Ladies and gentlemen, please welcome Jim Lico.
Good morning and welcome to our 2025 Ralliant and Fortive Investor Day. I love the sound of those two names, and we think it's going to be a great day. I want to thank everyone for coming and visiting us here at the NYSE, and especially those of you who are here as well as everyone who's here virtually. Nine years ago, we had a vision. That vision was to build a company whose products made a difference in the world, and whose deep belief in better and leveraging the power of continuous improvement would ultimately build a better company and a better portfolio. Nine years later, our vision continues with today. About nine months ago, we announced the separation of Fortive into two independent companies, New Fortive and Ralliant.
Those businesses would have independent growth models and prioritize capital allocation strategies that were specific to the strengths of their independent businesses. We are incredibly proud of the work that we have done over the last nine months to bring us to this point, to the point today in which we can share with you the incredible strength of these businesses and, more importantly, the strength of their leadership teams. In terms of the agenda, we will kick off with Ralliant. It is going to be a great opportunity for Tami and her team to be able to give you a sense of how they are leveraging secular drivers in the business to be able to build a great growth company. Tami has got over 30 years of experience, nine as a practitioner of the Fortive Business System.
I think what you'll hear from her and her team is their passion for precision technology and how they can harness that power to drive more growth and to make Ralliant a better business in the years to come. We will take a break, 12:30 to 1:30. We will get you on your feet, go over to the Innovation Showcase, one of my favorite parts of the day, gives you an opportunity to see the power of the business system, the power of continuous improvement, and how we've harnessed innovation and accelerated new product introductions for growth and market share.
What I love the most about this hour, and sorry for those of you who are online and will not have a chance to see that, but what I love about that hour is not only the innovations, which are exciting, but also the opportunity for you all to meet our commercial leaders and our product leaders who are really harnessing the power of the Fortive Business System and our innovation processes to really accelerate product introductions. You will hear a number of those examples that you will see in the showcase. You will hear in both the Ralliant and Fortive presentations. We will come back at 1:30 P.M. and Ilan Dayan will share with you his vision for growth, profitable growth at Fortive. I think what you will hear is how these fundamentally strong brands and a simpler Fortive can harness safety and productivity solutions for industrial and healthcare operations.
A simple message that can be accelerated over time. Ilan Dayan, again, has about 30 years of experience. He's been a partner of mine over the last four years. He's an avid FBS practitioner. As we always say in our company, we want people to believe in continuous improvement. We want you to practice and be a practitioner and a teacher of the business system. There is no better example of that in our leadership than Ilan Dayan. We are in a great place. I'm incredibly excited for the day, and that's not just because I'm retiring soon, but more so because of the quality of the presentations and how our leaders will share with you their vision for the future as two independent companies, which is an incredibly compelling investment.
I'm deeply grateful and humbled by the work we've done over the last few years, and yet I'm unbelievably confident that our best years are the years to come. Thanks for taking the time. I couldn't be more happy to share our teams with you today. I get to jump off the stage with no more prepared work for the rest of the day. We'll leave that to our incredibly strong teams. With that, let me introduce Nathan McCurren, our head of investor relations for Ralliant. Thanks, everybody, and welcome.
Thanks, Jim. Good morning.
What an honor to be the first person that gets to stand on stage and introduce you to Ralliant and to the team leading Ralliant. I'm Nathan McCurren, Vice President of Investor Relations for Ralliant. It's great to see many familiar faces in the audience, and I'm looking forward to working with those of you who I haven't worked with before. I'll start with a brief intro on myself. I joined Ralliant about two months ago, most recently from Cognex, where I was head of investor relations and treasurer. Prior to Cognex, I spent about 15 years across investment banking, corporate finance, and capital markets at General Mills, Goldman Sachs, and Iron Mountain. I joined Ralliant in April, excited about the strong foundation and excited to tell you all about the story of the future growth.
More than anything, I joined excited about the leadership team in front of me who you'll hear from today. I'm excited to introduce you to this team. I'm realizing I forgot the clicker over here. Before we get there, I want to do some quick housekeeping on comments we'll be making today. First, I'll review our notice regarding forward-looking statements. This information is also included in our press release and presentation, both of which are available on the investor relations website. During the event, we'll make forward-looking statements. Actual results may materially differ from those expressed or implied as a result of various risks, uncertainties, and important factors, including those discussed in our Form 10. The financial metrics we'll discuss today are presented on a carve-out basis, consistent with our Form 10 filing. We've made certain adjustments that reflect Ralliant as a standalone company.
This means that there may be some slight differences between the precision technology segment results that were reported under Fortive. In addition, we'll discuss certain non-GAAP financial measures. A reconciliation between U.S. GAAP and non-GAAP financial measures is available in the appendix of today's presentation. All right, now on to the fun part. Fortunately, you'll be hearing from a lot of Ralliant leaders who've been here longer than I have, who've made it what it is today, as well as leaders who have lots of experience at external companies. The leaders you'll hear from today have really made the company who we are today, starting with Tami Newcomb, our new CEO. Tami will introduce you to Ralliant and give you a strategic overview of the company.
The presidents who lead the businesses will give you an overview of their businesses as well as the growth factors that are really driving our future growth. Starting off will be Chris Bohn, our President of Tektronix, who will speak to you about the growth drivers within power electronics. Then Andrew McCauley, our President of the sensor systems, will get you amped up about grid modernization and the growth within the grid. That will be followed by Corey, sorry, before Andrew, actually, Corey Christmann, our President of PacSci EMC, our defense and space business. He'll talk to you about the growth drivers within defense technologies. Following Andrew will be Neil Reynolds, our CFO, who will talk to you about our financial priorities and strategy going forward. Followed by that, Neil will invite the rest of the presenters back on stage for Q&A.
Before those in person will be able to head back over to the Innovation Showcase and hear from people leading our product and sales organizations for those businesses and getting a closer look at the products. We plan to wrap about 12:30, and I'll just note that those in person, we don't have a scheduled break, so feel free to grab refreshments or restrooms if you need to during the time. With that, let's get started.
The world is changing faster than ever. The pace of innovation is gathering force, electrifying everything we do. From invisible connections to visible impact, technology is charging forward. On the leading edge, a new force is emerging, one that supercharges next-gen technologies with unmatched precision and performance. A force built by engineers for engineers. We are electrifying the future, empowering change makers, digitizing systems, automating the world around us. At the heart of it all, unrivaled expertise. We are coming together with a singular focus to drive innovation at the forefront of the technology that powers our world.
Guidance control online. Over.
With precision comes confidence. We create technologies that redefine what's possible. We don't just keep up with change. We lead it. Through our trusted, industry-leading brands, our global team, and our commitment to continuous improvement, we are creating a future where technology delivers when it matters most, when it's mission-critical, when performance is non-negotiable. Tomorrow's challenges require more than innovation. They demand the highest level of precision. That is where we stand on the edge of tomorrow, driving the next wave of electrification and digitization, united by our business system, driven by a high-performance culture. We are Ralliant, and we are built for precision.
Ladies and gentlemen, please welcome Tami Newcomb.
Welcome to Ralliant. The last time that video played and I stepped on a stage, I was in front of my senior leadership team for the very first time. I walk on stage, and they start chanting, "We are Ralliant. We are Ralliant." It was electrifying. Such a great moment in our time. Our name, Ralliant, it comes from rally and valiant. This is how we show up and unite for our customers, our shareholders, and our employees. I'm Tami Newcomb, the CEO of Ralliant. On behalf of over 7,000 employees, I'm honored to share our story. It's those employees that make this such a special place. My experience is the intersection of technology, customers, and building teams. When I was young, my dad was an industrial arts teacher, and I was always in his shadow, either building something or fixing something.
That led to my undergraduate and engineering degrees, later followed by working from some very well-respected technology companies. I started at IBM, Analog Devices. I was a long stay at Cisco Systems, a networking company, and then having the incredible opportunity to join Fortive in 2017. I started as an engineer. It was really in my product management role that I fell in love with customers, going to the customer site. We call that going to Gemba. You go to where the work is done. When we show up at a customer site, you get to see how your product enables that customer or that customer's product. You learn what they do not use. I love being with customers. Led me to joining the global sales organization at Cisco. While at Cisco, I learned to build growth strategies, leverage the channel, marketing, several acquisitions.
Over that time, I got to build bigger and bigger teams, but kept the same formula. The formula was getting clarity on our growth strategy, super clear what we have to do, building a great team, and putting outsized results on the scoreboard. When it came to Fortive, it was a remarkable culture. Everything Jim talked about earlier, the continuous improvement discipline, the operating rigor, I knew it was someplace very special, someplace I wanted to be. Prior to this role, I had the opportunity to be the CEO of the advanced healthcare and precision technology segments. Before that, I was a president in one of our businesses, one of our billion-dollar businesses. What will be most memorable to me is working together with this leadership team side by side and strategically evolving both of these amazing companies.
As we go through the day, there are five things that I'd like you to take away. The first is we have an energized team, and we are connected by the Ralliant Business System. We are a premier player in precision technologies. You will see our proven track record of delivering growth in profits as well as free cash flow. We are going to spend a lot of time today talking about our growth vectors. This is where our end markets, we see growth vectors where we are well positioned. Finally, I will wrap on our disciplined capital allocation strategy. As a new company, we are committed to maximizing shareholder value. Now, one of my favorite parts of the job, I get to introduce my team. I will start with Neil, our CFO and my finance partner.
Neil brings six years of public company experience in industrials, semiconductor technology, also a breadth of financial acumen and roles that he's had over his career. You'll get a chance to hear from him directly. He'll be on stage as well as part of the Q&A. I also want to introduce my three presidents, Chris Bohn, Corey Christmann, and Andrew McCauley. All three will present to you today about the growth opportunity in this business. When they're on stage, they'll share some of their work experience. I thought I might share a couple of reasons that I handpicked each of them for their role. All three of them are team players. They work well as a team. They'll look out for Ralliant first. All three of them have worked in multiple different businesses in different geographies around the globe. Interestingly, all three of them began their career at Danaher.
