stream mapping methodologies, and tools for financial model transitions are helping accelerate these shifts both for us and our customers. The impact? ARR as a percentage of total revenue is up by 500 basis points. Net dollar retention is also up by 500 basis points. Beyond those, as a software practitioner for almost 30 years, what inspires me is the maturity of the software development lifecycle process and the portfolio management process that FBS gives us. It dramatically increases the speed at which we can bring new product capabilities. Revenue based on new products has gone up 4x in our operating companies since their acquisition.
These are the exact principles that help us deliver margin accretive growth in our SaaS business in Service Channel. Heightens growth and 800 basis points operating margin expansion. How did we do that? The portfolio management process helped us take products from ideation to delivery at a much faster date. When we applied some of our FBS tools to our CloudOps practices, our DevOps practices, we brought down the costs. To give you a very specific example, we brought down cloud spend by innovative storage tiering. How did we unlock that? Thanks to FBS. FBS is and will continue to be a powerful driver of growth, profitability, and innovation across all our software products. When we look forward, our growth acceleration, the primary focus areas are threefold. From an innovation perspective, it's about AI-driven software products. We have a head start here.
Many of the offers that we've been working on are hitting the market now. For example, Gordian Cloud that many of you would have seen in the innovation showcase. Gordian Cloud allows all our customers to experience the full capabilities of Gordian across planning, estimating, and procurement via a single cloud portal with human-in-the-loop AI, all delivered as SaaS. On the commercial side, international expansion. Accruent, with the acquisition and the cultivation of a channel partner network, is increasing its footprint in Asia-Pacific and Europe. We are dramatically improving our capabilities across sales and go-to-market, cutting across people, process, and tools to be better tuned for SaaS go-to-market. Those are our growth accelerators. In short, FAO, three leading software brands differentiated by deep industry expertise, proprietary data, and network effects, best positioned for margin accretive growth. Thank you for being a wonderful audience.
I would like to invite on stage our Chief Financial Officer, Mark Okerstrom.
Thank you, Arul. Appreciate it. Thank you. Great. It is great to see you all. I am going to start where Jim started, which is a huge thank you to all of you who are here today. These are long days, and we appreciate you being here and investing the time with us. I would also love to thank the people that are with us remotely and those that are going to watch and maybe read this later. The fact that you are here gives us even more confidence in the path ahead. I am going to start with just a little bit of context. I joined Fortive about two and a half months ago, but my work on Fortive started long before that. It started not unlike you would start your work.
I read through the K's. I scoured the research reports. I started to build my model, and I spread the numbers. I spoke to anyone who would speak to me who knew anything about Fortive. As I did that work, three key themes really popped out at me. As I spent more time with Jim and Olumide and the team and the board, again, those three key themes were echoed back at me. Fast forward to the beginning of this year, I went up to Everett for what was, I think, supposed to be an hour meeting with Olumide. After two and a half hours of him sharing his vision for where we could take this company and its clear value creation plan, I was in. You guess what we talked about? Those three key things.
At the beginning of March, I joined, and that's when the interesting bit started. Because up until that point, I'd done all the work that an outsider could do. Now I was on the inside. I was on the inside. As I showed up, I got handed a schedule called my immersion schedule. Some people might call it onboarding or training, but that wasn't this. This was my immersion schedule. It was a plan handcrafted by Jim himself to onboard me into this business. I went to operating reviews. I went through the trainings. I studied the Fortive Business System, and it helped me become a student and a practitioner. I learned the mindset. I learned the cadence. I learned about the tools, and I thought about how I could apply them.
As I went through that immersion process, three key themes just kept on coming back to me. I'll tell you the thing that gave me the most conviction. It was actually meeting with you, members of the investment community. A few of you will probably remember these questions that I asked you, which is, what's going right and what could be improved? You know I heard those same three key themes. These are attractive businesses that have been operated rigorously, and they're poised for acceleration. There is a real opportunity to do better on capital allocation with a returns-focused approach. It is time for us to rebuild investor trust. These are the three themes I had observed. These are the three themes I had heard. These are the three pillars of not only our messages today, but our value creation plan.
