Ilan Daskal
Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories
Thank you, Andy. Now, I would like to review the results of the fourth quarter and full year. Net sales for the fourth quarter of 2022 were $730.3 million, which is a 0.3% decline on a reported basis versus $732.8 million in Q4 of 2021. On a currency-neutral basis, the year-over-year revenue growth was 5.8%.
As expected, COVID-related sales continued to taper and were about $13 million in the quarter. Year-over-year core revenue, which excludes COVID-related sales, increased 10.6% on a currency-neutral basis.
On a geographic basis, we experienced double-digit currency-neutral year-over-year core revenue growth in the Americas and Asia, while Europe posted a more modest increase primarily reflecting ongoing supply chain constraints for diagnostic products.
As Andy mentioned earlier, despite improvements in the supply chain, we estimate that we ended 2022 with an elevated order backlog of approximately $50 million of which we expect to retain about $30 million.
Sales of the Life Science Group in the fourth quarter of 2022 were $359.7 million compared to $326.6 million in Q4 of 2021, which is an increase of 10.1% on a reported basis and growth of 16.4% on a currency-neutral basis.
The underlying Life Science year-over-year currency-neutral core revenue growth was 28.1% and benefited in part from the reduction of order backlog. The year-over-year growth was primarily driven by Droplet Digital PCR, process chromatography, and Western blotting.
We also saw good growth for our qPCR product, in part driven by the uptake of our new CFX office platform. We continue to experience strong initial customer interest and demand for our recently introduced QX600 DD PCR system. And we expect a more meaningful revenue contribution to this platform in 2023.
Process chromatography, which can fluctuate on a quarterly basis again posted strong double-digit year-over-year growth. Excluding process chromatography sales, the underlying Life Science business grew 14% on a currency-neutral basis versus Q4 of 2021 and was partially offset by lower COVID-related sales.
When also excluding COVID-related sales, revenue growth was 27.1% on a currency-neutral basis. On a geographic basis, Life Science experienced currency-neutral year-over-year core revenue growth across all three regions.
Sales of the Clinical Diagnostics Group in the fourth quarter were $369.6 million compared to $404.9 million in Q4 of 2021 and which is an 8.7% decline on a reported basis and a 2.9% decline on a currency-neutral basis.
Core Clinical Diagnostics year-over-year revenue, which excludes COVID-related sales declined 1.9% on a currency-neutral basis. Clinical Diagnostics Group revenue, which was primarily impacted by ongoing supply chain constraints, which delayed instrument placements across multiple platforms and the uptake of associated consumables.
On a geographic basis, the Diagnostics group year-over-year currency-neutral core revenue grew in the Americas and declined in Europe and in Asia. In addition to supply chain constraints, Asia Pacific sales were also impacted by COVID dynamics in China, resulting in lower volume of routine testing.
During the fourth quarter of 2022, we corrected two accounting policies and believe these changes are immaterial to our overall financials. We determined that R&D expenses associated with developing and enhancing our cloud-based capabilities that incurred during the years 2020 through 2022 should have been capitalized. We revised our historical financial statements to reflect this correction, and it will be reflected in our 10-K filing.
For full year 2022, the correction was about $5 million or about 20 basis points headwind to gross margin and the benefit of about $8 million or about 30 basis points for operating margin. The benefit for the full year adjusted EBITDA margin is $15 million or about 50 basis points. By comparison, the 2021 full year gross margin headwind is estimated to be about $3 million or about 10 basis points with an operating margin benefit of $11 million or about 40 basis points and adjusted EBITDA margin benefit of $15 million or 50 basis points.
In addition, we corrected our policy on the timing of revenue recognition related to certain equipment that requires installation and we believe that it contributed $5 million to $10 million of one-time revenue to the quarter.
The reported gross margin for the fourth quarter of 2022 was 54.4% on a GAAP basis and compares to 54.6% in Q4 of 2021. The fourth quarter year-over-year gross margin decline was mainly due to an unfavorable product mix, reflecting a higher percentage of instrument sales, lower COVID sales and higher raw material costs associated with supply chain constraints.
Amortization related to prior acquisitions recorded in cost of goods sold was $4.4 million as compared to $4.7 million in Q4 of 2021. SG&A expenses for Q4 of 2022 were $212.2 million or 29.1% of sales compared to $224.1 million or 30.6% in Q4 of 2021. The year-over-year SG&A expenses decreased mainly due to the stronger dollar and normalized employee-related benefits but was partially offset by higher discretionary spend. Total amortization expense related to acquisitions recorded in SG&A for the quarter was $1.7 million versus $1.8 million in Q4 of 2021.
