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 second quarter. Net sales for the second quarter of 2022 were $691.1 million, which is a 3.5% decline on a reported basis versus $715.9 million in Q2 of 2021. The second quarter decline in revenue was mainly a result of lower COVID-related sales this year. On a currency-neutral basis sales increased 0.5%. We estimate that COVID-related sales were about $33 million in the quarter and continued to reflect an elevated level in demand particularly in Asia as a result of the ongoing outbreaks in China. Looking ahead, we continue to anticipate a significant tapering compared to the last two years and expect about $15 million of COVID-related sales in the back half of this year. Core year-over-year revenue, which excludes COVID-related sales increased 5.7% on a currency-neutral basis. On a geographic basis, we experienced currency-neutral year-over-year core revenue growth in the Americas and Europe. Core revenue in Asia declined, which reflects the extended lockdowns in China that negatively impacted our diagnostics business during the quarter.
As Andy mentioned earlier, we continue to carry an elevated order backlog as a result of supply chain constraints and continued strong customer demand. We expect improvement relative to the first half of the year, although, we anticipate back orders to continue through the remainder of 2022. Sales of the Life Science Group in the second quarter of 2022 were $322.4 million, compared to $334.2 million in Q2 of 2021, which is a 3.5% decline on a reported basis and a 0.5% increase on a currency-neutral basis. Despite supply chain constraints having an impact on instrument placements the underlying Life Science year-over-year currency-neutral core revenue growth, which excludes COVID-related sales was 10.6%. The year-over-year growth was driven by process media, western blotting, Droplet Digital PCR and qPCR products.
Process media which can fluctuate on a quarterly basis saw strong year-over-year double-digit growth versus the same quarter last year. We are pleased with the continued momentum from our process media business and believe that the recently introduced pre-packed CHT columns should enhance our position in this segment. Excluding process media sales, the underlying Life Science business declined 4.5% on a currency-neutral basis versus Q2 of 2021 due to lower COVID-related sales. When also excluding COVID-related sales, revenue growth was 6% 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 second quarter were $367.8 million, compared to $380.2 million in Q2 of 2021, which is a 3.3% decline on a reported basis and growth of 0.7% on a currency-neutral basis. Core Clinical Diagnostics year-over-year revenue growth, which excludes COVID-related sales increased 2.1% on a currency-neutral basis. The diagnostics group currency-neutral year-over-year sales increase was driven by blood-typing, quality control and clinical immunology. And as I mentioned earlier, supply chain constraints had an impact on instrument placements. We have seen both recovery and increasing global demand for blood typing products, as elective surgeries resume to pre-pandemic levels and hospitals seek to expand capacity. Specifically, we are benefiting from new account expansion in the Middle East and Africa from meaningful new tender wins.
On a geographic basis, the diagnostics group year-over-year currency-neutral core revenue grew in the Americas and Europe and declined in Asia. The reported gross margin for the second quarter of 2022 was 57.3% on a GAAP basis, and compares to 56.1% in Q2 of 2021. The year-over-year gross margin improvement benefited from the stronger US dollar, product mix and continued operational efficiencies, which was partially offset by elevated logistics costs. Amortization related to prior acquisitions recorded in cost of goods sold was $4.5 million, as compared to $4.6 million in Q2 of 2021. SG&A expenses for Q2 of 2022 were $208.7 million, or 30.2% of sales compared to $213.4 million, or 29.8% in Q2 of 2021. The year-over-year SG&A expenses decreased, mainly due to the stronger dollar and normalized employee-related expenses, but was partially offset by higher discretionary spend. Total amortization expense related to acquisitions recorded in SG&A for the quarter was $1.8 million versus $2.4 million in Q2 of 2021.
Research and development expense in Q2 was $67 million, or 9.7% of sales compared to $63.4 million or 8.9% of sales in Q2 of 2021. The year-over-year, R&D expenses increased mainly due to project expense. Q2 operating income was $120.2 million, or 17.4% of sales compared to $124.8 million or 17.4% in Q2 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 negatively impacted the reported results by $1.338 billion. During the quarter interest and other income resulted in net other expense of $4.9 million compared to net other income of $1.3 million last year. Q2 2022 included $10.7 million of interest expense related to the $1.2 billion senior notes issued earlier this year, partially offset by $5 million of interest income as well as an escrow release of $1.4 million, related to the sale of the informatics business back in 2020.