We're all aligned at the opportunity. That's what gives us the clarity and the confidence and excitement for what's to come ahead in the years to come. Now, over the next 15-20 minutes or so, I'm going to go into a little bit more detail on the three pillars of the value creation plan in the hopes that I can help you form your own view on new Fortive. Let's start here. It's a great place to start. $4 billion in revenue growing 3-4%, 50% recurring. $1.2 billion adjusted EBITDA and $1 billion of free cash flow growing nicely. 64% gross margins and nearly 30% adjusted EBITDA margins. We have an attractive product mix, about 28% software, 50% recurring and climbing. Diverse end markets, predominantly industrial and medical, with some exposure to government, but not too much.
Of course, attractive geographic exposure, the U.S., Europe, and exposure to the secular tailwinds blowing through non-China Asia. This is a chart that Olumide shared as well, which really highlights the durable growth of Fortive. Core revenue growth of 4%, gross profit growth of 9%, adjusted EBITDA growth of 12%, perfect conversion into free cash flow, operating leverage down through the P&L. The great thing is this is happening also at the segment level. Healthy, durable revenue growth and operating leverage down through the P&L. The benefits of diversification and resilience are clear. There was a lot happening in the world during this time. You cannot see it at the Fortive level, and you cannot see it at the segment level. If you are looking for Fortive simplified, it is right here. Two segments, strategically coherent, financially coherent, and resilient. This is new Fortive.
Olumide spoke a bit about the work that had been done to really focus on building more durability in the business. What a great chart to illustrate this. In true Fortive style, they set their eyes on something, and we delivered. I wasn't here, but wow. Recurring revenue climbing as a percentage, something we expect to continue, and growing very nicely. Okay. What to expect going forward? I just want to go into a little bit more detail in something that Olumide shared with you earlier. In this far left column, if you are a shareholder of Fortive today, this is what you own. On June 30, in addition to your shares in Vontier, the next column over, that's what you own. That is the beginning, day one of Fortive accelerated. Our ambitions are much higher.
If you look to the next column, this column is what we would expect in the next couple of years because this is what the business has demonstrated that it is absolutely capable of. Make no mistake, this is not our ambition. Our ambition is for better. Faster than 3-4% core revenue growth with more than 50% recurring, more than 50-100 basis points of margin expansion, and better than high single digits adjusted earnings per share growth on the back of strong and shareholder-focused capital allocation. This is where we're going. That was the first pillar. Fortive amplified, Fortive accelerated, Fortive organic trajectory. Let's talk about the second pillar, capital allocation. We have four priorities. Number one, invest in accelerating organic growth. You've heard from the team, the plans. They are real.
Our plan is to accelerate this business, and we are going to look for opportunities to invest in it, to take advantage of the opportunities that are in front of us. FBS will be absolutely at the core. We will also look at M&A. We're going to have a bias to bolt-ons, and we're going to look at this just to be clear, interchangeably with share repurchases, optimizing for the best relative return. Again, our goal in all of this is to accelerate shareholder returns. Lastly, our dividend. We're going to have a good dividend. It's going to grow. We will be adjusting this to reflect the spin going forward. Let me double-click then on M&A and just dive a little bit deeper in some of the messages that Olumide already shared with you.
We are in a new phase as a company, and we have been gifted with some incredible assets. This is not the Ford of old. The Ford of old was building the Ford of today. Now we have the benefit of saying, what can we do from an M&A standpoint to make this even better, to accelerate the returns? That will be our focus with M&A. The M&A process has been kaizen. It has been improved by the team. It starts with having frameworks for really thinking about what do we want to do and what are those bars we're going to hold ourselves up to. We have clear strategic and operational framework. We're looking for things that have strategic portfolio coherence aligned with our existing domain expertise. Why is that?
Because if it's aligned with what we're doing, it's more likely that we will be able to create differentiated value through providing synergies. It also makes deals just generally less risky. We're looking for businesses that have a clear right to win with a strong market position, technology, management teams, and track record. If we can put two businesses together, one new with one of our own to create this, all the better. We will have an FBS-enabled VCP, value creation plan, ready to execute on day one. In terms of our financial framework, we'll be looking for businesses that are supportive to the durability that Fortive has become known for, that's supportive to growth, that has attractive margins and the potential to create even more attractive margins. Again, we're looking for deals that will deliver attractive returns versus other alternatives.
