Stephen Williamson
Senior Vice President and Chief Financial Officer at Thermo Fisher Scientific
Thanks, Marc, and good morning, everyone. As you saw in our press release, we started the year with an excellent Q1. In the quarter, we delivered 16% core organic growth. $1.68 billion of COVID-19 testing revenue, $7.25 of adjusted earnings per share and $1.6 billion of free cash flow. Revenue in Q1 was just over $1 billion higher than we'd incorporated in our previous 2022 guidance, with $700 million, driven by a very strong start to the year for the core business, and just under $400 million from testing. The strength of the core was broad-based across businesses, end markets and geographies. Our PPI business system enabled us to generate very strong pull-through on this revenue.
And adjusted EPS for Q1 was $0.84 higher than included in our previous guidance. So broad-based beat to start the year. Let me now provide you with some more details on our performance, beginning with our earnings results. And as I mentioned, we delivered $7.25 of adjusted EPS in Q1, up 1% versus the prior year. GAAP EPS in the quarter was $5.61, down 5% versus the prior year. On the topline, our Q1 reported revenue grew 19% year-over-year. The components of our Q1 reported revenue increase included 3% organic revenue growth and 18% contribution from acquisitions and a headwind of 2% from foreign exchange.
Core organic revenue growth in the quarter was 16%. And as I mentioned, we delivered $1.68 billion of COVID-19 testing revenue. Turning to our organic revenue performance by geography. The organic growth rates by region are skewed by the COVID-19 testing revenue in the current and prior year. In Q1, North America grew in the low single digits. Europe was flat. Asia Pacific grew in the mid-teens, with China growing in the low double digits, and rest of the world declined in the low single digits. With respect to our operational performance, adjusted operating income in the quarter decreased 2% and adjusted operating margin was 29.2%, 620 basis points lower than Q1 last year.
Adjusted operating margins came in slightly higher than we had anticipated in our prior guidance for Q1, reflecting how well our growth strategy and PPI Business System enables us to manage dynamic times. We executed strong pricing realization, productivity and volume leverage in the core business, enabling us to appropriately address higher inflation, and this was more than offset by the expected impact of incorporating PPD into our financials, lower testing volumes and the impact of strategic investments, including continued investments in our colleagues. Moving on to the details of the P&L. Total company adjusted gross margin in the quarter came in at 47.5%, 660 basis points lower than Q1 last year.
For the first quarter, the change in gross margin was due to the same drivers as those of our adjusted operating margin. Adjusted SG&A in the quarter was 15.2% of revenue, a decrease of 20 basis points versus Q1 2021. Total R&D expense was approximately $360 million in Q1, representing growth of 14% over the prior year, reflecting our ongoing investments in high-impact innovation to fuel future growth. Looking at our results below the line for the quarter. Our net interest expense was $118 million, $5 million higher than Q1 last year, largely due to acquisition financing activities. Our adjusted tax rate in the quarter was 14.1%. This was 190 basis points lower than Q1 last year, driven by our tax planning initiatives.
Average diluted shares were $395 million in Q1, approximately $3 million lower year-over-year driven by share repurchases, net of option dilution. Turning to cash flow and the balance sheet. Cash flow was another strong highlight for the quarter. Our PPI business system enabled us to deliver significant cash flow from the very strong topline performance. Cash flow from operating activities in Q1 was $2.2 billion, and free cash flow for the quarter was $1.6 billion. Our capacity and capability investments are progressing well, and this quarter's net capital expenditures were $640 million. In January, we returned $2 billion of capital to shareholders through buybacks.
Also during the quarter, we increased our dividend by 15%. We ended Q1 with approximately $2.8 billion in cash and $33.3 billion of total debt. Our leverage ratio at the end of the quarter was 2.6 times gross debt to adjusted EBITDA and 2.4 times on a net debt basis. And concluding my comments on our total company performance, adjusted ROIC was 18%, reflecting the strong returns on investments that we're generating across the company. Now I'll provide some color on the performance of our four business segments. Let me start with a couple of framing comments. The scale and margin profile of our COVID-19 testing revenue varies by segment, and testing revenue was significantly higher in the prior year quarter, so that does skew some of the reported segment margins.
And as previously mentioned, we're referring to the acquired PPD business as our clinical research business, and that resides in the Laboratory Products and Biopharma Services segment. So moving on to the segment details, starting with Life Sciences Solutions. Q1 reported revenue in this segment increased 1%, and organic revenue was 1% lower than the prior year quarter. In Q1, we delivered very strong growth in our bioproduction and biosciences businesses. This was offset by lower revenue in the Genetic Sciences business, drive by lower testing revenue versus the year ago quarter. Q1 adjusted operating income in Life Science Solutions decreased 5%, and adjusted operating margin was 51.4%, down 280 basis points year-over-year.
In the quarter, we delivered strong productivity that was more than offset by business mix and strategic investments. In the Analytical Instruments segment, reported revenue increased 9% in Q1, and organic growth was 12%. The strong growth in this segment this quarter was led by electron microscopy and chromatography and mass spectrometry businesses. Q1 adjusted operating income in this segment increased 10% and adjusted operating margin was 19.8%, up 20 basis points year-over-year. During the quarter, we delivered strong volume pull-through and productivity, that was offset by strategic investments we're making across this segment.