When Jim talked about being seeped in the business system, being practitioners, not just a mindset of continuous improvement, but being able to do that, those three presidents have that characteristic. Last, I picked them for the role because of their customer focus and their desire to build and grow these businesses. I can't wait for you to hear from them today. Other three members of my team I'd like to introduce are Karen Vick, Jeb Boatman, and Amir Kazmi. Maybe raise your hands here in the front row. Although they're not presenting today, they're going to be out with the showcase when we take the break. Please get some time to get to know them. They bring fantastic experience, different industries, Fortune 500 scaled experiences. It's been a great addition to augment our team. I have another team. That's my board nominee team.
Our board chair is Ganesh Murthy. He was the former CEO of Microchip. Two other members I'll call out, Kate Mitchell and Alan Spoon. Both were on the founding of the Fortive board, and both raised their hands to be initial members of the Ralliant board. All four of us have been busy with Jim filling out our nine-person board. What you'll see here is experience in utilities and semiconductor technology, industrials. You'll see skill sets from CEOs to CFOs to chief strategy officers and chief commercial officers. We've been spending time immersing the board in our business. I feel like I'm just on the cusp of taking advantage of the wealth across this team. We're ready to go. You saw my executive leadership team. They're ready. They're ready to forge the future of Ralliant. We're lucky to have this great board with us.
I mentioned in my introduction that I had been the CEO of Precision Technologies. I want to take you back a little bit. I want to take you back to when this was formed. It was 2019. The first thing we wanted to do was think about what are the core capabilities in this set of businesses. It was a little broader than we have today. We realized what was core to this set of businesses is our expertise in precision, precision instruments, precision sensors, and precision safety systems. We got that strategic focus. That meant we had to do some divestitures. We wanted to really focus in in this area. The next thing we did was said, how do we drive profitability in these businesses?
There was a lot of work done in our early years on a tool that's in our RBS toolkit called price realization. It's really about value creation with customers. How do you understand where you create value with that customer? It's different. It's different to different verticals, different size customers, different geographies. This was our initial starting point in 2019. The next pillar we focused on was innovation. Our hypothesis was that for the same R&D spend, we could get more innovation velocity, therefore increasing our R&D efficiency. We started this with a pilot within Tektronix, and we built a process. We're good at building process. The process started with ideation. How do we get a really big funnel at the top of ideation?
This meant shifting some of our product management and engineers to doing more innovation with our customers and ideation, and then have a gated system by which you can pursue, kill, or pivot your ideas. This worked well. We expanded this across a broader set of businesses within Ralliant. What we also found, the places that we could go fastest was where we had engineering platforms. An engineering platform is simply hardware modules that can be reused, a user interface that you can take across multiple products, or software code. Where the engineers had architected platforms, we could move much quicker with our innovation. They set to work to take this strategy across the portfolio. You will see this show up in our new product launches that are coming this year. Some have already launched.
You'll also see this as the presidents are up here talking about some of the work that's happened within their business. In 2024, it was September, we got really focused on preparing to go public. We focused on clarifying the growth strategy specific to Ralliant, bolstering our executive team, simplifying our Ralliant business system, and refining our M&A strategy. I'm going to cover those last two. The result is we look different today. We've improved the growth, and we've improved the profitability. We've increased our serviceable market. A piece of that was through the EA Elektroautomatik acquisition. What we've maintained is that great place to work. Our leader effectiveness and our inclusion above 80%. That's great when you look at the industry. Our fill rate, we reach into the organization and give people opportunities to take bigger roles or promotions. 71%.
That's about 12 percentage points higher than the industry average. What this tells you is we've paved the way to become a standalone company, and we have some momentum. Let's look at a snapshot. This is a snapshot of 2024. We were $2.2 billion. Total growth, 3.5%. We have 25% recurring services. This is made up of services that are attached to our instruments in the test and measurement space and our defense customers who have long-term contracts with us and repeat business. We have healthy adjusted EBITDA margins, and over this time, we've generated nearly $2 billion in free cash flow. The business is 53% North America. Across the other regions, about 15%-17% each. We'll report in two segments, sensors and safety systems and test and measurement. I'm going to click down deeper into the two segments. Sensors and safety systems is 56% of our revenue last year.
The brands, the brands that you see here represented, they're well-known brands to our customers. These brands not only have precision and accuracy, they also hold up in very demanding environments. There are four end markets, two of which we're going to go into deeper today. We're going to go deeper into defense and space and the utilities piece. That's where we're going to talk about some high-growth opportunities. Then move to the test and measurement space. Again, very well-known brands, especially if you're an electrical engineer. You know these brands since you are going through college. This is where we have precision instruments, software, and services that enable all things electrical. Any piece of electronics that you touch in your day-to-day home, work, it's probably been a precision instrument from Tektronix involved in that. Today, we're going to dive deeper in diversified electronics.
I often get asked, what pulls these two segments together? Across the segment, both segments, we design, we manufacture, we sell, we support, and provide services. With our Ralliant business system, what happens in one manufacturing site is quickly replicated and helps another manufacturing site. A salesperson working a sales funnel in one business and has a challenge that they overcome using a tool in the RBS toolkit is quickly translated someplace else in the organization. To our customers, precision matters. That is the accuracy and reliability of taking these measurements in a number of different environments. I'm going to spend a little bit more time on our premier position in precision technologies. The first part is around our customers and the applications they use us in. The second is a century of innovation. Stuff is hard to do. We've been doing it for a long time.
The third is our strategic global footprint. Our customers, you could probably think of a name, a hyperscaler. A lot of print right now on AI. That AI is only possible through high-performance compute, high-bandwidth memory, communications between these things, liquid cooling systems in the data center because they generate a lot of heat, and energy, power. We're involved in many parts of that through our sensors, through our test and measurement. We can open the door and have access to the largest global enterprise innovators. We do not stop there. We scale to innovation from the global enterprise to startups. I happened to catch an episode of 60 Minutes a couple of weeks ago. Very cool story about how a woman who had never been able to walk was given that possibility through some engineering that the teams had done.
Now, I'm probably the only one that was geeking out when they went to the back office or the back, I should say the lab. They walk into the R&D lab because they want to show off what the engineers have created. And in there is Tektronix and Keithley branded equipment. That's what these instruments enable in the world to make this a better place. When you're thinking about precision and just being very, very precise and accurate, you probably want that when you're testing hydrogen fuel cell technology. If you're running a utility, if you've ever driven down the road and you look over and you see the big distribution center for a utility, in there, there's these things called transformers. They're a critical expensive asset.
You would find our precision sensors on that asset, and it has to work for a decade in the desert, in a snowstorm, in an earthquake, in a hurricane. These are demanding environments that these sit in. If you've watched a launch taking satellites up into the air, you've seen what our PacSci EMC business does in safety systems. Pretty harsh environments where customers expect us to continue to perform and continue to be precise. I mentioned our engineering. Just to give you a sense of precision and accuracy, when a piece of instrumentation and test and measurement is qualifying a semiconductor chip and helping that customer build out a data sheet, that instrument has to be 10 times more precise than that next leading-edge semiconductor chip. What that means is our engineers can't always pull components off the shelf. They often have to build their own components.
We have embedded in our engineering teams application designers for integrated circuits. We build our own ASICs. We need to be a culture that attracts the top talent, the scientists and the engineers to do this work. Our value, our value often comes back to the customer because we get to see how something works in a number of different applications. For instance, we make a hygienic sensor that's FDA approved for the processing of the milk you drank this morning or the beer you had last night. When somebody's building a new pasteurization plant, they call our sensing companies. They want to know somebody who's done this over and over and over again. This is clearly a competitive advantage for this set of businesses in precision technologies. 90,000 customers across the globe.
We support them with manufacturing sites that are diversified, R&D centers that are diversified, and our sales and applications engineers, about 70% direct. The remaining, we partner with channel partners from fulfillment to tactical to system integrators. We want to be closest to where our customers are. You can see that through our global team. In our local-for-local strategy, we're manufacturing more in region. We're doing more product development in region and then leveraging our sales teams for that great voice of customer. Customers in harsh environments trust our precision technologies and strategically positioned around the globe. That's why we're a premier player in this space. Proven execution. When I think about execution, all I can think of is the team. This is the team's results, the points that they've been able to put on the scorecard. Our name may be new, but our legacy is deep.
We know how to tackle tough challenges. Our DNA is problem-solving. We want to understand the root cause. We want to take quick action, and we want to continuously get better. We also have an opportunity to turn the page to a new chapter and begin to shape what's next. We're evolving our culture not by chance, but by design. This is my senior leadership team, the ones that were all chanting when I started. We started with our purpose. What brings us together? It's our precision technologies that give our customers the confidence so that our customers can break through every day. When I look across the organization, I see team players. They're curious. They want to own the future, and they've got a lot of grit.
My aspiration is to continue to keep that continuous improvement, that operational rigor, and then add how do we add the growth mindset and continue the journey that we have been on to enhance growth. In the end, make this a place where our employees thrive. Where this starts is the business system. This is core to who we are. This is core to our culture. We take our strategy. We pull that into our operating cadence, our business cadence. That becomes a scorecard, an annual scorecard. We call it our core value drivers. We make sure we're driving revenue and profitability, working capital and returns on any invested capital. We have customer metrics in there, quality, on-time delivery. We have employee metrics in there, engagement and attrition. It doesn't sit just at the business. It gets deployed throughout the whole organization.
Part of our strategy always has elements of people, teams, and culture. I'll give you an example. Five, six years ago, we made a commitment as a leadership team that we wanted more AI capability and skills in the organization. Out of our strategy came an investment in that specific organization and that talent. From the scorecard, it gets deployed down to initiatives in innovation, commercial, lean, and productivity. If I'm a manufacturing quality engineer, I know exactly what the metrics and KPIs are for my team and for me, and the expectation that we would problem-solve that if we're off track. We move our strategy all the way down to the point of impact for every single employee. It's how they get up and drive the business every day. It's also how they're measured on their performance.
It is how we set company bonuses, is based on these metrics. The reason it works so well, the real foundation here is it is part of our culture. We have got a common language. We have got a common business cadence. It does not matter which business you are in. We stay on the same cadence and in a very rich set of tools that have been around for decades. It is RBS that drives those sustainable results. We do not reward effort. We reward results. I am going to share a couple of results with you. I do not want to steal the thunder in the showcase and from the teams coming up, but we have got a great lineup. Going back to that second pillar, we are really focused on invigorating innovation. They will get to show that off today. Our productivity gains, stellar, and we need to keep this up.
