Jim Lico
President and Chief Executive Officer at Fortive
Thanks, Elena. Hello, everyone, and thank you for joining us. I'll begin on Slide three. We had an excellent second quarter with strong broad-based execution across the portfolio, contributing to revenue, margins and earnings all above the high end of our guidance, resulting in our raised outlook for the year. Despite the effects of COVID-related shutdowns in Shanghai, significant FX headwinds and ongoing supply chain constraints, our team was able to achieve 9% core revenue growth, 190 basis points adjusted operating margin expansion, 18% adjusted earnings per share growth and outstanding free cash flow generation in the second quarter.
Consistent with the first quarter, demand for our leading workflow solutions remains robust. Year-to-date, hardware orders and software ARR both increased low double digits, reflecting our more resilient and diversified product portfolio. At the same time, our rigorous application of the Fortive Business System allowed us to deliver for customers in a challenging sterile environment and improved our profitability despite higher inflation and rising FX headwinds.
Turning to Slide four. I want to provide an update on what we're seeing and what we expect in the second half of the year. Starting on the left with the current environment, demand and orders remained strong in the second quarter, driven by accelerated innovation, continued share gains and leverage to favorable secular drivers. Hardware orders increased 9% in the second quarter, yielding a hardware backlog that ended the quarter 21% higher than year-end 2021. Our supply chain measures continue to gain traction while we expect that component constraints will persist for the rest of 2022 and into 2023.
While ongoing COVID lockdowns in China remain a risk, we substantially mitigated the headwind from the lockdowns that commenced in late March in Shanghai and continued through most of May, shifting most of the $60 million of risk we previously highlighted in the first half. This is an excellent example of our team's ability to utilize FBS tools to navigate unprecedented obstacles, keep our employees safe and deliver for customers and shareholders.
Moving to the right side of the slide, we expect higher core growth for the remainder of the year as our more resilient product portfolio positions us to benefit from continued customer demand. We also continue to build momentum in our software businesses, with upsell and cross-sell bookings, new logo generation and lower churn all contributing to double-digit ARR growth for the full year.
Given the strength of our first half performance, we are raising the outlook for the year. Our revised outlook also includes a foreign exchange headwind of approximately $100 million on revenue and $0.08 on EPS that was not previously contemplated. Lastly, our ability to convert more earnings to cash underpins our investment thesis and allows us to reinvest in our businesses, accelerate our strategy and enhance our returns to shareholders.
Turning to Slide five. The work we have done over the last six years to build a stronger collection of businesses has resulted in a more diversified end market mix and durable recurring revenue profile as demonstrated by the shading in all the end markets we serve today. For example, in 2016, a sizable percentage of our revenue came from the retail fueling and vehicle repair markets. Today, our largest end market by revenue is health care, which has very durable revenue characteristics.
And as you can see further in the slide, there are recurring revenue opportunities across a range of end markets. We have more than doubled the percentage of our total company revenue, which is recurring. This includes the software and consumables business model additions we have made to the portfolio and the services revenue that we have expanded at businesses like Tektronix. When you look at our footprint today and the end markets to which we participate, we have several opportunities to globalize our leading brands and take advantage of the secular drivers which are driving sustainable growth in these markets.
I'll now provide some more details on each of the three segments, beginning with Intelligent Operating Solutions on Slide six. IOS continued its strong momentum, with revenues up 16% and core revenue growth of 12% in the second quarter, with strong double-digit growth in North America and Western Europe and high single-digit growth in China. The work that businesses have done to improve availability of supply and offset inflation is contributing to better-than-expected core growth, with sequential improvements in shipments and stronger price realization driving 205 basis points of core operating margin expansion, more than offsetting incremental FX headwinds.
Some other highlights in the quarter include: Fluke's product innovation and new service offerings, including the recently launched Fluke Solar Solutions, in addition to rigorous daily supply chain management drove mid-teens core growth, while their orders forecast has continued to move up throughout the year. Industrial Scientific saw strong bookings for iNet, up 55% year-over-year because of continued progress diversifying and globalizing the customer base. Intelex SaaS revenues continued the double-digit pace, on track to 10%-plus ARR growth for the year.