Of course, we have got to have clear line of sight to return on invested capital better than whack. As I said, the process has been kaizen, rigorous systematic due diligence, biased proprietary deals where there's less competition. Price is 100% part of the value creation strategy. We will be focusing on value creation and enhancing shareholder returns. I'll say it again, that is the goal. The board will be with us every step of the way. As a foundation to this capital allocation approach is an incredibly strong balance sheet. We are committed to investment grade. We very much value ongoing access to the capital markets come what may. We're going to target gross leverage to adjusted EBITDA of 2.5 x or better.
We will increase leverage to three or more times, but always with the intention of delivering within the next 12 to 18 months. Let's bring it all together on a page. Investment thesis on a page, three pillars, and a clear plan. Now, as I run through these pillars, perhaps you could think about imagining a bridge. A bridge that starts with the share price on the day we spin and ends with a share price in the future. Each pillar, a bar in the bridge. The first pillar, again, attractive business with strong prospects, acceleration on day one, and more to come. What does that mean for us? We're going to continue to run this business with incredible rigor, with an orientation though to growth. FBS amplified. What does that mean that you can expect?
Continued operational rigor, continued financial discipline, occasional short-term investment of margin to drive medium-term financial performance, and ultimately accelerating revenue, adjusted EBITDA, free cash flow, and earnings per share growth over time. Let's move to the second block in the value creation bridge. New capital allocation approach geared to enhance shareholder returns. What does that mean to us? We're going to allocate capital wisely with better equity returns as our North Star. What can you expect from us? Select organic investments to accelerate growth, a strong desire to find deep and wide pools to do regular returns enhancing great deals with a bias to bolt-on. You'll see buybacks prominently featured, and you're going to see a growing dividend over time, and we'll regularly review the payout ratio and the yield. Lastly, we will have conservative use of leverage.
We understand the value of leverage in accelerating equity returns, and we will use it. The last pillar, building and maintaining investor trust, is a core part of the value creation plan. What does that mean to us? It means we're going to earn and consistently work to build greater trust with all of you. What to expect: clear expectation setting with a bias to underpromise and overdeliver. Delivery on expectations set by us and also expectations shaped by us. We can't shape them all, but we know we're going to try to shape them all. Simplified guidance and disclosure with a focus on key metrics and color on the key drivers. This waterfall, this bridge, all adds up in our model to shareholder returns that exceed the S&P 500 index over the next three to five years.
We want to beat the index so that you can beat your benchmark. Attractive businesses with strong prospects, acceleration on day one, and more to come. A new capital allocation approach geared to enhance shareholder returns and building and maintaining investor trust as a core part of the value creation plan. We think it's a powerful framework for value creation, and we hope you'll join us. With that, I'm going to bring up Elena, and I think we can go to Q&A. All right.
Ladies and gentlemen, please welcome our Fortive leaders back to the stage for our Q&A session. We have our team positioned around the room with microphones. Please raise your hand, and we will run one to you to ensure your question is being heard in the room and for our webcast viewers.
All right. Terrific. We've got about 30 minutes. I'd love to kick it off with some questions. I see we go with Scott Davis, please.
Good afternoon. Mark, I just wanted to be clear. Do you have a new M&A team or a different M&A team?
I'll answer your question, then I want to kick it over to Olumide. Did you want to start with anything, or shall I just get after this one?
Yeah, no, thank you for that. I mean, I think maybe I'll start since Mark's two months in. So the M&A team that we have is a blend. We believe for this bolt-ons to walk, a lot of the walk needs to happen in our 10 operating branches. Because the benefit of the bolt-on cultivation process is you need the people in the business to know, in some cases, third-party partners that they integrate with or someone they're running into in the marketplace. The biggest shift here, Scott, is really putting the cultivation more in our companies because that's where the action comes. The deal execution at a center itself leverages some of the same people we have. Because the discipline there, Mark can add to the team we have in a center. The real walks in the tentacles for cultivation. That's what we think about.