Turning to Specialty Diagnostics. In Q1, reported revenue declined 8% and organic revenue declined 7%. In the quarter, we saw a strong underlying growth in our health care market channel, transplant diagnostics and clinical diagnostics businesses, which was offset by lower COVID-19 testing revenue versus the year ago quarter. Q1 adjusted operating income decreased 17% in the quarter, and adjusted operating margin was 23.9%, down 260 basis points from the prior year. In Q1, we drove strong productivity. This was more than offset by business mix and the strategic investments in the segment. And finally, in Laboratory Products & Biopharma Services segment. In Q1, reported revenue in this segment increased 51%, and organic growth was 6%.
During Q1, we had strong growth in the research and safety market channel, and the Laboratory Products businesses. PPD, our clinical research business is performing very well. And during the quarter, it grew a few points above the company average core organic growth rate. It contributed $1.66 billion of revenue to the segment in the quarter. Q1 adjusted operating income in the segment decreased -- increased 17%, and adjusted operating margin was 11.4%, which is 340 basis points lower than the prior year. In the quarter, we drove strong productivity, which was more than offset by strategic investments and business mix. So let me now turn to our updated 2022 guidance.
As Marc outlined, we're raising our full year revenue guidance by $450 million to $42.45 billion. We're also raising our core organic revenue growth outlook from 8% to 9% for the year. And on the bottom line, we're increasing our adjusted EPS guidance by $0.22 to $22.65 for the year. It's a very strong outlook, particularly as it also factors in the notable macro developments that occurred following our last earnings call in February. Our team continues to do an excellent job navigating through a fluid macroeconomic environment to help us deliver outstanding results, reflecting the strength of our proven growth strategy and the power of the PPI Business System to operate with speed at scale.
So let me get into the details of the guidance raise. In terms of revenue, there are three elements driving the raise in guidance. $350 million higher assumed COVID-19 testing revenue for the year, a $200 million decrease due to the change in FX rates and a $300 million increase in the outlook for the core business. The core revenue raise incorporates a $350 million headwind from the conflict in Ukraine and the lockdowns in China, and we chose to derisk $600 million of vaccines and therapies revenue in the outlook, offsetting it with other core revenue. Our guidance now assumes $1.5 billion of COVID-19 vaccines and therapies revenue in total for 2022. Incorporating both of these, and still being able to raise the full year outlook for the core shows that the business is performing very well.
And as I mentioned previously, we're increasing the core organic growth outlook from 8% to 9% for the year. In terms of our COVID-19 testing revenue assumption, we're continuing the same derisked approach to guidance as there are a range of outcomes for the year. Our guidance now assumes $2.1 billion for testing revenue in 2022, which represents the $1.68 billion delivered in Q1, $225 million in Q2, and then an assumed endemic run rate level of $100 million of revenue per quarter in the second half of the year. There are scenarios where testing demand could be higher than this level. And should that be the case, we're well positioned to support customer needs as we did in Q1, and will flow these benefits through our P&L.
But for now, we thought it was prudent to continue to take a derisked approach to the outlook. In terms of profitability, we expect to deliver $90 million more adjusted operating income of the $450 million raise in revenue guidance. This reflects strong pull-through on the additional revenue, partially offset by $150 million of additional compensation to our colleagues to help them with the temporary impacts of inflation. We continue to expect adjusted operating margin to be 25.4% in 2022. In terms of adjusted EPS, our stronger business outlook is enabling us to raise the 2022 adjusted EPS guidance by $0.22, from $22.43 to $22.65, further building on an already very strong outlook for the year.
Let me provide you with a couple of other details on the 2022 guidance to help you with your models. PPD, our clinical research business, is now expected to deliver $6.7 billion in 2022 in revenue, which represented 11% core organic growth on a full year basis for this business, up three percentage points from our previous guidance. We now expect the business to deliver just over $1 billion of adjusted operating income in 2022, and contribute $1.98 to adjusted EPS in the year, up $0.08 from our prior guidance. FX is now expected to be a year-over-year headwind of $700 million in revenue or 1.8%, and $0.54 from adjusted EPS. We continue to expect net interest expense of approximately $490 million for the year.
We now expect an adjusted income tax rate of 13.1% in 2022, slightly higher than the prior guide driven by the improved earnings outlook. We continue to assume net capital expenditures of approximately $2.5 billion to $2.7 billion and free cash flow of approximately $7 billion. Our guidance still assumes $2.5 billion of capital deployment, which is the $2 billion of share buybacks that we completed in January and $475 million of capital returned to shareholders through dividends. And we now estimate that the full year average diluted share count will be between 394 million and 395 million shares. And finally, a couple of comments on phasing to help you with your modeling.
Revenue dollars for the remainder of the year are expected to be fairly linear with Q4 being slightly higher than Q2 and Q3. Core organic growth for Q2 is expected to be lower than Q3 and Q4 due to an estimated 200 basis point impact of lockdowns in China. And in terms of adjusted EPS phasing, we expect Q2, as a percentage of the full year, to be just slightly lower than the comparable period last year. To conclude, we delivered an excellent start to the year, and we're in a great position to achieve our 2022 goals.
With that, I'll turn the call back over to Raf.