The effective tax rate for the second quarter of 2022 was 24.2% compared to 21% for the same period in 2021. The effective tax rate reported in Q2 of 2022 was primarily affected by the unrealized loss in equity securities and the tax rate reported in Q2 of 2021, was primarily affected by an unrealized gain in equity securities. Reported net loss for the second quarter was $927.2 million and the diluted loss per share was $31.12 compared to $914.1 million of net income or $30.32 per share in Q2 of 2021. This decrease 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 second quarter. In cost of goods sold, we have excluded $4.5 million of amortization of purchased intangibles. This exclusion moved the gross margin for the second quarter of 2022 to a non-GAAP gross margin of 57.9% versus 56.9% in Q2 of 2021. Non-GAAP SG&A in the second quarter of 2022 was 29.4% versus 29.2% in Q2 of 2021.
In SG&A, on a non-GAAP basis, we have excluded an in vitro diagnostic registration fee in Europe for previously approved products of $2.5 million, amortization of purchased intangibles of $1.8 million, legal-related expenses of $900,000 and a small restructuring-related expense. Non-GAAP R&D expense in the second quarter of 2022 was 9.7% versus 9.1% in Q2 of 2021. In R&D, on a non-GAAP basis, we have excluded a small restructuring benefit. The cumulative sum of these non-GAAP adjustments result in moving the quarterly operating margin from 17.4% on a GAAP basis to 18.8% on a non-GAAP basis. This non-GAAP operating margin compares to a non-GAAP operating margin of 18.5% in Q2 of 2021. We have also excluded certain items below the operating line, which are the decrease in value of the Sartorius equity securities and loan receivable holdings of $1.338 billion, a $1.6 million loss associated with venture investments and $1.4 million gain from the escrow release related to the 2020 informatics business sale.
The non-GAAP effective tax rate for the second quarter of 2022 was 19% compared to 21.5% for the same period in 2021. The lower rate in 2022 was driven by the geographical mix of earnings, as well as benefit associated with preferential tax rates related to export sales. And finally non-GAAP net income for the second quarter of 2022 was $101.4 million or $3.38 diluted earnings per share, compared to $106.6 million or $3.64 per share in Q2 of 2021. Moving on to the balance sheet. Total cash and short-term investments at the end of Q2 were $1.973 billion compared to $2.079 billion at the end of Q1 of 2022. Inventory at the end of Q2 reached $657.1 million from $605.5 million in the prior quarter. The increase was the result of the ongoing supply chain constraints. For the second quarter of 2022, net cash generated from operating activities was $50.2 million, which compares to $154.6 million in Q2 of 2021. The lower quarterly operating cash flow, mainly reflects changes in working capital.
During the second quarter, we purchased 255,000 shares of our stock for a total cost of $125 million. Last week, the Board authorized an additional $200 million for share repurchase on top of our existing program. In other ways, we now have approximately $298 million available for potential buybacks. The adjusted EBITDA for the second quarter of 2022 was 22.6% of sales. The adjusted EBITDA in Q2 of 2021 was 22.3%. Net capital expenditures for the second quarter of 2022 were $14.2 million and depreciation and amortization for the second quarter was $32.6 million. Moving on to the non-GAAP guidance. Based on the stronger-than-anticipated COVID sales contribution in the first half of this year, we now assume full year COVID-related sales of about $93 million of which approximately $15 million are projected for the second half of 2022.
We now anticipate full year currency neutral revenue growth to be at the high end of our guidance of 1% to 2%. Core revenue growth, which excludes COVID-related sale is now expected to be at the lower end of our prior guidance range of 8.5% to 9.5% on a currency neutral basis as we continue to balance between the ongoing strong customer demand and supply chain constraints. We achieved 6% currency neutral revenue growth in the first half of the year and expect it to approach 11% for the second half of this year versus the second half of 2021. This represents about 9% growth in the second half of 2022 over the first half of 2022. We are maintaining the full year gross margin projection to be approximately 57.5%, operating income margin at about 19% and adjusted EBITDA to be between 24% and 24.3%.
That concludes our prepared remarks, and we will now open the line to take your questions. Operator?
