Jim Lico
President and Chief Executive Officer at Fortive
Thanks, Elena. Hello, everyone, and thank you for joining us. I'll begin on Slide 3. Our second-quarter results once again demonstrated the durability of our portfolio and the strength of our execution, allowing us to deliver higher core growth, margins, earnings and free cash flow. Core revenue growth of 5.5% reinforces that our strategy is working, building leading positions across our customers critical connected workflows with performance reinforcing the resilience of our transformed portfolio. We also delivered record margins in the second quarter, standing adjusted gross margins by 250 basis points to 59.5% and adjusted operating margins by 190 basis points to 26%. We're converting more revenue to earnings more earnings to cash with 9% growth in adjusted earnings per share and free cash flow-in the quarter.
Our ability to consistently drive outperformance is directly tied to our culture of continuous improvement and dedication to the Fortive Business System. Our mandate this year to unleash FBS, which is driving record productivity from Kaizen activity across the enterprise and increasing our confidence in our raised outlook for the year that we believe further positions Fortive for accelerated compounding in 2024 and beyond.
Turning to Slide 4. I wanted to provide an update on what we're seeing and what we're expecting over the course of the rest of the year, starting with healthcare. Industry recovery is on-track as labor and productivity challenges continue to moderate. We are seeing traction on our pricing and productivity initiatives, yielding sequential growth and profitability in the second quarter. We expect further improvement in AHS in the second-half with higher core growth in operating margins.
We also continue to drive growth in our software and services businesses with SaaS revenue up mid-teens on strong enterprise growth in bookings. Hardware products have also been running ahead of expectations. This traction on new product launches and leverage to secular drivers are helping to provide more backlog to buffer the normalization of industrial demand. As we sit here today, we now expect to have over $200 million of excess backlog heading into next year, while positioning us for 2024.
Our strategy to create a more durable growth company is working. Our recurring revenue businesses are expected to accelerate first-half to second, led by higher software and consumables growth. Combined with favorable pricing and discrete productivity initiatives, we now expect over 125 basis points of adjusted operating margin expansion for the year. Lastly, our robust free-cash flow and low leverage profile provides further flexibility to accelerate compounding with an attractive funnel of M&A opportunities aligned to our workflow strategy.
Turning to Slide 5. Our success in the quarter demonstrates our ability to leverage our domain expertise and hardware and accelerate software and data analytics across our five customer connected workflows, where we are enabling progress in a number of high-impact fields, all benefiting from customer investments in automation and digitization, the energy transition and the need for productivity solutions to address labor, manufacturing, inflation and regulatory challenges globally. For example, solar energy is one of the fastest-growing renewable energy sources worldwide, from the grid, the hybrid and backup systems, connected reliability solutions are ensuring the maintenance and efficiency of critical infrastructure, enabling the energy transition and IoT expansion.
Environmental health and safety solutions are safeguarding workers and enabling customers ESG reporting and compliance. Our leading facility and asset lifecycle software applications are improving asset performance, optimizing workplaces and accelerating customer productivity efforts. Our innovations in the product realization workflow are solving customers' toughest technical challenges. The speed breakthrough is in a wide range of applications, including helping to increase the proliferation of electrified and connected devices and advance the democratization of high-performance compute and AI-driven data analytics, as well as in the peri operative loop where we're helping healthcare providers deliver exceptional patient care more efficiently, with industry-leading clinical safety and productivity solutions.
In summary, we are seeing strong customer success on new product launches highly aligned to these secular trends, where our innovation funnels remain focused, which. I'll take a moment to discuss further on Slide 6. As we highlighted at our Investor Day in May, our FBS growth tools are accelerating innovation cycles to drive share gains and maximize R&D returns to create and sustain our competitive advantage in a number of exciting new areas. For example, we highlighted new product launches at Fluke to accelerate the distributed energy strategy to penetrate the high-growth EV storage equipment market with new testing tools that ensure technician safety and asset performance.
At Gordian, our unique planning tools RF means data and technical expertise of the California county optimize their infrastructure, resulting in millions of yearly cost-savings and a significant reduction in project completion timeline. Tektronix is providing performance scopes and waveform generators to help customers develop quantum computing to advanced AI applications, including a large aerospace and defense customer win in the quarter. ProVation's latest cloud-based documentation software is saving physicians roughly 16 hours per month in documentation and reporting, which is why ProVation continues to be the provider of choice with accelerated win rates in APEX adoption.