I'll just build on that too. We've got a great M&A team. They are very solid. They were geared for what Fortive was doing, which was transforming the portfolio. The second I came in, I said, "Hey, how are you guys thinking about bolt-ons?" They'd already kaizened the whole process. As I started to talk about, "Hey, here are the things that I'm generally used to seeing," literally on the first deal approval that came my way, which was, I don't know, a few weeks ago, amazing. It's Fortive style. It's been FBSed.
Okay. Just to change gears a little bit, I think we could ask the same question six months ago, but I'll ask it since this is a fresh chance. The software assets within the portfolio, can you help us understand why you think you're the best owner for those assets and how you can make them better from here?
Yeah, so a few reasons. The first is there are assets that connect to the problems we solve for customers in general. I'll just give you a few examples. We have a set of professional instrumentation tools that get used in the course of maintenance and mostly field-based maintenance, not in the lab, in the field. It turns out that in the course of those technicians doing their walk, the most important value driver is actually where is the walk to be done and who is the best technician. The idea of not just giving you the tools, but actually bringing the intelligent system so the tool and the person arrives at the right place at the right time actually turns out that unlocks more value for customers. You saw the example of NTT Data, that's the third biggest data center provider in the world that Arul talked about.
That's a great example where we could have been a vendor that's just selling them tools from Fluke, but the power of being able to show up with actually an extended solution that has, "Here's how you can tag your assets, track your assets, and then when something needs to be done, use a set of professional instruments to solve the problem." It just takes us up a level to the point about we don't want to be a commodity player. The more we have these integrated solutions, the more nobody else can do what Fortive does. That's the way each of our software assets has that dimension to them. They're not stand-alone software things that don't connect to anything else. They actually build on what we have.
Great. Next question. Julian in the middle row.
Thanks a lot. Maybe just the first question around the healthcare business. There's a common perception that it's kind of lost share versus Steris, for example. Just wanted to understand kind of what your market share ambitions are in healthcare and how we should think about its margin expansion potential from here.
Yeah, I'll start then and I'll kick it to you, Chad. So the healthcare segment for us has done really well. From a margin expansion point of view, you see the journey we're on. That's the easy one. The journey continues on margin expansion. Some of that will come from just the fact that our growth in that segment is coming from some of our software and consumable assets that are just high incremental margins because there's not much variable cost that comes with them. The margin improvement journey will continue over time.
I think from a top line and share point of view, we really like the strategy that we have that you heard Chad describe because we picked a lane. Some other players may do a lot of different things. We pick a lane where the puck is headed, where there's more instruments moving to low temperature sterilization because it provides a higher margin of safety. And the medical device providers also need sterilization approaches that don't destroy the instruments. There are a lot of trends that move towards where we're headed, and we are winning in that lane that we're sticking our bets on. We feel really good about the top line trend.
I think like Chad talked about before we acquired the company, there was a period in consumables where we were losing share in North America, but the story is very different now from the 70% win rate that you heard Chad talk about. Anything you add, Chad?
Yeah, Julian, thank you for the question. I just had a few thoughts. First of all, there is not a perfect proxy for our business versus any competitor. We analyze our competitive win rates, and I think, as I mentioned in the presentation, we are winning over 70% of our deals. We track that rigorously. I do think you saw it show up in our financials with some improved performance in 2024, but I also underpin a lot of the innovations and investments we are making, such as Ultra GI, are just hitting the market now. This is going to really show up in years to come when that innovation machine takes hold.
Great. Just to follow up on FAL, I think the margins there look lowish given the organic growth is sort of mid-single digits. I just wanted to kind of understand, is there a path for a big margin catch-up at FAL, or is it not likely just because of the competitive landscape?
The interesting thing, Julian, is it is the kind of multi-year view. The journey we have been on, there is always the margin top line growth trade-off, right? Take Service Channel as an example. You should be specific because we have talked about this. We have had incredible margin expansion at Service Channel, 2,500 basis points over a three-year period. That was a choice we made in terms of what was important at that period of time.