Moving to facilities and asset life cycle management. Gordian revenues were up double digits as several customers, including the New York City Department of Education and the Pennsylvania Department of General Services, leveraged Gordian's procurement platform to manage large infrastructure projects with city and state customers. Accruent continued to build a strong foundation for second half growth with software bookings up more than 20% and an expectation of accelerated second half bookings. Their commercialization success is a reflection of the significant progress they have made building FBS capabilities across their sales organization.
Finally, ServiceChannel had another quarter of double-digit revenue growth. ServiceChannel is continuing to see strong customer demand for managed solutions, with customers increasingly outsourcing their facilities maintenance work. Turning now to Slide seven in Precision Technologies. Total revenue increased 6% with core revenue growth of 9%. Demand remained strong with robust core revenue growth and another quarter of double-digit orders growth across major geographies and end markets, particularly industrial, semi, medical, power and energy, raising backlogs to new record levels. China revenues grew over 20% as Tektronix mitigated the Shanghai lockdowns and continued strength in Sensing Technologies.
PT continues to benefit from a number of secular drivers, including the expansion of power and precision devices going into the electronics innovation space and the expanded use of semiconductors broadly. We achieved 90 basis points of adjusted operating margin expansion, driven by favorable pricing and disciplined cost management, partially offset by higher component costs and FX. Some highlights in the quarter include: mid-20% bookings growth at Tektronix, with new product launches, including the two Series MSO, which continues to be strong globally and represents an example of another next-generation platform that provides innovative and differentiated technology for customers; mid-teens growth at Sensing driven by pricing, FBS countermeasures and continued growth in core end markets in the second quarter; innovation and vertical market strategies are gaining traction at Gems, etc., contributing to 20%-plus growth in those businesses.
Moving now to Slide eight and the Advanced Healthcare Solutions. Total revenue increased 9% in the second quarter with core revenue growth of 3%. Low single-digit growth in North America and low double-digit growth in Western Europe was partially offset by a high single-digit decline in China related to the COVID lockdowns, which reduced the number of elective surgeries in China. COVID pressures, associated staffing challenges, along with supply chain constraints within capital equipment persisted as expected, limiting revenue growth across the segment in the second quarter. Elective procedures improved in North America, contributing to mid-single-digit growth in ASP consumables.
The team continues to implement FBS tools, driving productivity savings, which in addition to the accretive benefits of the ProVation acquisition, contributed to 300 basis points of adjusted operating margin expansion in the second quarter, including 150 basis points of core OMX. Some other highlights in the quarter include: Censis had another quarter of very strong performance from its CensiTrac SaaS offering, which was more than offset by a difficult prior comp in marketing hardware. On a two-year stack basis, Censis revenues grew 17.5%. Provation's GI business grew revenues and orders double digits. They have several competitive wins, including a 16-site standardization order from Essentia Health, where half of the sites are SaaS migrations and the other half are new Apex wins.
Turning to Slide nine. The Fortive Business System continues to be a differentiator for us, enabling our businesses to enhance supply chain resilience, drive innovation and profitable growth and build capabilities in our leaders to effectively deliver on our commitments and distinguish our performance in an otherwise very challenging environment. Examples in the quarter include using Kaizen to utilize closed-loop production and operations in our Shanghai facilities, accelerating the restart of production, ensuring availability of supply and creating new demand opportunities, effectively mitigating the impact of COVID-related lockdowns in the region in the first half; utilizing lean portfolio management at Fluke to align new products to strategic growth areas.
Similar to what we're doing at Tektronix, this has meaningfully improved our product vitality, doubling the three-year revenue potential for new products. Provation is utilizing Obeya Rooms to significantly accelerate SaaS migration bookings and daily visual management implementation at Accruent is driving a significant improvement in net working capital. As you can see by all these examples and our performance in the quarter, we had tremendous success applying FBS.
And with that, I'll pass it over to Chuck, who will provide more color on the second quarter financials and our second half 2022 outlook.