James A. Lico
President and Chief Executive Officer at Fortive
Thanks, Elena. Hello, everyone, and thank you for joining us. We delivered solid performance in the fourth quarter, closing out a very strong year as we focused on delivering for customers in an ongoing challenging environment. While we saw sequential growth and margin expansion across the portfolio, revenue in the quarter finished roughly $50 million below expectations as continuing supply chain constraints and the impact from the Omicron surge hindered our ability to deliver on our robust orders and backlog. Our businesses performed well despite these challenges, generating 190 basis points of core margin expansion and 13% adjusted earnings growth in the quarter. Our tax rate was flat on a year-on-year basis at 9%, however, lower than our expectations coming into the quarter. Free cash flow and conversion were lighter than expected as we invested in inventory to support customer demand and saw lower customer receipts at year-end. For the year, we delivered core revenue growth of 9.5% and expanded adjusted operating margins by 210 basis points, driving 32% year-over-year growth in adjusted earnings. Strong demand for software-enabled workflows yielded double-digit software growth in 2021 and the fourth quarter.
These results are a testament to the higher growth, more resilient, higher-margin portfolio that we have constructed through organic innovation and strategic M&A. With this portfolio and our team's disciplined and rigorous application of the Fortive Business System, we are well positioned to deliver long-term sustainable value creation for all of our stakeholders. As you can see on Slide four, all of our segments contributed to our solid fourth quarter results, including over 100 basis points core operating margin expansion in each. Supply chain constraints within both our supplier and logistics networks as well as COVID-related challenges suppressed core growth across a number of our businesses. Looking at the segments in more detail. Intelligent Operating Solutions posted total revenue growth of 6.4% in the fourth quarter, with core up 0.8%. This included low single-digit growth in North America and high teens in China, partially offset by high single-digit decline in Western Europe. Starting with Fluke, core revenue declined slightly as continued end market demand and order growth across its product portfolio were more than offset by supplier and logistics network challenges, constraining revenue in the fourth quarter. Fluke Digital Systems performed well with 20%-plus growth supported by strong demand for its eMaint SaaS offering and capped the year with greater than 30% growth in ARR bookings in Q4. Fluke also continued to see momentum within its product innovation pipeline.
They introduced a new market-leading power quality platform, the 1770 Series power quality analyzer, and we're seeing continued strength in their acoustic imaging product line. Orders were up high single digits in the fourth quarter, up 20% for the year, contributing to significant backlog growth in 2021. The team remains highly focused on improving supply management, logistics and factory throughput to deliver on the backlog in the year ahead. In EHS, Industrial Scientific revenue increased mid-single digits, led by the continued recovery of its rental business and improved net retention for its iNet offering. Intelex grew by mid-teens with the fourth quarter representing the strongest net dollar retention we've seen in the past two years. Strong customer service execution reduced churn and the application of funnel management tools helped deliver a record year for customer upselling. In addition, Intelex and ISC continue to see success with their award-winning Hazard IQ solution connecting real-time field data with EHS management software from Intelex. As anticipated, Accruent declined mid-single digit although was up sequentially despite less billing days in the fourth quarter. On a same-days basis, their SaaS sales would have been up mid-single digit. Accruent continued to capitalize on strong demand for its EMS product line due to continued momentum and return to workplace solutions, with bookings up greater than 20% for the quarter and almost 50% for the full year.
Accruent also posted its second highest quarter on record for SaaS bookings and drove another quarter of improvement in net dollar retention as it continues to deploy FBS tools to deliver on a higher on-time renewal rate across its growing SaaS customer base. We expect to see this result in higher growth in Accruent in 2022. Gordian increased mid-single digit, driven by another strong quarter in procurement. Gordian also secured some notable wins in the fourth quarter, including the capture of two new state and local education customers, Clark County in Nevada and the Dallas Independent School District. Both are expected to begin generating revenue in the second half of 2022. ServiceChannel is off to a good start, following its acquisition in August. Revenue grew substantially in the fourth quarter with SaaS increasing low double digits and SaaS bookings more than doubling on a year-on-year basis. ServiceChannel is successfully expanding its new logo pipeline with some notable wins in the fourth quarter, including a leading health and beauty retailer in the U.K. and is leveraging FBS tools and implementing lean portfolio management to position the company for additional innovation and growth. Moving to the middle of Slide four. The Precision Technologies segment posted a total revenue increase of 2.1% with core growth of 2.6%.
This included mid-teens growth in China while Western Europe was up slightly, partially offset by a low single-digit decline in North America. Tektronix grew low single digits despite strong customer demand, driving double-digit order growth across those major regions, resulting in a book-to-bill of 1.2 in the fourth quarter. Orders for mainstream scopes and momentum in new product introductions are driving backlog levels to all-time highs as customers continue to invest in new capabilities across a range of end markets. Tek continues to benefit from FBS, which helped to reduce supply chain risk and improve price realization across the business. Sensing Technologies increased high single digits in the fourth quarter, with good growth in its industrial semiconductor, HVAC and medical end markets despite continued supply chain challenges. Similarly, Pacific Scientific EMC brought further backlog in the quarter as supply chain constraints persisted. PacSci continued to see strong bookings growth in its core markets, including aircraft and space, while revenues declined mid-teens, resulting in a book-to-bill of 1.13 for the year.