There may be a period where we feel there's more top line growth to be had to Mark's point. You may see a period of time where the margin growth slows down, but the top line growth goes up. If you step back and you look at the journey on FAL, it is a great platform for us. It's $700 million+ , scaled platform with a chance for us to both grow the top line and then grow margins over time as well towards our fleet average. That may not happen every single year because we're making those choices on what's the right focus in each period based on what's going on in the market and what's apparently best for the business over the medium term. In general, I'll say on both top line and margins, there's headroom for FAL.
In the back row, Jeff Sprague.
Thank you. Good afternoon, Jeff Sprague from Vertical Research. Just another one on FAL, if I could, Olumide. You gave an example, and there was one or two in the pitch on cross-selling. Just curious, what percent of your customers or what percent of your software revenues represent a situation where a customer is using more than one of your software offerings?
There are different ways to look at our offerings. Each of the three brands that Arul talks about have different software components within them. Gordian's got planning, estimating, procurement. Accruent has got a bunch. If you look in each pocket, there's probably half of the customers that use multiple things within each of those companies.
Service Channel being the highest in terms of cross-sell and probably Gordian in the earliest stage of that journey with Gordian Cloud just launched. There is a lot more within each brand. In terms of across the brand, like I have talked about a few times, they each have a clear focus and an area of strength in terms of verticals and what they do. The cross-sell across is still very small because Gordian is optimized for state and local, higher ed, and healthcare. On the other hand, Service Channel is optimized for multi-site retail. Accruent has a bit more diversity. There is a little bit that cuts across, but we really view it as win the battle in each of those three playing grounds that Arul described. If you think about the cross-sell that is still available in each of those pockets, that is a huge headroom for us.
Maybe just a modeling minute or two for Mark, I guess. Just a couple of footnotes. At constant tax rate, I know we're thinking about tax rate in the mid-teens, but are you indicating there's pressure north of that? I just wonder if you could share your thoughts on sort of the billion-dollar dividend coming in from Vontier. How might that be deployed? How quickly might that be deployed? Thank you.
Sure. Nothing to signal specifically on the tax rate. We live in some pretty interesting times. Our plan is to basically deliver strong growth rates regardless of what happens with tax, but we are assuming that it's at similar rates to what it's been going forward.
With respect to the dividend, we get actually a $1.15 billion dividend from Vontier, which is the $1 billion + reimbursement of $150 million that was being left in the business. Of that, about $700 million is going to be used to repay debt. First piece of that will go to our term debt. We will then look to the next spot. We will probably retire some of our foreign denominated bonds early. This is all really to get ourselves in that target leverage ratio of two and a half times gross. With the remainder, we are going to use those for largely repurchases. The board actually authorized a special repurchase authorization for repurchases up to $550 million. That will happen in the next 12 months.
Terrific. All right. Next question. Cliff?
Cliff Ransom, Ransom Research. I'm not quite sure how to ask this question, so it doesn't sound negative. I'm a friend of the family. When you look at what you want to do, Mark, in finance with respect to the Fortive Business System, I'm assuming you're still using Hoshin Kanri and what does your X matrix look like? What do you have to do to do what you want to do? Do you have the resources in place, and how will you apply them?
Yeah. We've got the resources in place. We've got the team. We've got the processes. We've got the tools. Our plan is actually to set this business up for acceleration. We're on a very strong path. I think as the team has laid out, FBS is at the core of it.
The interesting thing, as I've gotten to know this team, is that you've got some real FBS practitioners here. Over time, I mean, if you compare what the Danaher business system was, which I studied in business school, it was incredible. It has evolved and continuously improved. Today, as the portfolio has evolved, just more tools and more processes have been built in. I think we've got the team. I think we've got the process. We've got a great technology team. I think we have everything we need to actually be successful. Again, FBS is at the core. Olumide, anything you'd add to that?
Yeah. No, thanks for the question. I mean, I would say that Hoshin Kanri and policy deployment, as we call it, is still the center of how we accelerate executing our strategy. From a finance function point of view.
I s or is not?
It is. It absolutely is. Just to give you that comfort and peace, it's still at the center of how we approach executing strategy faster.
Thank you. Great.
Next question. Sky Brown?
I have a, excuse me, I have two questions. The first is on, so ASP, you're assuming that the market is growing low single digit plus. Is that just the low temperature side, or is that the entire market?
