Roop K. Lakkaraju
Executive Vice President, Chief Financial Officer at Bio-Rad Laboratories
Thank you, Jon, and good afternoon. I'd like to start with a review of the third quarter 2024 results. Net sales were $650 million, which represents a 2.8% increase on a reported basis versus $632 million in Q3 2023. On a currency neutral basis, this represents a 3.4% year-over-year increase and was driven primarily by higher sales in our Clinical Diagnostics segment. Sales of the Life Science group were approximately $261 million compared to $263 million in Q3 of 2023, which is essentially flat on a reported and currency-neutral basis. Currency-neutral sales decreased in the Americas, offset by the increase in EMEA. As Norman alluded to earlier, additional IP related royalties contributed to the Q3 Life Science revenue as well as gross margin performance. Note that royalties can vary quarter-to-quarter and on a full year basis, royalties generally represent less than 1% of our total revenue.
Excluding process chromatography sales, which can fluctuate quarter-to-quarter, our Life Science group revenue increased 3.5% year-over-year and 3.9% on a currency-neutral basis. Core Life Science growth was driven by consumable sales that improved low single digit sequentially and mid-single digit year-over-year. Sales of the Clinical Diagnostics group were $389 million compared to $368 million in Q3 of 2023, which is an increase of 5.6% on a reported basis and 6.4% on a currency-neutral basis. Growth of the Clinical Diagnostics group was primarily driven by increased demand for quality control products and a favorable compare for our immunology products that were affected by supply constraints in the third quarter of 2023. Growth of the Quality Control portfolio also benefited from the timing of shipments and contributed to the stronger pull-through consumables during the quarter.
On a geographic basis, currency-neutral year-over-year revenue for the Diagnostics group posted growth across all three regions. We are pleased with the growth rate for the Clinical Diagnostics Group in 2024. As we think about 2025, we do see some potential headwinds impacting this business, such as China and one of our partners exiting the donor screening business.
Q3 reported GAAP gross margin was 54.8% as compared to 53.1% in the third quarter of 2023. The increase in gross margin was primarily driven by improved productivity, lower logistics costs and a mix of revenue. The higher royalties contributed 30 basis points. SG&A expenses were essentially flat between the third quarter of 2024 versus the year ago period. For Q3 2024, SG&A spend was $200 million or 30.8% of sales compared to $201 million or 31.8% in Q3 of 2023. The decrease in dollars of SG&A expense was primarily due to a reduction in discretionary spending and moderated employee-related expenses including variable compensation.
Research and development expense in the third quarter was $91 million as compared to $43.5 million in Q3 2023. The higher year-over-year R&D was attributed to the onetime acquired in-process R&D expense of approximately $30 million and a onetime decrease in the fair value of contingent consideration of approximately $15 million in Q3 2023. Q3 operating income is approximately $64 million or 9.9% of sales compared to $91 million or 14.4% of sales in Q3 of 2023. Lower operating income is driven by the onetime in-process R&D expense, which decreased operating income by approximately $30 million. This was partially offset by the revenue mix and continued proactive expense management initiatives. During the quarter, interest and other income resulted in net other income of about $18 million compared to about $20 million in the prior year.
The effective tax rate for the third quarter of 2024 was 24.2% compared to 22.5% in the year-ago period. Tax rate reported in these periods was primarily affected by the accounting treatment of our equity securities and the geographical mix of earnings. The change in fair market value of equity security holdings, which are substantially related to the ownership of Sartorius AG shares, resulted in a $793 million gain and drove the reported net income of $653 million or $23.34 diluted earnings per share compared to net income of $106 million or diluted earnings per share of $3.64 in Q3 of 2023.
Moving to the non-GAAP results. Non-GAAP financial measures, which exclude certain atypical and unique items that impact both gross and operating margins and other income are detailed in the reconciliation table in our press release. Third quarter non-GAAP gross margin was 55.6% compared to 53.9% in Q3 of 2023, reflecting the revenue mix, ongoing focus on productivity and operating efficiencies. Non-GAAP SG&A in the third quarter of 2024 was 30.3% versus 31.7% in Q3 of 2023. Non-GAAP R&D as a percentage of sales in the third quarter of 2024 was 13.9% compared to 9.2% for Q3 of 2023, primarily due to the aforementioned onetime in-process R&D expense.
Third quarter non-GAAP operating margin was 11.3% compared to 12.9% in 2023. Lower margin was driven by the onetime acquired in-process R&D expense, which reduced our Q3 non-GAAP operating margin by approximately $30 million or 450 basis points. This was partially offset by the gross margin improvement in cost management initiatives. The non-GAAP effective tax rate for the third quarter of 2024 was 28.8% compared to 23.9% for the same period in 2023. The higher rate in 2024 was driven by a geographical mix of earnings and the accounting treatment of the onetime in-process R&D expense. Finally, non-GAAP net income for the third quarter of 2024 was $56 million or $2.01 diluted earnings per share compared to $68 million or diluted earnings per share of $2.33 in Q3 of 2023.
Moving on to the balance sheet. Total cash and short-term investments at the end of Q3 2024 was $1.62 billion, unchanged versus the end of Q2 2024. Inventory at the end of Q3 was $804 million, essentially flat compared to the prior quarter. Inventory, when adjusted for currency impact between Q2 and Q3 2024, would be down approximately 2%. For the third quarter of 2024, net cash generated from operating activities was approximately $164 million compared to $98 million for Q3 of 2023. Net capital expenditures for the third quarter of '24 were approximately $40 million in depreciation and amortization was $39 million. Third quarter 2024 free cash flow was approximately $123 million, which compares to $54 million in Q3 of 2023. For the full year 2024, we expect free cash flow to be approximately $300 million versus $218 million in 2023. As we look towards 2025, free cash flow will continue to be a key focus.
Adjusted EBITDA for the third quarter of 2024 was $107 million or 16.4% of sales, which includes the onetime in-process R&D expense. During the third quarter, we repurchased approximately 330,000 shares of our stock for about $97 million at an average purchase price of about $293 per share. We continue to be opportunistic with our buybacks and still have approximately $577 million available for share repurchases under the current board authorized program.
Moving on to the full year 2024 non-GAAP guidance. We are maintaining our full year 2024 revenue guidance with currency-neutral year-over-year revenue expected to decline 2.5% to 4.0%, reflecting the slower gradual pace of biopharma end market recovery and growth for the Clinical Diagnostics group. We are increasing our full year non-GAAP gross margin range, which we now expect to be between 55% to 55.5% versus 54.5% and 55% previously. The increase reflects a combination of revenue mix and the impact of cost improvements implemented. Similarly, we are increasing our full year non-GAAP operating margin to be between 12.75% and 13.25% and our full year adjusted EBITDA margin is now expected to be between 18.5% and 19.0%, both include the Q3 in-process R&D expense, which has an approximate 125 basis point impact.
That concludes our prepared remarks. We will now open the line to take questions. Operator?