Moving to Advanced Healthcare Solutions on the right side of Slide four. Total revenue increased 1.5% despite a core revenue decline of 0.8%. This included high single-digit growth in China, flat performance in North America and a mid-20% decline in Western Europe. Starting with ASP. Revenue declined low single digit in the fourth quarter. While we have grown the installed base, consumables continue to be impacted by lower elective procedure rates, especially as the Omicron variant surge in the U.S. in December, adding to existing skilled staffing shortages at hospitals and ambulatory surgical centers. These challenges primarily impacted revenue in the U.S. while our high-growth regions grew double digits. We are also pleased with the continued evolution of FBS with significant progress in operating margin expansion in the business. Censis revenues increased mid-single digits, highlighted by another quarter of strong growth in its core CensiTrac SaaS offering, which increased in the low 20% range. As in prior quarters, CensiTrac continued to see good momentum, adding new customers and saw improved upselling and cross-selling to existing customers.
Fluke Health Solutions increased mid-single digits as revenue and margins benefited from growth investments made throughout the year, driving strong double-digit growth in its biomedical test equipment business. And Invetech declined low single digit as it lapped a tough prior year comparison that included strong COVID-related revenues in 2020. Our strong margin performance in 2021 is just one example of how FBS continues to be an important differentiator for Fortive. As shown on Slide five, FBS is enabling our businesses to improve operations in our plants, tackle mounting supply chain and inflation headwinds, drive innovation and profitable growth across the portfolio and build skills and capabilities in our leaders to effectively drive sustainable business. Examples in the quarter include the reduction in supply chain risk at Fluke, ISC, CensiTrac and Tektronix through significant use of Obeya and daily management to manage the complexity and uncertainty associated with part shortages. ASP significantly reduced freight expense by over 100 basis points of revenue, contributing to their margin expansion in the quarter.
Through the deployment of lean portfolio management, our newest FBS innovation tool, Tektronix overdrove revenue achievement on recent new products, including the just launched next generation of its five Series MSO offering. We are also making meaningful improvements in net dollar retention in our software businesses, allowing us to deliver more profitable and accelerated growth in EMA, which finished the year at 108% net dollar retention while Accruent also increased monthly on-time renewal rate over 15 points from the beginning of the year. Despite COVID, we have continued to support all of our leadership development in kaizen activities. As a result of the rigorous application and dedication by our teams, we're continuing to benefit from our culture of continuous improvement. Turning to Slide six. We made significant progress executing our M&A strategy in 2021 as we continue to evolve our portfolio to serve higher growth markets with attractive long-term secular drivers. Both ServiceChannel and our IOS segment and Provation in AHS are acquisitions that significantly accelerate our strategy to deliver a broader offering of software-enabled solutions to address our customers' critical workflow productivity needs. These acquisitions build upon established market positions and customer relationships, adding well-positioned best-of-breed SaaS platforms, combined, greater than $200 million of high-growth software revenue with high incremental margins.
Through ServiceChannel's proprietary data assets and networks, we see significant upsell and cross-sell opportunities across our facilities and asset life cycle management businesses. And with Provation, we are strengthening our presence in hospitals and ASCs with expanded software and data opportunities, leveraging leading positions in GI to capture multi-specialty expansion opportunities. Together, we expect these businesses to generate more than $0.12 of earnings accretion in 2022 and will enhance our growth and free cash flow profile going forward. I'm also incredibly proud of the work we've done in 2021 to continue our progress towards building a more sustainable future. As you can see on Slide seven, it starts with our shared purpose and our values, which have been translated into aspirational and actionable targets across each of our sustainability pillars. Leading forward to today is a diverse Board and leadership team with recent hires advancing our commitment to top talent and diversity. We recently ran our Day of Caring for the fifth time since the company became public.
And in that time, our employees have dedicated over 400,000 hours of employee volunteer time to help more than 300 communities in 30 countries across the world. We are well on our way to achieving our carbon emission reduction targets and recently completed our TCFD reporting GAAP analysis to strengthen our governance and management of climate change-related risks and opportunities. We are actively engaged in responsible sourcing initiatives, and we take seriously the need to understand both the labor and the human rights practices across our supply chain. In 2021, we became a signatory to the UN Global Compact, further embedding our commitment to a sustainable future in our company's strategy, culture and daily operations. And we were also named one of America's Most Responsible Companies by Newsweek for the third consecutive year. It's our shared purpose that also pushes us to create innovative and sustainable products and services for our customers trying to solve some of the world's biggest sustainability challenges. We look forward to continuing to make progress on our sustainability journey in the years to come.
With that, I'll pass it over to Chuck, who will provide more color on our fourth quarter financials, our free cash flow and our first quarter and full year 2022 guidance.