As we've moved from being a part of a bigger company to a standalone company, we've got continued opportunity to work on getting some waste out of the system and right-sizing for the size company that we are. Just fantastic networking capital, less than 10% of revenue and consistently for the last five years. Kaizen is how we come together and do a burst of work to drive continuous improvement. We do hundreds of Kaizens during a given year. We picked one week where we had 500 people within Ralliant that were focused on both growth and productivity Kaizens. RBS is driving both innovation and productivity. This is where it all comes together. Through the cycle, our customers do have different investment cycles year to year. Despite different growth rates, which is in the blue part of this slide, look at the free cash flow.
Look at the conversion there. It's durable and consistent. If I could show you three years prior to this slide, you'd see a very similar trend. This is a great place to get started as Ralliant. How do you do it? I talked about the deployment of our scorecard, our core value drivers to the presidents. Every month in an operating review, a president's not looking out the rearview mirror. That would be our revenue. They're looking out the windshield. What does the windshield tell them? Orders, funnels, channel partners, macro issues going on. Right there at the point of impact, they do not have to wait for me or the leadership team. They are empowered to pull levers. They can pull levers to slow down hiring. They can adjust their OpEx. They can change their inventory.
That happens right in the business and gives us that reaction time that you see show up in our durable free cash flow. Let me tell you why we're well-positioned for growth. There are three pillars: RBS everywhere. That will continue. Our stronghold positions. This is really important. This is our existing customer base where we have stronghold positions and our winning growth vectors. A couple of things we're doing different at Ralliant is bringing together our technology teams, typically the CIO, with our AI skill sets, with our Ralliant Business System office. Together, we will tackle our challenges in the business with both the good people skills we have in RBS, but also with technology. R&D operations, we will continue that rigor that you've seen in the prior years.
This part, we're not going to spend a lot of time on this part of the strategy today, but this is extremely important. This is the 60% of our business that crosses both segments where we have really great positions with our customers. We're embedded in their workflows. We have enormous competitive moats. We will continue to do this work. They're expecting us to refresh the install base. We have opportunities here with our channel partners to take us new places or to get more share from a customer. We'll continue to drive services and bring more valued services to our customers. Again, not a place we're going to go deep today, but really core to ensuring we can get to our ultimate growth numbers. This is where the presidents will go deep today. We're going to talk about our winning growth vectors.
This is where we want to make incremental investments in our innovation and R&D. You'll hear about the start of some value-add solutions. We're going to continue that. We don't have to do it alone. We'll partner where it makes sense to partner. As we get into M&A, and I've got a slide later where I'll go a little deeper on this, we will be disciplined and think about tuck-in acquisitions to the businesses that we have today. Let me take you through this winning growth vectors. I'm going to go a little deeper in the end markets. We talked about there were seven end markets if you added them up across the segments. There are three that we like to grow, and we like our positions. That is grid modernization, defense technologies, and in power electronics.
All three of these, we believe we have the right to win and an opportunity to drive outsized growth. The next is an example that goes right into our power electronics strategy. The acquisition of EA Elektroautomatik, it happened last January of 2024. This is a great example of a premier precision technologies player. They play in the DC power supply space. Actually have them on display in the showcase today. The opportunity here was a win-win. The opportunity here was how do we take some great technology and some deep expertise, especially in Europe in EV and battery, and how do we scale that through the Tektronix sales team? About 10X the go-to-market and sales team. This market's been a tough one the last 12 months. Numbers aren't where we expected the numbers to be.
We do believe that long-term, this is a value creation opportunity in our test and measurement business. As we think about capital allocation, at number one is organically investing where we see higher growth in the businesses that we're in. We'll also align that with market timing. Number two is to continue as Fortive with a dividend and returning cash back to shareholders through buybacks. Third is tuck-in M&A. Last fall, when we were thinking about Ralliant, we were thinking about our M&A funnels. We knew we had to do something different to find selective tuck-in M&A. What we built was a profile. What I'm going to share with you is a profile that we are using to think about M&A. Again, it's not our first priority. It's not our second priority. It's our third priority. Identifying, cultivating takes time.
This is the profile the team is using. We want to continue to align to the growth vectors. We're looking for solutions, product and service-type solutions, and always that cultural fit. We have a number of financial criteria, but a double-digit year-three return on capital invested is our target. As I wrap up, we're well-positioned. We're well-positioned for profitable growth, continuing that trajectory, continuing what we started in 2019. We have a proven track record of generating free cash flow, durable through the cycle, free cash flow. We're going to be disciplined about our capital returns, ultimately delivering value back to our shareholders. Stay on the edge of your seats. We have more to come. I'll be back up later. Thanks, all.
At Ralliant, our precision technologies create the confidence to break through every day. Innovation begins with measurement.
We create test and measurement solutions that accelerate technical advancements around the globe. Our instruments push the boundaries of possibility in power and communication electronics. For over 75 years, our brands have designed and manufactured industry-best solutions spanning hardware, software, and services. We deliver accurate, reliable solutions that help the world's leading tech companies stay ahead of rapid technology cycles. Our teams, united by our business system and guiding principles, drive progress and empower engineers and innovators around the world. We don't just measure performance. We enable the future. We are Ralliant, and we are built for precision.
Ladies and gentlemen, please welcome Chris Bohn.
Good morning. Great to be here today. I'm Chris Bohn. I'm the President of Tektronix. I've been with Fortive now for the last 17 years and all of that time in the test and measurement space.
I've held a number of different roles and responsibilities over that time, including leading product innovation, operations, sales, and marketing, including time overseas in our high-growth markets. I'm very excited as we set forward here with the launch of Ralliant to continue this great journey. Today, I want to leave you with three key messages. In the short term, we're very focused on accelerating margin recovery versus what we saw in Q1. We'll do that through new products, price, and strong expense management. Two, that we are at the center of the long-term electrification trends giving rise to power electronics. Three, that we're well-positioned to capitalize on these trends with our decades of application expertise that's built into our IP, our platform-driven innovation, and our relentless pursuit of continuous improvement through RBS. First, we'll start with an overview of the test and measurement segments.
We are the measurements insights company. We empower our over 30,000 engineers to create what's next in advanced electronics with greater ease, speed, and accuracy than ever before. Our iconic brands have been doing that for over 80 years. From a geographic perspective, we are well-balanced. We offer the same level of application expertise, product availability, and great service everywhere that we operate around the globe. From an end market perspective, you can see a strong foundation in diversified electronics. This comes from our expertise in power applications that are being driven by these electrification trends. By workflow, this is the typical product realization workflow that starts in R&D, then moves to validation and production. You can see we have a very strong foundation in R&D workflows with smaller plays in validation and production.
We gained more access to these validation and production workflows with the acquisition of EA. Our strong and steady services business provides great recurring revenue streams for us as we attach repair and calibration services with our solutions. Combined, we are powering the future of electronics with decades of legacy, global reach, and our trusted brands. A quick look back over the last five years, and this mirrors the evolution that Tami talked about earlier. We started by really looking and focusing on improving our overall profitability. To do that, we simplified our portfolio. This allowed us to reduce the overall sustaining engineering that we had in the business by over 50% and reallocating those resources towards more value-added innovation. We also reached into the RBS toolkit with a strong focus on profitability and working capital improvements. We next looked at how do we overdrive our innovation.
Tami talked a little bit about our platform approach. We really leaned in on that to try and accelerate the time to market of all of our MPIs inside of the company. We focused on this customer innovation framework, which allowed us to build a tremendous innovation funnel to keep that moving forward. We focused in on commercial productivity tools that helped our commercial teams drive more impact and productivity and growth in the business. As we move forward over that time, we continue to refine our strategic focus and lean in on these power applications. That led to both great organic innovation as well as the acquisition of EA. Over the same time, we also focused on driving services growth. I'm happy to say that we've consistently grown that part of the business consecutively over the last four years.
From a results perspective, we're very happy with the overall productivity that we've driven in the business. Again, a 50% reduction in the sustainment engineering, a revenue per employee of over 30% during that time. I'm happy to say that we are in our 13th consecutive year of working capital improvements across the business. Next, I want to turn to our growth vector. This is the rise of the power electronics being driven by the electrification trends across every industry. It presents a great opportunity for growth for us. That's because every electronic uses power. Every electronic device out there uses power. Our customers, those engineers that are driving breakthroughs, this is the number one design criteria that they have when they're developing product. That's because the efficient use of power is top of mind in every electronic device. Think about it.
If you or a family member needed a pacemaker, you would not want to be replacing that battery every year. You would want it to last 10, 20 years. If we have the opportunity to ride in these electric aircraft or taxis that are being advertised, you would want to make sure that every component, every engineered system in that was extremely precise and that that taxi had the range to get you where you wanted to go. Tami talked about the wonderful example on 60 Minutes as well. Those opportunities are being driven by the execution of the engineers that we work with.
We are well-positioned to capitalize on these opportunities, whether it's our millions of instruments, our broad installed base and global footprint, our decades of application expertise that's built into our IP and measurement libraries that sit inside of our instruments, or our life cycle calibration and repair that we offer great services to our customers with. We are there to capitalize on this secular trend of growth in power electronics. Let me talk to you a little bit more about why we're so well-positioned here. What this is, is a chart of a product application coverage across both the electric device workflow, which starts in R&D and then moves to validation and then into production, as well as the application spaces of power and communication. You can see by the colorization here that we have strong product application coverage inside of power applications.
This came from an evolution of our portfolio over time. It started with our Tektronix oscilloscopes and probes, where we have a leadership position in high accuracy, low noise signal acquisition. To that, in 2010, we acquired Keithley. Now, Keithley is the gold standard in current and voltage measurements. We can measure femtoamps with Keithley instruments. That is 10 to the minus 15. That is precision. When you combine these two portfolios, what we found is that we were able to offer tremendous application capability inside of these power areas. We have been building on covering more and more of those applications with our solutions over the last 15 years. Last year, we added to that again. With the acquisition of EA, it gave us higher power test capabilities, as well as extending our workflow coverage into validation and production.