That's where we participate. That would be the market, which would include not just terminal sterilization. That would also be the washing and disinfection space and the service side of the business of the market.
Okay. I guess I actually have three questions. The other one around ASP is, would you have interest in getting into high temperature?
There's something we could certainly consider. The reason why we've hesitated in the past, as Olumide mentioned, we don't want to be into commodity businesses. Anywhere we play, we want to be deep and differentiated. The path that's been looked at is not as much differentiation in that marketplace, and we've elected to partner with other companies in the marketplace where it makes sense in given deals.
Thank you.
Yeah. Maybe I'll just add. If we find a path that is coherent with our strategy, which is durable businesses able to be accurate to our 65% gross margins and 30% adjusted margins, and it happens to be a differentiated technology in high temperature sterilization, we probably would look at it. If it's a business that looks like it's good, but it's 30% gross margins, we probably wouldn't do it.
I think that's where just having clarity on what we're optimizing for really helps us.
Thank you. The other question was around FAL, which I think two years ago, perhaps less, the aspiration there was sort of high single digit organic. And now we're kind of in mid-single digit. Is that just the maturing of the business and the market? And then secondarily, I guess it's four questions. Secondarily, smart buildings, AI-enabled solutions, aren't these true potential accelerators to the market growth going forward?
Yeah. Maybe I'll start, and then Arul, I'll have you add on. I think the way we look at the market growth rates is dynamic. We look at it two years ago. But to Mark's point, when we're talking about it now, we want it to reflect the current state of the market.
Between two years ago and now, a few things have shifted. Some of that market around infrastructure maintenance spend comes from kind of government spending flow. With DOGE and everything else, that has evolved in a way that we think affects the outlook for the market for the next three years. It is also the case that the overall kind of macro has an impact too for the corporate side and non-government side on how willing they are to invest in some of these facility maintenance things, people like deferring and so on. We factor all that in. We still feel over the long term, based on the circular trends and the trillion dollars of deferred spending, maybe the next three years is mid-single and not high single. At some point, that trillion dollar has to resolve.
We will be there with the leading businesses in those markets. I think that's the way I would think about the shift in the growth rate over time. I think with respect to smart buildings and what that does, it's this idea of expectations are rising on the experiences we have in the built environment. That's true everywhere, including if people are in the office, you actually want to make sure the experience they have is attractive enough for them to be in the office as a hybrid. We are absolutely finding that all of that focus on experience in built environments is a tailwind for our FAL businesses. Again, it's one where we pick our lane. We're not trying to be the company that does building automation. We know what we're really good at.
We partner with some of those other players, and we win the battles that we get into.
Great. Next question. Andy Kaplowitz.
Thank you. Andy Kaplowitz, Citigroup. I know you want to set a reasonable bar for expectations, but new Fortive growing, it's been growing at 4%, as you know, saying the guide to 3-4%. What would pull back to 3-4%? And then maybe you can give more color about price versus volume. What are the assumptions around price in that forecast going forward?
Okay. Mark, I'll let you start though.
Yeah. I think first of all, the guidance we've given for the next couple of years is what this business has been demonstrated that it's capable of. I think just to be clear, our aspirations are for much better.
I would just call your attention to the environment that we're living in right now. It's pretty volatile. I think just even the conversation we just had around what's happened with government spending, to have one example, or the pressures that you can see that are on the healthcare system right now with federal spending getting pulled down. These are all things that could happen. We just wanted to give you a perspective on kind of where the business is sort of right now, given all the things that we can see. On pricing, I would just say, and again, we're not going to give specific guidance on pricing, but I will say that the quality of the brands and products that are in this portfolio give them incredible pricing power. I'll leave it at that.
It's helpful. I wanted to ask Parker, the ability to, it's 15% recurring, much lower than the rest of Fortive, but the ability to lean into recurring for Fluke, can you get that sort of up over time? Even if you can't, you're expanding markets there. The ability to sort of press growth in Fluke seems pretty interesting. It's a large portion of your business. You've talked about building into data centers. What is the growth runway going forward? Can it accelerate from here?
