Fortive Corporation

My name is Rob, and I will be your conference facilitator this afternoon. At this time, I would like to welcome everyone to Fortive Corporation's second quarter 2022 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, again press the star 1. I would now like to turn the call over to Ms. Elena Rossman, Vice President of Investor Relations. Ms. Rossman, you may begin your conference.

Thank you, Rob, and thank you, everyone, for joining us on today's earnings call. With us today are Jim Lico, our President and Chief Executive Officer, and Chuck McLaughlin, our Senior Vice President and Chief Financial Officer. We present certain non-GAAP financial measures on today's call. Information required by Regulation G are available on the investor section of our website at fortive.com. Our statements on period-to-period increases or decreases refer to year-over-year comparisons on a continuing operations basis. During the call, we will make forward-looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks, and actual results might differ materially from any forward-looking statements that we make today. Information regarding these factors is available in our SEC filings, including our annual report on Form 10-K for the year end of December 31st, 2021. These forward-looking statements speak only as of the date that they are made, and we do not assume any obligation to update. With that, I'd like to turn the call over to Jim.

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 remained 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 forwarded business system allowed us to deliver for customers in a challenging sterile environment and improve our profitability despite higher inflation and rising FX headwinds. Turning to slide four, I wanted to provide an update on what we're seeing and what we expect in the second half of the year. Starters remain 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, shipping 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,