What we saw, as Tami mentioned, is these wonderful synergies of our commercial teams and our product teams working together to extend our reach of customers, as well as finding and uncovering additional solution coverage that we have by bringing the portfolios together. You will see that in the innovation showcase. Now, this is just a snapshot of a few of the great solutions and breakthroughs that we are unlocking with our product portfolio. Whether it is enabling up to 40% energy savings in data centers, enabling power-hungry edge computing and IoT expansion that happens in smaller and smaller device footprints every day, or improving the ROI of renewable energy by enabling up to 99% efficiency in solar inverters. These are the wonderful breakthroughs that we are helping to drive across the industry.
Another great example of this comes from a recent customer visit that I did about six weeks ago. It is in the heart of the historic steel country outside of Pittsburgh. We have got a customer that has built a massive 1 million sq ft manufacturing facility. In this, they are building batteries the size of this room as power backup systems to local municipalities that they are shipping all over the country. The breakthrough here is that they are using wonderful new technology that they call an iron-air battery that uses a rust and de-rust process to create that energy. It is applications like these that get us extremely excited.
As we walked in there and talked to them about the solution, they'd been using Tektronix and Keithley instrumentation on their materials analysis, and they're using EA power supplies to drive their charge and discharge cycles inside of their manufacturing at the cell, pack, and module level. We're extremely proud about these types of breakthroughs that we're enabling out there in the industry. Tami talked a little bit about platform design methodologies. I want to expand a little bit about what we mean by that. These are modular building blocks. By focusing on these modular building blocks inside of our roadmaps, it enables us to put those together to bring new products to market faster. We're able to refresh the entire product line significantly faster than we had done in the past. This started for us back in 2017 when we launched the 5-Series Oscilloscope at Tektronix.
Since then, we've been refreshing the entire oscilloscope product line at a much faster cadence than we were able to do previously. We went from one oscilloscope every two to three years to one every year. One of the design elements that we used, one of these building blocks, was this common user interface. This not only gave us an advantage in speed to market, but it also had the added advantage for our customers, where they could learn how to use an oscilloscope on one and seamlessly move through our entire product line. Zero learning curve as they navigated our portfolio. We are now taking that same approach across the rest of our product families. I mentioned that 2x improvement cadence that we had in oscilloscopes. We are in early iterations with our probes as well.
We've launched a few new probes on top of this platform design methodology. We have a wonderful roadmap there. We actually inherited a wonderful platform design heritage at EA, and they will continue to pace the market by driving that execution inside of their roadmap. They have three new product launches this year. We are expanding that to the rest of our portfolio, and some of those platforms have the first iteration of launches this year. I'm happy to say we'll continue to see this 2x cadence of innovation. We expect to drive that and much faster acceleration of our roadmap because of it. We're already seeing benefits with more new products introduced this year than we've had over the last five years. A quick look at some of those new products. Some of these you'll see in the innovation showcase.
It starts in the R&D labs, where we're refreshing our installed base with our new flagship performance oscilloscope and a new-to-industry isolated current probe. Customers who have seen this innovation have been thoroughly impressed with the performance, and our sales funnel continues to grow as we show it off to more and more customers. Next, into our validation and production labs, where we're expanding our serve market and share of wallet with existing customers. We have a number of new products here that we're launching over the course of the year. Some have already launched. Some are still to launch, including our battery impedance meter that we launched last week at the Stuttgart Battery Show in Germany. Again, customers are extremely impressed with the overall performance of these products, and we will continue to drive this faster innovation cadence with our platform design methodology as we move forward.
Our strategic priorities are clear. We want to drive profitable growth and improve our manufacturing agility. To drive that growth, we will be focusing on those new products that I talked about and continuing to drive that faster innovation cadence through platforms, as well as every time we do that, we have an opportunity to attach more service at a higher rate. We will continue to focus on that as our primary growth levers. We are also continuing to focus on our manufacturing agility. We started this a few years back, but this is an effort to diversify our supply chain and our manufacturing footprint to enable a significant resilience in both. Our short-term priorities are also clear. We are driving actions to accelerate margin recovery with our downcycle playbook. The macro uncertainty that we have seen this year has been a headwind to both our volume and margins.
We're committed to improving that as we work through the year. Helping that is the MPIs I just talked about, which are investment dollars that we protected. We've done a lot of proactive cost management, starting in the second half of last year with some restructuring, as well as strong expense management that we'll continue to operate on through the balance of this year. In summary, I want to thank you for your time and come back to these three takeaways. In the short term, we will be accelerating margin recovery with our proven downcycle playbook. Two, we are at the center of empowering electronics innovation driven by these electrification trends. Three, we're well-positioned to capitalize on those trends with our decades of application expertise, our strong platform-driven innovation, and our relentless pursuit of continuous improvement through RBS.
Thank you, and let's queue up the next video, and I'll turn it over to Corey.
At Ralliant, our precision technologies create the confidence to break through every day. From high-voltage ignition systems to launch and flight safety solutions, our technology powers defense and space missions with unmatched reliability. As defense modernizes and space emerges as a hub for communication and technology, our solutions are more critical than ever in ensuring mission success. With over 65 years of engineering expertise, our legacy is built on a commitment to precision solutions where failure is not an option. We are more than a trusted provider. We are a partner in safety, ensuring every launch, flight, and mission is protected. Our teams, united by our business system and guiding principles, are built to test, innovate, and deliver cutting-edge precision solutions in a rapidly changing world.
We don't just engineer solutions; we safeguard the future. We are Ralliant, and we are built for precision.
Ladies and gentlemen, please welcome Corey Christmann.
Good morning. Are you ready to talk about defense and space? I know I am. Thank you for being here today. I'm Corey Christmann, and I'm the President of PacSci EMC. I've been with a Fortive family of companies for the last 21 years, and I've had an opportunity to work in multiple roles in some of our key businesses like Fluke, Tektronix, and now PacSci EMC. Over those years, I've focused on global operations, global supply chain. I've led services businesses, as well as multiple GM roles in our industrial and aerospace and defense business. I benefited from my assignments over that time, but I've also benefited from multiple international assignments where I spent time in Mexico, the Czech Republic, and Germany.
I'm excited to share with you our defense and space business today, the work we've been doing over the last couple of years, and what I believe the path forward looks like. It's a great time to be part of Ralliant. I'm excited to be here with the Ralliant leadership team and really excited about the future ahead. Tami started the day with talking about our two different segments. Chris talked about the test and measurement. Let's spend a few moments on our sensors and safety systems segment, where we provide high-precision sensors and safety systems for demanding environments where uptime, precision, and reliability are non-negotiable. We have over 75 years of history, more than 14 million installed devices, and 70% of our revenue comes from regulated and safety-critical industries.
In 2024, our segment sales were supported by a diverse and distributed by geography led by North America and through our end markets in industrial manufacturing, defense and space, and utilities. Our strong brands are represented here: PacSci EMC, Qualitrol, Anderson-Negele, Gems Sensors, and Hengstler Dynapar. Today, we're going to dig a little bit deeper into our defense and space, as well as our utilities end market. I'll start the conversation here focused on defense and space and our growth factor of defense technologies. Andrew McCauley will come up and talk about our end market in utilities and grid modernization. In defense technologies, I'd ask you to think about this. At PacSci EMC, we deliver mission-critical safety systems and solutions for defense and space customers. We operate as an embedded partner in our customers' long-term programs. Today, we're driving rapid innovation proprietary to support defense modernization.
If we dig a little bit deeper into our defense and space business, we provide precision energetics and high-voltage safety systems. We have over 75 years of installed base and are honored to support more than 50 long-term programs. Our success over the last couple of years has provided us with two-plus years of booked backlog in our system today, with visibility to more. Over the last five years, we've achieved a high single-digit compounded growth. The middle graph shows our sales by program tenure and shows our success over the last four decades, where we have an average program tenure of 20 years. The graph represents what you'd expect to see in tenured program business. The early days, we start out with the initial production after post-launch. We move into multiple years of run rate production and then ultimately the transition or graduation to the next-gen platform.
The F-35 is a great example of this. The F-35 started production 10 years ago and is scheduled to be in production through year 2070. Our bookings in 2024 were represented by 85% of our bookings were in production programs today, representing our recurring revenue, supported by 15%, which is a growing number at PacSci, of new funded development. That new development will become our in-production programs of the future and continue to build. Our key applications are in ground safety, launch safety, as well as flight safety. Our customers are defense primes, DoD agencies, space exploration programs, as well as commercial aviation players. At PacSci EMC, we are a trusted leader in precision energetics and safety systems.
Some of you may ask, "What does it mean when you say you're an energetic materials company or you're a leader in precision energetics?" I think the best way to describe that is by way of an example. If you're the pilot of a fighter jet, then you're in the unfortunate situation that you need to leave that aircraft while it's still in the air. When you go to, as a pilot, and you go to hit the eject button, one of the very first things that has to happen is the canopy of that aircraft needs to be removed. Mind you, the pilot is still in their seat, and that canopy needs to be removed safely. That's what our energetic materials does. It allows for that precise activity to happen, protect the pilot, and allow the canopy to remove so that the pilot can eject safely.
That allows us to provide critical safety solutions for all phases of flight. We provide ground safety, launch safety, and flight safety solutions for a wide range of applications. Our key areas of focus are on missiles, munitions, rockets, and military and commercial aircraft. Over the next couple of slides, I'll walk you through in more detail each of these applications. In ground safety, we provide solutions that ensure safe ignition and sequencing for pre-launch activities. Our products ensure the system is initiated only when commanded, ensuring mission success and protecting personnel during ground and safety operations. We also provide solutions to deactivate a launch sequence, which is represented here by our thermally initiated venting system. Our products support a diverse portfolio of solutions, and most of you are likely familiar with some of the more successful programs, like the Patriot and THAAD missile programs.
Moving into our launch safety, this application, we provide liftoff and boost phase support. We also provide systems that allow for successful separation of payload boosters, as well as solid rocket motor jettison. Our customers identify one of the most challenging and time-consuming aspects of preparing for a rocket launch, which is represented by the flight termination system that you see at the top of the diagram here. It is a complex part of the process because it requires a very rigorous regulatory and compliance set of standards to meet the qualification criteria to be accepted in range safety to actually allow for the launch to occur. You may not know it, but in recent news events, you have happened to see a rocket launch activity that appeared to be unsuccessful.
