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. Fortive had another quarter of outstanding operating performance in Q4, delivering 14% core revenue growth, 50 and 110 basis points of adjusted gross and operating margin expansion respectively, 11% adjusted earnings per share growth, 62% free cash flow growth, all ahead of the guidance we gave in October. Our strong purpose-driven culture is supported by our relentless focus on executing for customers and shareholders in 2022. The continued evolution of our portfolio within the markets we play is characterized by strong secular drivers which powered 9% ARR growth in our software businesses, and backlog expansion in our hardware products businesses contributing to record a record core revenue growth for the year. Our performance would not have been possible without the dedication of our 18,000 team members around the world. The team overcame continued supply chain and inflationary challenges which will likely linger into 2023. We believe the power of the Fortive business system is a key differentiator, contributing to a more profitable growth, record gross margins, and free cash flow generation. As we look forward, we're excited to update you on the progress we've made on our multi-year targets and strategies that are driving outperformance at our upcoming Investor Day in May.
Turning to Slide 4. Even against the backdrop of a difficult macro in 2022, Fortive continued to validate the investment thesis that we have pursued since 2016, delivering core growth of 10%, and 20% on a two-year stack basis, accelerating over the last few years. Our portfolio transformation has also driven approximately 1,000 basis points of gross margin expansion since 2016, which has translated into higher operating margins and provides further opportunity to improve margins in the years to come. We also delivered free cash flow growth of $1.2 billion with margins approaching 21%, underscoring our ability to compound cash flow off a higher base, a key Fortive differentiator and value creation driver. In summary, we had said that 2022 would be a show me year and we delivered strong results across all of our segments, which I will highlight in more detail on the next few slides, starting with intelligent operating solutions on Slide 5.
IOFs grew core revenue by 13%, representing its third consecutive quarter of double-digit core revenue growth, with good growth in all regions, with low-double-digit growth in North America, mid-teens growth in Western Europe, and high-20s growth in China. Double-digit core growth at every workflow, combined with our rigorous application of FBS, drove 330 basis points of core operating margin expansion, more than offsetting inflation and FX headwinds. Looking at our performance drivers by workflow and connected reliability, looking at low-teens growth supported by a strong backlog position, and continued success with our new solar and calibration products serving the energy, renewables, and electric vehicle markets.
QOS remains strong in every region however we expect to see some slowing as supply chains continue to normalize. Strong end-market demand drove double-digit eMaint SaaS revenue growth in the quarter with record net dollar retention of approximately 106%. In EHS, revenue grew by high-teens with strong contributions from both the Industrial Scientific and Intelex. Industrial Scientific revenue grew approximately 20%, as strong demand was supplemented by record iNet expansion and higher instrument shipments following the resolution of key supply chain issues at the end of the third quarter. Meanwhile, Intelex posted another quarter of low-double-digit SaaS growth. They have successfully deployed FBS initiatives to accelerate software implementations and create upsell opportunities to customers.
Moving to facilities in asset life cycle. We had low double-digit growth in Q4. Gordian revenues once again increased double-digits as customer labor shortages and deferred facility maintenance continued to drive higher-volumes through the company's job order contracting platform. Our current SaaS revenue grew by mid-single-digit despite a sizable headwind from end-of-life products. Accruent continues to see good success from its recent go-to-market focus and asset management and workplace solutions to enable mid-single-digit revenue growth in 2023. And ServiceChannel saw another quarter of double-digit revenue growth, taking their full-year growth rate to just under 50%. As a reminder, we are transitioning from a largely pass-through revenue base to a better long-term business model that includes more recurring SaaS revenue. This change will create a short-term revenue headwind in the first quarter. However, we expect ServiceChannel to remain a strong double-digit growth business in 2023 with above 20% adjusted operating margins.
Turning now to Slide 6. Precision Technologies delivered another strong quarter of double-digit revenue growth in every business. Core revenues increased 20% driven by high-teens growth in North America and greater than 20% growth in both Western Europe and China. PT also delivered 240 basis points of adjusted operating margin expansion, with higher volumes, price realization, and productivity more than offsetting inflation and FX. Some highlights for the quarter include record quarterly revenues and operating profit at Tektronix, which continued to benefit robust backlog, driven by new product launches, share gains, and new entry in mainstream oscilloscopes. We saw orders slow in Q4 as expected as demand normalizes following the 40% growth we've seen over the last two years. Sensing technologies had another quarter of mid-teens growth driven by strong price realization across all businesses and continued demand in Qualitrol's utility and power business, offsetting industrial and semiconductor demand softening. Combination of Gems and Setra in 2022 also drove approximately 200 basis points of margin expansion and four working capital turns improvement. Pacific Scientific EMC saw high 20s growth in the quarter, facilitated by capacity expansion and improved materials availability.