Lastly, Intelex leverage lean portfolio management to expand its foothold in environmental accounting, compliance and reporting, accelerating the launch of its new ESG corporate reporting solution. Fortive is committed to innovation across all aspects of the company, and this quarter we received two notable recognition for our innovative sustainability efforts. In May, USA Today and [Indecipherable] have named Fortive one of America's Climate leaders in 2023. This award recognizes us as a leader in greenhouse gas emissions reductions and singled out Fortive as a top emissions reducer among more than 2,000 companies nationwide. And in June, Fortive was selected as a finalist for the 2023 World Sustainability Award in the profit with a purpose category, which recognizes companies that like revenue generation to sustainability. We're incredibly proud of our culture of innovation and continuous improvement and how that not only shows up in the solutions we deliver for our customers, but also in the positive impact we're making around the world.
I'll now provide more details on each of our three segments, beginning with Intelligent Operating Solutions on Slide 7. IOS grew core revenue by 4%, driven by good growth in most regions. Strong FBS driven execution resulted in 420 basis points of adjusted operating margin expansion, driving operating margins to a record 33%. Looking at our performance drivers by workflow and connected reliability, Fluke core revenues were up slightly, lapping the Shanghai recovery last year with mid-single-digit orders growth in the quarter. Fluke margins expanded by more than 300 basis points year-over-year, driven by productivity initiatives and solid price realization. eMaint saw record quarterly bookings, fueled by the continued success of the new X5 CMMS product launch. EHS revenues grew by high-single-digits, with record iNET growth at IFC and strong SaaS momentum in Intelex. Further, Intelex saw strong bookings for its new ESG corporate reporting solution.
Moving to facilities and asset lifecycle, we had low-double-digit growth in the second-quarter driven by mid-teens SaaS growth. Gordian had strong growth and operating margin expansion in the quarter as more customers utilize their job order contracting platform to procure and manage their large infrastructure projects. Acron has seen sustained improvements in win rates and good growth in their streamline portfolio, supported by FBS led innovation and pipeline generation efforts.
Service channel had an acceleration in growth and profitability as planned, driven by strong SaaS bookings and resulting take rate as customers leveraged the service channel network to maximize their cost-savings. A large retail customer is already $2 million ahead of their $40 million cost-savings goal in 2023 after taking advantage of the automation capabilities of the platform, powerful testament to the secular drivers underpinning the power of workflow strategy.
Turning now to Slide 8. Precision Technologies has continued its momentum with another strong quarter with 8% core revenue growth and 190 basis points of adjusted operating margin expansion, reflecting volume and price benefits, more than offsetting inflation and FX. Some highlights in the quarter include record second quarter revenue at Tektronix, with orders better than expectations and strong point-of-sale in all major regions. The team delivered mid-teens growth, which was over 20% on a two-year stack basis in the second quarter. Tektronix is executing a robust backlog and power and digital test and measurement solutions and delivering outstanding margin -- operating margin expansion. As orders continue to normalize, we anticipate Tektronix growth will moderate to mid-single-digit levels in the second-half, and we expect we will end the year with elevated backlog levels again heading into 2024.
Sensing Technologies came in better-than-expected, up slightly, driven by strong price realization across all businesses and continued broad strength at Qualitrol. Lastly, Pacific Scientific EMC reported a strong sales quarter with mid-teens growth as it benefits from strong customer demand and Kaizen activity to improve manufacturing capacity and operational execution to deliver on record backlog.
Moving now to Slide 9 in Advanced Healthcare Solutions. Core revenues were up 4% in the second quarter as the industry continues its modest pace of recovery. Consistent with our expectations, adjusted operating profit margins contracted by 60 basis points year-over-year. The benefits of sequential volume, price and productivity drove operating margin higher by 180 basis-points versus the first quarter. China elective procedures remained at normalized levels throughout the quarter, only slightly trailing global rates, allowing for double-digit growth.
Our outlook continues to assume that elective procedures remain close to pre-COVID levels in all major regions. Some highlights for the quarter include ASP Censis at mid to single digit core growth, driven by capital expansion at ASP and double-digit SaaS growth at Censis. ASP saw sequential growth in consumables as planned and US channel transition to direct is on-track, contributing to sequential price benefits, probably margins higher, a trend we will expect will continue through the rest of the year. Supply chain constraints are largely resolved, yielding good growth at Fluke Health Solutions and ProVation had another great quarter with mid-teens core revenue growth, driven by Apex SaaS adoption and new logos.
With that, I'll pass it over to Chuck, who will provide more color on our second quarter financials and our 2023 outlook.