There's a high likelihood that our equipment was used to deactivate that event, likely to protect personnel and property on the ground. Our third application profile is really around our flight safety, where our products protect pilot and passengers from in-flight emergencies. This is where safety is paramount. That is where our customers use our fire suppression systems, our ignition safety systems, as well as our emergency egress systems. Through this, we support a large range of aircraft, including fighter jets, helicopters, large carriers, as well as commercial flights. If you flew here today, you are likely protected from some of our systems. We take immense pride in the over 1,500 successful pilot ejections that we have enabled over the years. One of the highlights of my current role is meeting the pilots who have successfully used our system. Commander McAllis visited our site in Hollister, California last year.
He took that opportunity to spend time with our team and thanked them for the work they do and the systems they provide. It allowed him to successfully eject from his aircraft and return home safely to his family. Simply said, our products ensure success when milliseconds matter. What I shared here is a representation of a few of the applications. Allow me to zoom out for a moment. This slide represents a portion of our diverse portfolio and the wide range of applications we support. We operate in applications from deep sea to deep space. The breadth of these applications, to me, represents our technical capabilities and the engineering domain knowledge required to support our customers' most demanding applications. Combined with our intellectual property and our legacy flight heritage, this allows our customers to create solutions that can work in the most extreme environments.
The applications range from submarines to missiles and munitions, military aircraft, as well as commercial. The comment here on the bottom actually came from a recent visit to one of our defense primes. It was somebody new in the supply chain organization that was learning about the business and was first getting associated to PacSci. He was getting exposed to some of the products that we provide direct to that defense prime, but also the products that we provide through other sub-tier suppliers. His response to us is, he says, "I've done a little bit more digging." He said, "PacSci is everywhere." I said, "I agree." One of the things I learned early in my career at PacSci is that if it flies or operates in an extreme environment, there is a high likelihood we have content on it.
It's this diverse portfolio that gives me confidence to continue to grow. Over the last five years, we've focused on transitioning our business or transforming our business through our strong culture of continuous improvement, where we focused on lean manufacturing, focused on our supply chain performance, and our capacity expansion. We've made strategic investments in supplier development, as well as our dual sourcing initiatives. We've invested in automation, digitization, and AI to help enhance our equipment automation capability, as well as our engineering solutions. More recently, we've spent time on our customer innovation, where we've doubled our innovation funnel, and we've improved our customer-led innovation through our accelerated new product development. The benefit of that focus has been a 50% reduction in our past due backlog. We've increased our capacity runway to support more than our existing revenue profile today.
That customer success has allowed for new program growth, allowing us to expand our SAM by over 30%. This is one of the pillars of our future success. I think as we talk about innovation, a great place to start is with a case study with a key customer. Due to geopolitical tensions, this drove the urgent need for development of a hypersonic defense platform. The customer needed a launch safety system to support the rapid prototyping and testing of that new defense system. Our team immediately jumped in, deployed some of the RBS toolkit. We immediately went to that customer so we could better understand the application and the critical needs of their solution. We deployed our VOC tool, or voice of customer, to better understand that. We combined that with our core competency and launch safety regulatory compliance.
What we created was a co-developed cutting-edge safety solution for flight safety. The impact is we've grown our business with that prime by over 50%. That same business has translated into a 30% expansion of our international business. Today, we've successfully completed two of those development programs that are moving or transitioning into production. The benefit of that success is we now have three new programs in our development funnel, and we'll actually deliver hardware on the first of those two here in Q2. The second pillar of the growth is founded in our long-term secular drivers, where space advancement and communication, as well as the evolving geopolitical environment and defense modernization, will transform our industry as we know it today. In space advancements, it's being led by a 200% increase in orbital space launches since 2017.
There's been a 6X increase in the number of annual satellite launches from 300 to 1,800. There's been a 20% increase in the geopolitical environment. There's been a 20% increase since 2021 in rearmament spend. Rearmament spend in 2024 was estimated to be $1.8 trillion. In defense modernization, the U.S. has committed to an additional $100 billion of investment for next-generation programs over the next five years. The global defense spend is expected to reach $3 trillion annually by 2030. Those secular drivers, combined with our competitive advantage, focused on our flawless mission record, where we have zero safety-related failures on 50-plus years of critical programs, along with our patented modular platforms, where we hold a strong IP position, allowing for rapid, low-cost customization, and through our embedded technology, which focuses on integrated electronics and energetic material systems.
This is a key to our competitive moat: the combination of the integrated electronics and the energetic material systems. It's key to meeting the regulatory and compliance requirements of this industry. All of that translates into a preferred partner status, where we have a leading position on the majority of our flagship programs. As we focus on our innovation, as well as the secular trends and our competitive advantage, it leads us to our strategic priorities moving forward, where we will continue to strengthen our operational adaptability. The defense industry today, it's a wide-known challenge around supply chain and capacity. We will continue to focus our energy and effort there. We will supplement that with our accelerating our time to market. Customers are very focused on the speed with which they're developing new programs, and next-generation activities can make their way to the marketplace.
We will strengthen the partnerships by better understanding the mission-critical nature of our customers' applications and differentiating with technology, driving innovation to help our customers reduce the time to their first flight, as well as expanding our foundation in modular and platform technologies for next-generation activity. As you think about Ralliant and as you think about PacSci EMC, I ask you to take these three things forward. We are a trusted leader and partner for mission-critical safety systems. We are positioned for growth with our strong secular drivers, and our clear strategy with proprietary innovation has us poised for continued growth. Thank you for your time.
At Ralliant, our precision technologies create the confidence to break through every day.
We ensure the stability and longevity of power grids, the backbone of modern life, through advanced monitoring and diagnostics, effectively meeting rising power demands, infrastructure modernization, and shifts to renewable energy. For over 80 years, we've pioneered real-time monitoring solutions to detect grid failures. From transformers to substations, our technology delivers critical insights 24/7 to keep the lights on for over 90 countries around the globe. Our teams, united by our business system and guiding principles, are built on a culture of collaboration that delivers for our customers. We are redefining the future of power resilience, delivering innovation with lasting impact. We are Ralliant, and we are built for precision.
Ladies and gentlemen, please welcome Andrew McCauley.
Wow, what a video. I bet you never thought you'd get chills watching a video about the power grid. Good morning. It's a privilege for me to be here today.
My name is Andrew McCauley, and I'm the president of Sensing Businesses. I've been with the corporation for over 27 years. I've progressed in my career through a series of sales and marketing leadership roles into business unit management. For nearly the past 10 years, I've had the honor of being a president of one of our companies. Corey talked to you earlier about the segment, sensors and safety systems, and where we had two growth vectors. Corey covered defense technologies. I'll be focusing today in my discussion on the grid modernization. With that, there are three key points I hope you take from my presentation today. First, we are defining reliability as a trusted leader for over 80 years in the business, providing essential and reliable grid solutions.
Second, as a market leader, we're well positioned in the utility business to benefit from the global long-term secular trends that we're seeing in grid modernization and capacity expansion. Third, that we can continue to drive strong above-market growth in the utilities market with our clear strategies powered with RBS. Okay. Let's take a look at the business a little more closely. Over 7,000 utilities in 143 countries around the globe trust Qualitrol to keep their grids running. Why do I say that? Because we are the leader in health monitoring of critical equipment in the power grid. With over 80 years of experience in business, 4 million fielded devices delivering high single-digit growth over the past five years. Two key customer types: a utility customer and an OEM customer. Global utilities around the world.
Names you might recognize here, think Duke Energy, PG&E, AEP, maybe here in New York, ConEd. These utility customers are where our engineers work side by side every day, designing the next-generation power grid and solving their most challenging problems. We add so much value, in fact, that oftentimes these customers will write our name down on the purchase orders when they buy the larger equipment from the OEMs. OEMs around the world, almost all work with Qualitrol. Names you might recognize: Siemens Energy, Hitachi, GE Vernova. They provide global reach and scope for us as a channel to market to our utility customers. Lastly, our employees come to work every day knowing that they're enabling the delivery of uninterrupted power to create a safer, more productive world. With that, let's take a look at where we play in the power grid.
I think about the grid in three different ways. First, you generate power, then you transmit power, and then you distribute power. The generation side is a strong point for us, an area where we have clear advantage in market leadership. It's a smaller piece of the marketplace. For us, we're agnostic to the power source, whether it be wind or solar or coal or nuclear. Qualitrol benefits. Once the power is generated, it goes to a substation outside the plant and is stepped up to a high voltage and runs along thousands of miles over the big towers that you've all seen driving through the countryside. This is the part we call transmission. This is our home turf. This is our strongest position, also our biggest opportunity for future growth.
At the end of that, you'll find another transformer, another substation where the power comes down and is distributed into our cities and our smaller towns, bringing us electricity to our homes and businesses. Distribution is an area that we play in the high-end of the marketplace, but less of a focal point for us. Each of these substations along the way are opportunities for Qualitrol to play. Let's do a double-click into a substation and look at one of the key assets inside that substation. There are many different types of equipment that we service, but maybe none more important than the large power transformer. These devices can be mammoth. They can be larger than two-story homes. They cost on average between $5 million and $15 million, while the sensors that we outfit on them cost less than 1% of that.
However, if one of these transformers goes offline, 10 million people or more may lose power. This is exactly what our products do. We monitor the health of these devices and see the problem coming before the outage occurs. A typical application on the left, you can see the dots represent areas that you can either put safety assets, safety sensors, or advanced health monitoring sensors. A typical application of a transformer, maybe put five or six of these devices on one transformer. Think about that. Six dissimilar companies providing products having to coordinate the communications, configure those products, thousands of parameters, hundreds of alarms, get all that data out into your own software package. I do not know if you have a friend. I have that one crazy audiophile buddy who has his own stereo that he has built.
He purchased his own amplifier, his own receiver, his own stereo, his own speakers, and he's got to make it all work together. He's got that remote control that, instead of the five that he has, he had to make one work for the whole system. That's sort of what Qualitrol does. We're providing them enough of a solution to give them the high-performance audiophile performance, but in the simple, easy button, all from one vendor. What does the customer get from this solution? That work, that effort we talked about, it's doable, very achievable, but it takes six months on average to do one of these projects and make all these different devices work together. With our pre-verified and validated solutions, we reduce that time from months to weeks and, in some cases, even days.