Research and development expense in the fourth quarter was $66.2 million or 9.1% of sales compared to $66.9 million or 9.1% of sales in Q4 of 2021 and consistent with our targeted R&D investment. Q4 operating income was $118.7 million or 16.2% of sales compared to $108.9 million or 14.9% of sales in Q4 of 2021.
Looking below the operating line, the change in fair market value of equity securities holdings which are substantially related to Bio-Rad's ownership of Sartorius AG shares added $979 million of income to the reported results.
During the quarter, interest and other income resulted in net other expense of $6.1 million compared to net other income of $7.5 million last year. Q4 of 2022 included a $14.4 million charge associated with an investment interment.
Overall, we generated $16.6 million in interest income during the fourth quarter from our cash balance, partially offset by $11.7 million in interest expense related to our 1.2 billion notes. The effective tax rate for the fourth quarter of 2022 was 24.2% and compared to 22.8% for the same period in 2021. The effective tax rate reported in Q4 of 2022 was partially affected by an unrealized gain in equity securities and the tax rate reported in Q4 of 2021 was primarily affected by an unrealized loss in equity securities.
Reported net income for the fourth quarter was $828 million or $27.78 diluted earnings per share compared to a loss of $1.57 billion or a diluted loss per share of $52.54 in Q4 of 2021. This increase from last year is largely related to changes in the valuation of the Sartorius Holdings.
Moving on to the non-GAAP results. Looking at the results on a non-GAAP basis, we have excluded certain atypical and unique items that impacted both the gross and operating margins as well as other income. These items are detailed in the reconciliation table in the press release.
Looking at the non-GAAP results for the fourth quarter. In cost of goods sold, we have excluded $4.4 million of amortization of purchased intangibles and a small restructuring benefit. These exclusions moved the gross margin for the fourth quarter of 2022 to a non-GAAP gross margin of 54.9% versus 55.2% in Q4 of 2021.
Non-GAAP SG&A in the fourth quarter of 2022 was 28.5% versus 30.2% in Q4 of 2021. In SG&A, on a non-GAAP basis, we have excluded amortization of purchased intangibles of $1.7 million. And in vitro diagnostic registration fee in Europe, for previously approved products of $2.5 million, acquisition-related benefit of $500,000 and $700,000 of legal expenses as well as restructuring-related expenses.
Non-GAAP R&D expense in the fourth quarter of 2022 was 9.1% versus 9.4% in Q4 of 2021. In R&D, on a non-GAAP basis, we have excluded a small restructuring benefits. A cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 16.2% on a GAAP basis to 17.4% on a non-GAAP basis. With non-GAAP operating margin compares to a non-GAAP operating margin of 15.7% in Q4 of 2021.
We have also excluded certain items below the operating line, which are the increase in value of the Sartorius equity securities and loan receivable of $979 million, a $14.4 million loss associated with an investment impairment and $1.7 million loss on venture investments.
The non-GAAP effective tax rate for the fourth quarter of 2022 was 28.1%, which is consistent with our full year tax rate compared to 20.4% for the same period in '21. The higher rate in 2022 was driven by geographical mix of earnings.
And finally, non-GAAP net income for the fourth quarter of 2022 was $98.5 million or $3.31 diluted earnings per share compared to $98.5 million or diluted earnings per share of $3.26 in Q4 of 2021.
Moving on to the full year results. Net sales for the full year of 2022 were $2.82 billion, which is a 4.1% decline on a reported basis as compared to $2.923 billion in 2021. On a currency-neutral basis, full year 2022 net sales increased by 0.3% and when also excluding in 2021, a onetime $32 million settlement for bank royalties from 10x, sales in 2022 grew 1.5% on a currency neutral basis.
COVID-related sales for the full year were about $109 million compared to $266 million in 2021. Year-over-year core revenue, which excludes COVID related sales and the legal settlement, increased 7.2% on a currency-neutral basis. Sales of the Life Science Group for 2022 were $1.347 billion. Excluding the 2021 legal settlement, the year-over-year growth was 2.7% on a currency-neutral basis. When excluding COVID related sales and the 2021 legal settlement, Life Science year-over-year currency-neutral core revenue growth was 15.2%. The majority of the year-over-year core growth was driven by Droplet Digital PCR, process chromatography, our qPCR products and western blot.
On a geographic basis, Life Science currency neutral full year core revenue grew across all three regions. Sales of Clinical Diagnostics products for 2022 were $1.451 billion, which is a 0.4% growth on a currency-neutral basis. When excluding COVID-related sales, Clinical Diagnostics year-over-year currency-neutral core revenue growth was 1.3%, which was impacted by supply chain constraints.
On a geographic basis, Clinical Diagnostics, currency-neutral full year core revenue grew in the Americas and Europe, while sales declined in Asia, primarily due to COVID lockdowns in China. As mentioned earlier, the year ago comparisons for gross, operating and adjusted EBITDA margin have been modestly revised due to our adoption of capitalized internal use software accounting.