I've had the opportunity to build a hardware as a service recurring revenue model, build upon a great model at Industrial Scientific over the last six years. I think about what Chad said in his presentation, thinking about recurring revenue models are most successful when we can truly create real enduring value. I saw that at Industrial Scientific. Since I've joined Fluke and worked with the team, I see opportunities where we can create ongoing recurring customer value. I'm excited to dig in with the team to learn more about it and work together to see where we can make real progress.
Great. Next question. I apologize. I don't have your name. Second row. Thank you. Next to Chris Schneider. Chris, you're next.
Hello. Hi. This is Michael Anastasiou from TD Cowen sitting in for Joe Giordano. Earlier in the presentation, you mentioned that the Fort of Fort was folded into FBS practices. Can you just perhaps enumerate on what the Fort has done to the FBS practice specifically? I have one follow-up to that. Thank you.
Yeah. Great. Just to set the context, the Ford was the creative name we came up with for our AI Center of Excellence, which we created seven years ago. Think about it as a group of kind of data scientists and AI-savvy practitioners that help all of our company, all of our businesses to really develop use cases both for operational productivity, customer experience, product innovation, G&A efficiency. They were doing that for seven years as sort of an incubation room. Let's go try something out and see how it goes. That developed enough and obviously accelerated with GenAI over the last two and a half, three years that we felt it's now ready for mainstream.
What we have done is we have taken that Ford team and combined it with our FBS office, which is kind of our, think about it as our academy and center for the FBS in the company. That team is now one team. Some of the examples I talked about, about creating a Fortive Innovation Center or bringing in AI copilots and agents into our lean product development so it becomes part of our standard. Think about it as really taking something from the periphery, putting it into the major freeway that drives the company, which is the Fortive Business System. That is trickling to innovation, commercial acceleration, and the way we think about enduring customer value.
They're now thinking, if you think about 100,000 customers, you think about the data that we have about them, what can we do with AI to create upsell solutions for those customers? It's really that combination that's accelerating the adoption of AI use cases.
Great. That's helpful. You also mentioned a Fortive Innovation Studio. How is that related to the practices that you just mentioned? Thank you.
Yeah. Very much related. One of the things that once we combined those two teams, one of the things they decided is we actually needed an innovation center. Think about it as space and a set of assets that can be an assembly place for our companies to ideate, rapidly prototype, and launch new products focused on AI-powered use cases. The thesis of it is you heard from the team a number of times.
We serve 100,000 customers. They trust us. They respect our brands. We happen to have so much data about the different kind of mission-critical things those customers are doing. The question is, with the capacity that AI has layered on top of that incredible customer access, respected brand and data sets, how do you create add-on analytics, AI-powered solutions for those customers that can just become a cross-sell and an upsell for them? That is really what the Innovation Studio is about and trying to do that for each of our companies.
Great. Chris Schneider.
Thank you. I have one on Fluke. I just wanted to hear about your confidence in ability to continue to innovate and stay ahead of the market as a standalone company. I would think that some of the domain expertise that comes from Tektronix, which is really on kind of the cutting edge there, filters its way down into the innovations you guys make at Fluke. Maybe that's wrong. I’d just like to hear your perspective on that from an innovation standpoint.
Yeah. Parker, and I will talk to him on this one. The Fluke business is very different than the Tektronix business. Fluke business, think about field-based maintenance operations, professional instrumentation. These are people with belts in the field. Tektronix is more you are in the lab for R&D. You're designing something that's kind of cutting-edge, new technology. It's kind of a lab focused thing. It’s very, very different, very different OpEx versus CapEx. The drivers of the business are very different. This is more about how much capacity you need to operate and maintain.
This is about how much are you investing in new innovation in different things. As a result of that, the technology roadmaps are very different. They're really very different. I think Tammy mentioned it earlier. The one area where we had something being shared was on services, where we kind of said, "Let's not have services in two places." We had a host, but you could still tell they're different things. What we've now done is separate those. Each one has its own service unit. Although from the outside in, it might look like, "Oh, it's the board kind of measuring things," they're just very, very different.