The customer also gets the elimination of technical risk and schedule risk because our solutions are pre-verified and pre-validated. What do we get in return for that? Our content per transformer goes up by three to five times. The value prop is resonating so well with customers, we've seen our close rates go up by 50%. They recognize that that work that we're taking off of them and putting onto our business is value creation for them, and we're able to capture that in our pricing. I'll give you a story. We had a salesperson working with a major U.S. utility to sell them a component. It was going to be a great order. We were very excited.
That individual went off to our solution selling training, came back, and four months later turned what would have been a $300,000 a year account into a $3 million a year account. That's the power of our solution selling. Okay. With that background, let's take a little deeper dive into our products. Our product portfolio is very broad. On the screen today, I'm just sharing a sampling. These are three of our asset health devices. Each of these products has powerful AI-backed analytics, so much so that they can monitor the asset for a customer, and they can tell the customer if the device is healthy, if it's got a cold, or if, in fact, it has a more serious health problem. If it is, in fact, sick, the analytics provide actionable insights to them to go prevent the outage from happening before it occurs.
In this way, we're driving greater grid uptime and lower costs for customers, enabling them to pivot from time-based maintenance to condition-based maintenance, extending the life of critical assets and maximizing grid availability. My team regularly berates me for calling these products sensors. They tell me that calling these powerful devices sensors is like calling a BMW a cupholder. One more story. In the middle of the screen, you can see the product here. One of major U.S. utilities outfitted their entire fleet of transmission substations with this product. The following year, they told us, was the first year in company history they didn't have a single fire in a transmission substation. That's the power that Qualitrol creates, the value we add for our customers. Okay. Let's talk about the journey that we've been on over the last five years. It starts with reinvigorating our innovation engine.
We moved to platform products to get a more regular cadence of higher quality, more frequent new releases, similar to what Chris talked about at Tektronix. Second, we pivoted our go-to-market. We went from a purely regional sales team, and we divided that into two segments, one each targeted at those two customer types I mentioned at the top of the presentation, a dedicated utility sales team and a dedicated OEM sales team. As you can imagine, the unmet needs and the value prop that a Duke Energy or Hitachi have are very, very different. The results from this is we've seen both sides of our business grow dramatically. Along comes 2022. Very stable market. Worldwide, in 2022, all suppliers, all OEMs saw a significant increase in demand that exceeded all of our capacity. We got caught too. When we have a problem, what do we do?
We reach for our RBS toolkit, and we get to work. I've got a case study slide following this one that I'll share with you, the details of how we unlock growth with the power of RBS. Lastly, in our journey, our solution selling. I just shared with you a little bit about how that works. This has been a fantastic opportunity for us. We are very uniquely positioned in the marketplace with our product breadth to be the only player to offer a full solution. Over the five-year journey, what have our results been? Five years of high single-digit CAGR on revenue, a six-fold increase in new product sales, and three working capital turns improvement. Okay. I promised you that case study. Demand step function change in 2022. On-time delivery goes down, passthrough backlog goes up, lead time goes out. Tami talked about Kaizen earlier in her presentation.
We did a Kaizen event, continuous improvement. We had three of our largest production lines that comprised over 30-40% of sales of our largest factory. In one-week event, we were able to nearly double the output of all three production lines. That's the power of RBS. That journey has continued now for the past three years. We have over 60 Kaizens in that facility alone, where we've increased output by 50% without adding a single dollar of working capital. On-time delivery is up 20 percentage points, and employee engagement up nearly the same. I think the thing I'm most excited about is the employee engagement. The energy that you feel in the building now is a whole new vibe when you walk around. Everyone's really excited by what they've accomplished so far.
With that, let's do a zoom out and let's look at what we're seeing in the macros in the marketplace. It's an unprecedented time to be in the utility market space. We're seeing the underlying demand for electricity growing at six times faster than the average of the last 20 years. If you didn't get chills from that opening video, I hope you just got some chills from that statement. Six-fold increase in underlying demand. What are the key drivers? There's three key drivers here. You may have heard about the aging infrastructure in a lot of the Western regions around the globe, where, as an example, in North America, over 70% of the large power transformers that I've just talked to you about that are in the field today are well past their design life.
Second, data centers, where a simple AI search takes 10 times more energy than a Google search. You may have heard that in North America alone, the electricity consumption from data centers is going to go from 4% of our grid to 9% of our grid. That is going to add 250 terawatt hours. Terawatt. That is 12 zeros. It is an enormous impact. More data centers means more power, means more substations and more power lines, more opportunity for Qualitrol. Lastly, new renewable energy has been a long-term trend where, by 2030, we expect to see worldwide generation, 50% coming from renewable energy. Once again, every solar farm, every wind farm, another transformer, more power lines, more opportunity for us. It is a fantastic time to be part of the utility space. How do we compete? What is our differentiation in this marketplace? We have three key differentiators.
First, worldwide, Qualitrol is known as the industry experts. Utilities and OEMs alike reach out to Qualitrol for help, not just for asset health monitoring, but for the next-generation grid design, next-generation component development. I often tell our team we're actually invoicing products, but what we're really selling is domain knowledge and expertise. Second, our product breadth, where we have the broadest portfolio of products in the marketplace. We have 10-15 different product categories compared to our nearest competitor, who has only three to four. That allows us to be uniquely positioned to cross-sell, upsell, and provide sole solutions to the marketplace. Lastly, our iconic brand. We created this category 80 years ago. We've been the market leader ever since. The name Qualitrol is synonymous with defining reliability in a marketplace where reliability really matters. What's our go-forward strategies? Three key areas.
I talked about the innovation engine. We've got to keep it going, expanding our platform. This year alone, we'll launch three new products. Operational capability. We've nearly doubled this business in the past four years, and we're going to go do it again in three years. Lastly, how do we optimize this market opportunity? It's a fantastic time to be in utilities. Two key areas for us: solution selling and continue to expand that to drive share of wallet at our customers. Secondly, we'll be launching an industry best-in-class digital customer experience, allowing customers the same capability they get by calling and talking to our application engineers or our customer service teams available to them in a proprietary customer portal 24/7.
In conclusion, I hope you take away from this presentation that we are the trusted leader in high-precision, reliable grid solutions, that as the market leader, we are well-positioned to take full benefit of the secular tailwinds that we're seeing around the globe, and lastly, that our clear priorities will allow us to continue our market leadership, driving profitable growth. Should you have any additional questions, my team and I will be at the Innovation Showcase later. I want to thank you for your time today.
We're entering a new era, one built on precision, driven by progress and powered by people. As trusted partners to engineers and innovators around the world, our work has shaped what's possible. Now we'll define what's next. Our precision technologies create the confidence to break through every day because the work we do empowers innovation for our people, our customers, and our shareholders.
Our purpose comes to life through our guiding principles. They shape how we think, act, and grow together. Every day, we face challenges. What sets us apart is that we solve problems. We solve them fast. We unlock growth by opening our eyes to possibility, challenging assumptions, and embracing change to move boldly toward what's next. We own our future. It's something we create. We win as one team by building trust, including diverse perspectives, collaborating toward a common goal, and innovating alongside our customers. We learn by doing because progress comes from action. We don't wait for perfect conditions. We experiment, adapt, and improve in real time. These principles are how we show up every day, how we lead, how we move forward. We are relevant, and we are built for precision.
Ladies and gentlemen, please welcome Neil Reynolds. Good morning.
I'm Neil Reynolds, and I'm the CFO of Ralliant. As Tami mentioned earlier, I have roughly almost 30 years of public company finance experience, the last six years as a CFO on Wall Street. Prior to that, I worked in a number of industrial and technology companies where I worked with talented teams at places like General Electric and NXP, where we drove profitable growth. It continued to be my focus. That's what drew me to Ralliant. This was a unique opportunity to create a new company who already has a foundation of great process improvement and execution built in. It also has a dynamic leadership team with leading technologies in important markets. Now, in the time I've been here and getting to know this team, I can tell you it is even more impressive to see it for real.
After my first week or so, I sat down with Tami to give her some of my initial observations from the team. I knew we had a seasoned team here. What I did not realize until I saw it for real was the detailed daily execution and attention to detail from this team. I think you saw it shine through in these presentations today. I am truly humbled and honored to be a part of this team where I believe we collectively can do something very special. In addition, I continue to look forward to having a dialogue, a constructive dialogue with all of you as we look to navigate incredible opportunities that we have ahead. Let us get into a little bit of how we are going to do that from a financial perspective.
In terms of the financial summary, there are three things I want to talk about today. The first is, and be very clear on that, this company and this team has a demonstrated track record of high margins and consistent cash flows over time. Secondly, we are going to operate with a clear set of financial priorities focused on organic growth, where we will invest efficiently. Lastly, we will spin the company with a very strong balance sheet with a capital allocation priority of returning cash to shareholders and a very rigorous financial discipline about how we think about M&A going forward that is aligned and augmented with our growth vectors that Tami talked about earlier. Let's talk a little bit about the track record that this business has seen over the last five years.
Looking at the top left of that chart, the business has seen 3.5% CAGR over that time frame. More impressively is moving to the center of that chart, where it's seen a 9% or almost 9% EBITDA CAGR over that time frame. EBITDA is growing at more than twice the speed of revenue. Now, let's put that into context for a second. That EBITDA, the nominal EBITDA, has grown 50% or more than 50% in that time frame, so 1.5 times. What that's translated into on the right-hand side of the chart are EBITDA margins that have grown almost 600 basis points. What does that mean? As the business manages through various cycles, at that level of revenue, that EBITDA margin is already structurally built into this business.
On top of that, as the team talked about, there's an incredible amount of discipline and detail around both working capital and a CapEx-like model that translates that EBITDA into impressive free cash flow. You can see that at the bottom of the chart. This business has generated approximately $2 billion of free cash flow over the last five years. Now, let's put that EBITDA growth into context for a second. We believe that EBITDA growth is in the top tier of our peer group. How does it get generated? It's not just by the RBS tools. It's fueled by a passionate team that comes to work every day, day in, day out, focused on continuous improvement, but also detailed execution. We want to be clear, as Ralliant, that will be a bedrock and a foundation of how we work every day.