The full year non-GAAP gross margin was 56.6% compared to 57.2% in 2021. The year-over-year margin decline was driven mainly by product mix, lower COVID sales, higher logistics and expedited freight costs, as well as higher raw material costs. Full year non-GAAP SG&A expense was $805.4 million or 28.7% of sales, compared to $824 million or 28.5% in 2021. The lower SG&A spend benefited from a strong dollar and more normalized employee related costs, somewhat offset by higher discretionary expenses.
Full year non-GAAP R&D expense, sorry, R&D was $256.7 million or 9.2% of sales versus $247.6 million or 8.6% in 2021 and full year non-GAAP operating income was 18.7%, compared to 20.1% in 2021, largely due to the various impacts of our supply chain constraints during the past year. Lastly, the non-GAAP effective tax rate for the full year of 2022 was 22%, which was consistent with our guidance range and compares to 21.2% in 2021.
Moving on to the balance sheet. Total cash and short-term investments at the end of 2022 was $1.786 billion, compared to $875 million at the end of 2021 and $1.856 billion at the end of the third quarter of 2022. The change in cash and short-term investments for the third quarter of 2022 was primarily due to working capital and share repurchases.
Inventory at the end of Q4 reached $719.3 million from $685.9 million in the prior quarter. The increase in inventory continues to reflect our supply chain constraints and is mainly due to carrying higher levels of raw materials.
As we anticipate further easing in our supply chain constraints in 2023, we would expect to lower inventory levels over the next eight quarters. For the fourth quarter of 2022, net cash generated from operating activities was $79.7 million, which compares to $161.1 million in Q4 of 2021. This decrease mainly reflects changes in working capital.
For the full year of 2022, net cash generated from operations was $194.4 million versus $669.5 million in 2021. This decrease also mainly reflects changes in working capital. During the fourth quarter, we purchased 241,000 shares of our stock for a total cost of $91 million, or an average purchase price of approximately $376 per share as we continue to be opportunistic with our share buyback program.
We still had a total of approximately $207 million available under the current Board authorized program.
Full year share buybacks totaled 497,000 shares for approximately $216 million. In 2021, we purchased about 90,000 shares of our stock for $50 million. Adjusted EBITDA for the fourth quarter of 2022 was 21.4% of sales. The adjusted EBITDA in Q4 of 2021 was 19.5%. The Full year adjusted EBITDA, including the Sartorius dividend, was $667.9 million or about 23.8%, compared to 24.6% in 2021.
Net capital expenditures for the fourth quarter of 2022 were $34.7 million and full year capex spend was $112.6 million. Depreciation and amortization for the fourth quarter was $35.5 million and $137.3 million for the full year.
Moving on to the non-GAAP guidance for 2023. While the supply chain constraints have created a more-than-anticipated challenge during 2022, we believe that it is transitory and does not change our thinking about our 2025 financial outlook. We expect that our backlog -- back order dynamics will continue to normalize. And as I mentioned earlier, we assume to recover in 2023, about $30 million of the order backlog from 2022.
We are guiding a currency-neutral revenue growth in 2023 to be between 6% and 7%. Starting in 2023, we do not anticipate breaking out COVID-related sales as its contribution becomes immaterial to our overall revenue base. When excluding the 2022 COVID-related sales, we estimate currency neutral revenue growth in 2023 to be between 10% and 11%.
The Life Science Group year-over-year currency neutral revenue growth is expected to be between 8% and 9%. When normalizing for 2022 COVID-related sales, we expect to be between 16% and 18% currency-neutral year-over-year revenue growth for the Life Science Group.
For the Diagnostics Group, we estimate currency neutral revenue growth of about 5% as we expect supply chain constraints to normalize in 2023. When excluding COVID-related sales, we expect revenue growth between 5% and 5.5% for the Diagnostics Group.
Due to the elevated order backlog during 2022, we realized about 1% price improvement, which was below the inflationary trends in our overall cost. For 2023, we assume price increase realization between 1.5% and 1.8%, mainly within the Life Science Group. Full year non-GAAP gross margin is projected to be about 57% in the first half of 2023 and improving to 58% towards the end of the year, as we cycle through higher material costs embedded in our inventory, and we expect our logistics cost to normalize.
Full year non-GAAP operating margin is projected to be approximately 19.5%. We estimate the non-GAAP full year tax rate to be between 22% and 23%. Capex is projected to be approximately $180 million as we plan to complete our ERP implementation in Asia as well as capacity expansion to support our multiyear growth strategy. Finally, full year adjusted EBITDA margin is expected to be about 25%.
And now I'll turn the call over to Norman for a few remarks. Norman?