That is part of why you have seen for Fluke, as a result of that OpEx exposure, as a result of the more global nature of the Fluke brand versus tech, as a result of the fact that I think importantly for Fluke, while tech has a high recurring revenue content, Fluke's been growing that more recently. We now have 15%. That used to be maybe 2% nine years ago. It is just very different businesses, not much dependency from a technology point of view, and just very different profile. Tech is an amazing business when we have those tailwinds of big tech trends. Fluke is just a lot more durable. That is the thesis.
Yeah. I mean, maybe just following up on that point of Fluke being more durable, understand it is more OpEx, MRO-driven. I guess, is there any context or color you could provide about how Fluke has performed in down cycles through history? Did that durability really show through? Thank you.
Yeah. I think history depends on how far you go back, but just for the benefit of our time here, I think if you just look at what's happened the last five years, Fluke's grown every year. I think, as you all know, the U.S. PMI and even the EMEA PMI have kind of been in contraction zone for a lot of that period. I think if you look across, if you define the industry broadly, there are very few companies that have grown consistently through that while at the same time achieving the margin expansion that you heard Parker talk about and driving improvement in working capital. It's just, it's been a very impressive piece of that durability story. That was a crucial question for us as we thought about the spin is making sure the characteristics of Fluke, given it's such a big part of new Fortive, really fit with the strategic focus we have around durability. It's just incredibly compelling when you look at the history of it.
Okay. Time for one last question. Cliff.
And Elena, I forgot Cliff Ransom, Ransom Research. I forgot to congratulate you on finally getting to a Dana or a descendant.
Thank you.
When you look at policy deployment, how do you want that to change over the next three to five years? What will you do with it differently?
Yeah. No, thanks for asking that. We always have this question of what's our favorite sort of FBS instrument. Policy deployment is high on my list of my favorite. What it is, is really just you come up with a strategy, and it's a beautiful strategy, but then you got to actually get it done. Policy deployment is a way of establishing a high-priority focus space to go drive the most important pieces of that strategy. I think in that sense, the wiring doesn't change. I think it's a beautiful thing. We will still have strategy. We will still pick what are our three-year objectives and what are our annual objectives, what are the improvement priorities we have, what are the kind of targets to improve. The frame itself doesn't change. I think what evolves is the nature of things that we get after.
For example, while five years ago on a typical policy deployment matrix, it might be a lot more about we have a desire to grow. Now we're going to go hire more salespeople, build sales enablement, come up with a way to make sure marketing is feeding the right leads. That's what you would have seen five years ago. I think if we do that next year, based on this combination with our AI Center of Excellence, you're seeing things like how can we use more agents and copilots to completely reimagine the way we sell? How do we use the intelligence from the market to aim the types of prospects we're going after, not only that we can sign them, but we can actually retain more of them and upsell more things to them?
The freeway structure does not change, but I think you now just have high-speed cars running through those same freeways. That is exciting for our teams. This goes back to the Fortive Business System, which is an amazing, amazing foundation for us that will endure. What we have a chance to do here is to do more with it and get more impact on our strategy.
Terrific. Thank you very much for your very active participation today. I do want to hand it back to Olumide for some closing remarks.
I think we have said this a few times. First of all, just thank you. Thank you for spending this time with us. We are grateful for it, for your interest. Whether you are here in person or you are watching this on the webcast or recording, it means a lot to have you with us.
We know some of you have been with Fortive for a long time. Some are new. Some are just curious. Wherever you are in that frame, I hope you leave today with clarity, with confidence, and with excitement about new Fortive. We are a simplified focus company with a deeply rooted recurring revenue profile, 50% and going up, durable financial performance over the last five years. We have a clear strategy to accelerate, accelerate not just our top-line growth, but our earnings growth and our shareholder value creation. It is a grounded strategy, and it is one that we feel excited about. The Fortive Business System that has been the engine of our success is going to endure, and it is going to get even better as we amplify it in some very targeted ways to help us grow faster and more profitably.
Importantly, as you heard us talk about a few times, we have a renewed focus on being excellent, disciplined capital allocators. We know that's a high bar, but it's a high bar we set for ourselves. We are fully aligned across our entire management team and our board, and it's something I take very personal. Finally, we have an incredibly strong, energized, and purpose-built team that's fired up and ready to get this done. We hope you join us for the journey. Thank you for being here with us today.