Now, let's talk about where we're at in 2025. We're clearly seeing some end-market mixed signals. I think from a sensors and safety system segment perspective, we're seeing some solid demand, particularly in defense and other areas. In test and measurement, we've seen a pause due to the macroeconomic environment with some of our customers who are delaying CapEx and pushing out some of their purchases. Looking to the center of the chart, as Tami said, this team has the playbook to manage through this. It has the culture to manage through this and navigate this macro environment. As we look over to the right-hand side of the chart, we've continued to invest in organic growth, where the team has taken you through product launches and NPIs that will come out this year.
When the market comes back, this business will have the capability of flow-through profits as the business continues to grow and those investments start to pay off. Now, let's look forward. As I said at the start, we're going to have our business run with some very, very clear financial priorities. The first is we're going to extend our growth, below single-digit plus growth, with focused investments in winning areas augmented by tuck-in M&A. I'll talk about our hurdles for that here in a minute. Secondly, we're going to grow our adjusted EBITDA faster than revenue, and we're going to continue to generate free cash flow and then have a strong balance sheet and then translate that into shareholder returns by boosting that with cash returned to shareholders. That will be the focus of how we operate the business.
Let's think about revenue growth over this next period for the company. From an organic perspective, we're targeting 3% organic growth over time with about 1% growth for M&A. You can think about that as 3-5% over time. That M&A does not necessarily happen every year, but think about it over time. Organic growth of 3% with M&A depending on the year, about 1%, and then 3-5% through the cycle. Now, looking at our margin profile, Ralliant will operate in the low to mid-20% EBITDA margins. That will be made up of sensors and safety systems that will operate in the high 20% and has a track record of operating in this range. Test and measurement, albeit being a bit more variable, will operate in the mid-teens to the low 20%.
It'll achieve the higher end of that EBITDA range as growth continues and we start to see the business grow out into the future. We believe we have the clear levers in place to drive the EBITDA performance of the business, and we'll see strong EBITDA margins in both segments. As we said, you saw it through the presentation today and throughout, we expect to have durable cash generation and free cash flow through market cycles. Why is that? Number one, we'll operate in the EBITDA margin levels we talked about, the low to mid-20%. The team will continue to have a maniacal focus on working capital and drive that below 10% of revenue in combination with the CapEx-like model at approximately 2% of revenue. All of that will translate into a free cash flow conversion of greater than 95%.
When you take a step back, that will translate into approximately $1 billion of free cash flow by 2028. Greater than $1 billion of free cash flow by 2028. High margin, light CapEx, a focus on working capital will translate into solid cash flow through cycles. I said it earlier, the business will have a very strong balance sheet at spin. We'll start off with $1.15 billion of debt, $150 million in cash, giving us a net debt of approximately $1 billion. The leverage will be 1.9 times. I'll talk about it here. The range we will target is 1.5-2 turns.
We will start off at the higher end of that range, and we will have significant liquidity capability for approximately $900 million, $150 million of that from an undrawn term loan, and $750 million from a revolving credit facility we will have in place at spin. A very strong position from a balance sheet perspective as we open this company. Tami hit on this chart earlier, but I wanted to hit on it again because I think it is really important. From a capital allocation approach, we will have three priorities. The first will be for organic reinvestment into the business. We will do that efficiently over time, capturing more as market cycles increase. Secondly, we plan to return capital to shareholders, and we will do that in the form of dividends and buybacks.
After we spin the company and form the board officially, we'll come back out with more details on how we do that. Right now, that is the planning and thinking as we move forward. Lastly, we will toggle between that and M&A. That M&A will go through rigorous financial discipline and filters. Tami talked about those filters a bit earlier. They'll be targeted to areas where we already have solid positions and will be accretive at the rate of 10%+ ROI within three years and clearly above our weighted average cost of capital. Overall, we'll focus on returning capital to shareholders and investing in our clear growth vectors. Overall, let me sum this up. First, we'll target on organic growth investments and extension of our growth.
We will drive EBITDA faster than our revenue, and we'll drive those margins to the low to mid-20s. That will translate to strong cash flow, and that will in turn allow us to return capital to shareholders and perhaps invest in some M&A as well in some clear areas. I want to thank you for your time today. It's been an honor of mine to stand here in front of you as we launch a new company and an exciting time for this transition into Ralliant. Let me conclude and ask Tami and the team to come on up and answer any questions you might have. We'll just take a second here to let the team set up. Thank you.
All right. Thanks, everyone. I want to make sure I can see the whole room up here. All right.
We want to kick off the Q&A session before we head into the innovation showcase. Why don't we start? Make it easy on our team running mics. Start with Julian in the middle.
Thanks very much. Julian Mitchell from Barclays. Maybe a first question around organic growth because you have a 3% SAM target, 3% growth targeted at Ralliant. Kind of no market share gain embedded, maybe sort of help us understand that. Also your market share implied, I guess, is sort of low double digits versus that total SAM number. Maybe help us understand kind of where the share is highest or lowest across the group. Yeah, Julian, thanks for being here. Sure, a question that many may have on our growth strategy.
As we look back and see what we've been able to do over the last five years, the organic growth is just over 3%. As you saw in the slide that Neil presented, we going forward through the cycle are thinking of that as 3-5%. Three from organic, one from some M&A activities. We certainly have aspirations internally to do more. That is why we presented the three growth vectors today, which I'm excited about. I think you saw the energy in the team around that. We are in a time right now that is difficult to predict. We have had some headwinds in our test and measurement space. We are still seeing some strength in the utilities and the defense.
We think it's the right place to come out as a spin and give a target over the next five years as we continue to push that rate up. We also want to continue to deepen our stronghold positions. It's one thing I said, we didn't spend a lot of time on that today, but it is also a big part of our business.
Great. In the very short term, just trying to understand kind of how you're thinking about the next couple of quarters. The first quarter was tough on the organic top line. Just any thoughts around how you see the environment the next kind of six or nine months on the revenue line?
Yeah, we'll certainly have an earnings call here coming out of Q2 and be able to give you a more detailed update.
As we had shared in the previous call, as we go through the quarters, we do see sequential improvement in both the growth and the margins in test and measurement. Chris shared some of that today. Coming out in probably a low single-digit type year for Ralliant this particular year.
Scott, you want to go next in the middle here, Kevin?
Thank you. It's Scott Davis. Thanks for doing this. Thanks, Kevin. Tami, you guys are de-emphasizing M&A, I think at least versus the historical point of view. Just to clarify, do you have a dedicated M&A team, and do you have a pipeline of bolt-on acquisitions that you're looking at right now?
Yeah, Scott, thanks for asking.
When I gave the profile of what we're thinking about for our M&A, that started back in the fall timeframe as we thought about where do we really want to focus. We have a team, a team of one. Most of that work gets done in the businesses that we have because if we're doing tuck-in, they're going to own these in the business. We have spent a lot of energy at trade shows and other places. The size of our tuck-ins will be smaller than you've seen traditionally, but it takes a different type of cultivation, and we knew it would take some time. We do have a healthy funnel. What we're focused on as a team right now is spinning out, landing as a public company, making sure we can do all the pieces of standing up a public company, extending the growth that we've had.
We'll start from there.
Just to follow up, it's a fine line between kind of setting targets that you can beat and then getting people excited about the story. It feels like you're kind of leaning a little bit more on setting targets you can beat right now. Perhaps that's an observation, but maybe you could comment on just how important you think it is to come out and prove yourself out of the gate, and then perhaps these targets go up over time.
I think it's both. I think it's both. Yes, we have bigger aspirations, but I think we got to look at what's right here in front of us in the market today, and we got to prove ourselves every single quarter.
Great. I want to come over to Andrew for our next question.
Thanks so much.
Just the manufacturing footprint overlap with legacy Fortive. You had a slide deck sort of showing your manufacturing footprint. I guess in my mind, I sort of imagined it somewhat different. I was wondering, are there facilities where you sort of overlap with Fortive that were not on the slide? Is there overlap in value streams between you and Fortive and existing manufacturing facilities? How is that going to separate? Thank you.
Andrew, the manufacturing facilities are separate between what we have in Ralliant and what will remain in Fortive. Where there has been some overlap, and we've talked openly about this, is in the services. In services, the Tektronix team owned all of the services for Fluke. That is one thing that we have spent the last nine months separating. We're pretty close. It's been underway for a long time.
The Fluke OEM services will remain with Fluke, and Tektronix will continue to do Tektronix OEM services and our multi-vendor services.
On EA, I mean, clearly DC to DC is the core technology. Are there any other adjacencies involving direct current that you're not participating in that the company could participate in? I think in data centers, it's an emerging trend, something like that. Could you just talk about it?
Yeah, I'm going to let Chris probably answer most of that question. If you've had an opportunity in the innovation showcase, we have some of our product managers, applications engineers here, and I'm sure they would love to go much deeper with you on that, but maybe some color.
Yeah, thanks for that question. You're absolutely right. The primary focus is DC.
With the addition of EA to the portfolio and the working together of our commercial teams and our product teams, we've been able to expand our sales funnel into numerous other industries and verticals that the Tektronix team may have been calling on early on and now bringing in EA to find opportunities across that workflow, R&D, validation, and production. We've been able to significantly diversify the sales funnel of EA, and that's what we've been focusing on.
Also agnostic to other battery technologies, which positions them extremely well.
Andy, do you want to go next here?
Thanks. Andy Kaplowitz of Citigroup. How are you thinking, Tami, about Ralliant's regional strategy? Precision, as you know, is historically relatively strong in China, 15% of the business. What does Ralliant's footprint, maybe sales footprint, look like over the next three to five years? Is it similar?
Do you emphasize one area versus another? How do you think about that?
Thank you. You had the number right at the Ralliant level, about 15%, is both mainland China and Taiwan. We have weathered quite the storm there over the years. There was the buildup of EV and EV infrastructure that has passed. I am speaking specifically in the test and measurement segment right now. We have also seen export law in the U.S. restrict some of the customers we could sell to. That is mostly behind us. The team has done a great job in right-sizing the commercial organization to the size business that it is today. Separately, in the sensing businesses, we have been building local capability for a decade. In the sensing business, we actually have the capability for Muva Design onto that team.
There's a general manager there who has product management, engineering, salespeople, manufacturing capability, supply chain capability, all local to China, so truly local for local. We continue to extend that business. Very different dynamics depending on which segment of the business that you're thinking about. In the place where we definitely see reduced volume is the test and measurement, and there's no expectation that that's going to change anytime soon.