Moving now to Slide 7 in advanced healthcare solutions. As expected, core revenues increased 5% in the quarter, driven by broad improvement across all healthcare operating companies. By major region, mid-single-digit growth in North America reflected the benefit of our higher installed base and some improvement in hospitals, partially offset by low-single-digit decline in Western Europe and a high-single-digit decline in China. The exit rate on China electric procedures was the lowest we've seen post COVID, at roughly 30% of normalized levels. January 2023 volumes were roughly half of prior year levels, which is reflected in our Q1 outlook for the segment. In the fourth quarter, AHS segment margins were down 260 basis points, driven primarily by higher inflation, partially offset by favorable M&A. Notably, margins were up approximately 400 basis points versus Q3. This is our fourth quarter guidance, margins were unfavorably impacted by additional transactional FX and lower margins Fluke Health Solutions. As we look ahead, the team is starting to see traction on their pricing and productivity initiatives, which we expect will deliver margin recovery in 2023.
Some other highlights for the quarter include, ASP finished the year with core revenue growth of 5% as capital share gains and consumable volumes more than offset COVID headwinds in China. Even with inflationary pressures, ASP ended Q4 with the strongest margins of the year and continued to deliver strong working capital improvements. While hospital profitability remains pressured due to labor and inflationary challenges, Censis continued to drive robust growth in its CensiTrac SaaS offering in Q4 and for the year with mid-teens net-new ACV and record cross-sell opportunities. Lastly, Provation is ahead on its return expectations, having contributed $0.10 to earnings in 2022. As customers continue to standardize on Provation across their health systems, we are seeing accelerated SaaS growth setting them up for a strong 2023.
Turning to Slide 8. The Fortive business system is a powerful mindset that makes continuous improvement in way of life at Fortive. We drive deep engagement across our teams and hold them accountable for delivering on high expectations. As a reminder, in October, we brought together over 400 team members at our CEO Kaizen event. Our most senior Fortive leaders including our segment leaders and a number of our operating company presidents collaborated to drive significant improvements in growth, margin, free cash flow, and breakthrough innovations across four operating companies: Fluke, ISC, Tektronix, and Censis. We're proud of the success our teams are having sustaining results to directly attributed to this event including at Fluke, we reduced small changeover times by over 50%, eliminating stock-outs and critical plastic components and reducing PacSci backlog. At ISC, we applied lead conversion in the Fortive material system to improve quality, output, and turnaround time for iNet and rental customers dramatically reducing the cost of repairs for product redesign.
At Tektronix, we applied lean conversion to circuit board repair, increasing on-time delivery to 98% by altering material flow, installing 5S part management and building standard work and documentation and procedures. And at Censis, we applied value stream mapping and transactional process improvement to identify the inefficiencies and waste, resulting in a 50% reduction in time to onboard new customers. With Kaizen activity accelerating in 2023, we expect significant results across Fortive in the year ahead.
I'm incredibly proud of the work we've done in 2022 to deliver powerful results and continue our progress towards building a more sustainable future as you can see on Slide 9. We believe in taking a holistic approach to creating value that includes setting aspirational and actionable targets across each of our sustainability pillars as shown on the page.
Leading Fortive today is a diverse board and leadership team, with recent hires and promotions, advancing our commitment to top talent and diversity. Strong and inclusive culture is core to Fortive's mission with inclusion and diversity a critical component of FBS. Last year, we published clear goals to increase our diverse supplier spend, gender representation, BIPOC representation, and senior leader diversity by 2025. We believe this has resulted in part to an increase in our employee engagement scores up five points from pre-pandemic levels. Our progress also extends to how we protect the planet. It includes the early achievement of our 2025 greenhouse gas goal in the adoption of our new ambitious goal on 50% emissions reduction by 2029. It's our shared purpose that also pushes us to create innovative and sustainable products and services. Today, approximately, 60% of our revenue is derived from products and services that enable more sustainable outcomes, aligned to the United Nations Sustainable Development Goals. And we have award-winning products that promote sustainability for our customers.
Lastly, the commitment to drive meaningful and sustainable outcomes the matter most to our stakeholders is reflected in our recognition by Newsweek for the fourth consecutive year as one of America's Most Responsible Companies.
With that, I'll pass it over to Chuck who'll provide more color on our fourth quarter financials and our 2023 outlook.