Got it. You mentioned pause in test and measurement. Any green shoots at all yet? Or as you think about the business, you're still 50% R&D, I think you said. Is there more of a push to get into more validation or production? How do you think about that?
Yeah, again, I'm going to have Chris add some color here.
What the team has done extremely well, and you heard it through the EA acquisition, getting us more into the validation and production, but they also have a great lineup of new products. When introducing the new products, they're thinking more about what goes in validation and production. Maybe you want to highlight a couple of those new products.
Yeah, you'll see some of those at the innovation showcase. As I said, we've worked with customers through that development cycle. It really helped us define what these will be as we get ready to launch them. A lot of excitement there. The sales funnel for those new products is very strong.
What we see around just the overall uncertainty around things is really timing related to when things—and that's customer dependent, really—is as we've gotten to know those different customers in different industries across different geographies, really comes down to customer dependencies on when they turn that capital back on.
Good. Amit, you want to take the next one?
Thanks. UBS. I wanted to ask about pricing power or opportunity or what you view to be your pricing entitlement. Maybe a couple of ways we can break down the CAGR growth between volume and pricing, but then also maybe how the competitive landscape is changing. You have kind of big three, four players in the space, but maybe there's an emerging kind of China component that may limit the pricing ability.
Maybe just talk about pricing generally, maybe specifically related to the organic growth, how much that's pricing, but also how the competitive dynamics change with China entrance.
Thank you for the question. We were formed. I talked about one of the first tools that we refined was the price realization toolkit. What you find there is more than it being about price. It's about the value that you create for your customer. We look at that value regionally. Different value, you mentioned China, different value creation there than maybe another country, also by size of customer and by vertical. The toolkit is quite deep in how we think about that value creation with customers. It starts right in that innovation ideation funnel.
If you look at the growth historically over that five years, the 3.5% total growth, it's probably two points of price that we've been able to achieve in that type of a period.
Thank you.
Chris, you want to take the next one?
Thank you. Chris Leiter, Morgan Stanley. I wanted to ask about the importance of scale, and then specifically in test and measurement, so for maybe Tami or Chris. The ability to compete at the high end in test and measurement is very much driven by spending R&D and staying out ahead of competitors and customers. I know M&A is third, I believe, on your capital deployment list, but I guess how important is it to you to build out the test and measurement platform and allow the company, I would assume, to drive more R&D leverage off that higher revenue base?
Yeah. R&D leverage, certainly a priority for us. When I talked a little bit about our story, you want to make sure you're getting the efficiency out of every dollar you're spending first. I think the team has done a really nice job of that. What was at the top of our list was incremental reinvestment back in the business. As we start to see the roadmaps and opportunities to go after in test and measurement in that power space, where we have a really strong core capability and some competitive moats through some of the acquisitions that we've done, plus some of the baseline in our oscilloscopes, that low noise floor and that high accuracy allows us to compete really well there. I would say first, still say incremental.
The tuck-ins, I think in that space, we'll have to be very selective about what we tuck in that drives that power electronic space.
Thank you. Maybe just following up on sensing margins in the high 20s. I mean, I think it's materially above any other company that I've looked at that sells sensors. I guess my question is, as you guys spin out and become a standalone company, I would imagine there's more opportunities in the market to go after if you're not committed to doing an almost 30% margin on that incremental business. Can you just maybe talk about how you balance or kind of push that scale between margins and growth within sensing? Thank you.
Yeah, I'll cover your question around margins and growth.
I'm going to ask Andrew to maybe give some examples of where we see these applications because where we play are very niche applications with competitive moats. It is a lever that we have as Ralliant is to think about the margin expansion versus the growth opportunity. That's something that we're going to evaluate and continue to balance. It does open up a new opportunity for us as a new company. Maybe share some of the applications where we're advantaged in what you didn't talk about today.
Yeah, sure. One application that comes to mind as a high precision application is surgical robotics. We provide the control feedback mechanism for when the doctor is controlling the system and the robot arms. It's to have very, very fine movements, requires very precise feedback of the motors that are controlling that.
We can divide one revolution of a motor into four or five million different counts. It is very high precision, very critical application, high reliability.
I think Scott, right? Still learning some faces.
Scott Graham from Seaport. I wanted to ask two questions, one about revenue, one about costs. On the revenue side, it seems like your 3% organic target is maybe somewhat restrained by the fact that essentially half of your SAMs are GDP IP-ish type of growth, and the others are on the growth factors. The first question on revenue would be, how do we get those growth factors percentages higher? In other words, if M&A is a tertiary priority, I'm assuming that any M&A you're going to do are going to be really in those sectors as opposed to the slower growth ones.
Could you talk about how you see M&A once you get it back started, where that will be? Will it be in those sectors? Is there anything outside of those sectors that might be of interest that might graduate? Maybe talk about that first, then I have a productivity question.
Yeah, fair observation. We talked about the places where we are very deep and have stronghold positions. Those are lower growth, very profitable positions for us. We really like those businesses. At the same time, we want to continue to drive outperformance in where we see the growth factors. To go after that will be fueling winning solutions and some tuck-in M&A. We did call out in our profile of what good looks like for M&A, one of the first strategic fits is aligned to those three growth factors that we talked about today.
Thank you.
The other question is about in this slower growth period that we're in right now, to offset some of the spending you want to do on the top line as well as some of the leveraging you'll see in some of the businesses. What are you doing differently, maybe more austerity-wise, to keep earnings up, propped up while you're a new company and trying to impress investors that way?
Yeah, probably a question on others' minds too. The way we run the business, there's not a one-time we do something. This is an every-month cadence in operating reviews and decisions that we make on how much headcount we want to allocate, what lever do we want to adjust to there, OpEx actions that we want to take, as well as inventory. I'll commend the Tektronix team.
They've taken actions here to align their operating expense to the conditions that they have today. You'll start to see the results of that as we go through the quarters.
Great. Is it Cliff, right? All right.
Cliff's had his hand up a long time, Nath.
I'm just kidding. I'll get called eventually. It's Cliff Ransom, Ransom Research. I'd like to ask two questions that are related, I hope, with respect to culture. Look, I got poisoned by Mitch and Steve and George in 1990 on the power of what became the Danaher business system, Fortive business system, the Ralliant business system. The expectation was that the proper application of continuous improvement techniques gave you 50 to 100 basis points a year.
When Jim took over as head of Fortive, he said, "Look, I've got all the legacy divisions that we took from 0 and 8% to 15%." He said, "I've got 350 to 500 basis points in every one of my companies." And by God, he did it. Is there any reason why I should back off that expectation for the future of Ralliant?
Cliff, did you say you were poisoned by the business?
Yeah, just because it changes your whole life and makes you impossible to live with.
You mean poisoned actually in a positive way. Amen. I was going to say, "Okay, I'm glad that it was a positive poison."
I mean, look what happened to Paul when the scale fell for his eyes on the road to Damascus.
Neil, I'll pass this to you in a minute.
I know you've got new eyes, so fresh set of eyes. I would say that we continue to run the business very rigorously. I think the business system has delivered. You saw our five-year track record there. It was almost 600 basis points of margin expansion and something that we're going to continue. We'll continue to be operationally and financially rigorous.
Yeah, I think we talked about it at the fair remarks. I think we talked about RBS. We said that's not just RBS. You asked about culture. It's a culture of people coming to work every day and driving process improvement. Tami talked about the kaizens and all the other efforts that go on in the company. I've been most impressed by the detailed daily execution and the countermeasures the team takes when they run into challenges and how quickly they respond to that.
It's really a hats off to this team here and the rest of the Ralliant team who take this very, very seriously. I've been very impressed with it thus far. I can say I think this is going to be a very important part of how this business operates. Because we're seeing some macro challenges now. You asked about the OpEx and other things. These are things we're going to continue to stay on top of. You asked about price realization and other efforts. This team's very good at that. I'm very impressed so far. We'll certainly continue to make that a priority as we work forward.
Thank you.
The follow-up is, when you talk about your priorities, and I assume this is all part and parcel with your Hoshin Conway activities, I get a little nervous because I think that the Fortive Business System becomes the most important asset in the company. It's not reflected anywhere on the balance sheet. One of its greatest strengths is that it helps you integrate acquisitions. Help talk me off the ledge when I say I worry about the priorities of saying capital returns ahead of focused acquisitions. What you're so very good at with this kind of lean thinking is that integration and actualization of acquisitions. Why did it become the third choice?
First, thank you for your confidence in us around M&A.
The way we were thinking about the path forward is we've got a couple quarters here to learn to be a disciplined public company. There's extra that comes with that that we have prepared for. I still expect we're going to have to do some things for the first time. As we're going through that phase, our focus is going to be the incremental reinvestment. We want to get a share buyback in place, a dividend. Then we'll make the trade-off. We'll look at our funnel for M&A. Depending on the fit and the timing, which are always super important when you're looking at M&A, we'll make those decisions. Thanks for the confidence.
All right. We'll need to wrap Q&A there, but our leaders will be available during the innovation showcase and lunch session. We'll turn it back to Tami for some closing remarks.
Excellent. Thank you. First of all, thank you for spending your time with us today. Really appreciate that. There are a lot of things you could have done today. Maybe more fun than this, but you did choose this. So thank you. Thank you very much. The questions are great. Keep them coming. We are together another hour, hour and a half here in the showcase. Let's continue those conversations and the dialogue. Let's keep it going. I want to say a big thanks to Jim for everything that he has put in to getting us set up. I think everybody in this room would give a nod that we are in a really strong position here as we launch as Ralliant. I owe that to Ilan Dayan, Jim, and Fortive, and that team. As we think about walking out of here, I hope you have heard that we are coming from a strong foundation.
We've got seasoned business leaders. We've got operational rigor. We've got financial discipline. We'll be different as Ralliant. I talked about 2019 when we were forming. We wanted focus. We chose the focus around precision technologies. We're going to focus there. Our culture, it will evolve over time. We aspire to be both disciplined operators and growthy. The team is augmented by a great set of new players on the team. Our growth strategy is clear. We shared that with you today. When I opened up on my story about implementing growth strategies, I said, "You need a really clear growth strategy. You need a great team, and you deliver outsized results." That's what we're about to embark on. I'd love to have you join us on the journey. Thank you.