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, in Q4, we delivered an excellent quarter capping off another outstanding year. For the full year 2021, we delivered 17% organic growth. That included 14% organic base business growth and $9.2 billion of COVID-19 response revenue. We delivered 28% growth in adjusted earnings per share in 2021 and over $7 billion of free cash flow, all while significantly investing in our company to enable a really bright future. I'm very proud of what the team accomplished this year. These results are significantly ahead of our prior guidance. So let me walk you through the key elements of the beat.
We delivered $2.1 billion more revenue than included in our prior guide. This included $1.5 billion higher COVID-19 response revenue, $375 million of revenue from the PPD acquisition, and $200 million higher base business revenue. On our last earnings call, we derisked testing response revenue in our guidance and we said to defer any additional opportunities to support customers' testing needs we'd be ready to do so and flow the benefits through our P&L. And that's exactly what we did in Q4. Then in terms of the base business in Q4, we delivered 8% base business organic growth, which was three percentage points higher than assumed in the prior guide. This is very good performance, particularly given the four fewer selling days in the quarter. So excellent momentum on the top-line. Our core business is on a great growth trajectory and we continue to step up and meet our customers' testing needs.
Our PPI Business System enabled us to generate great pull-through on the very strong revenue performance in Q4, leading to excellent adjusted EPS performance. We delivered $6.54 of adjusted EPS in the quarter and $25.13 for the full year. This is a $1.76 ahead of our prior guide. So a broad-based speed to round out an outstanding year. Let me now provide you with some more details on our performance. Beginning with our earnings results, and as I mentioned, we delivered $6.54 of adjusted EPS in the quarter and for the full year adjusted EPS was $25.13, up 28% compared to last year. GAAP EPS in the quarter was $4.17 and for the full-year 2021 GAAP EPS was $19.46, up 22% versus the prior year. On the top-line, our Q4 reported revenue grew 1% year-over-year. The components of our Q4 [Technical Issues] revenue increase included a 4% organic revenue decrease, a 6% contribution from acquisitions and a headwind of 1% from foreign exchange.
And as I mentioned, the base business organic revenue growth in the quarter was 8%. For the full year 2021, reported revenue increased 22%. This includes 17% organic growth, a 3% contribution from acquisitions and a 2% tailwind from foreign exchange. The full year base business organic growth was 14% and in 2021, we delivered $9.23 billion of COVID-19 response revenue, which includes $2 billion of vaccines and therapies support revenue. Turning to our performance by geography, the organic growth rates by region are skewed by the response revenue in the current and prior year, as well as four fewer selling days in Q4 '21 versus the prior year quarter. For Q4, North America declined in the low teens. Europe grew high single digits. Asia Pacific and China grew in the high single digits and rest of the world grew mid-single digits. For the full year, North America grew low double digits, Europe grew over 25%, Asia Pacific grew over 20% including just under 20% growth in China and rest of the world grew mid-teens.
Turning to our operational performance, Q4 adjusted operating income decreased 10% and adjusted operating margin was 29.5%, 380 basis points lower than Q4 last year. For the full year, adjusted operating income increased 27% and adjusted operating margin was 31% which is 130 basis points higher than 2020. In the quarter, our PPI Business System enabled to deliver strong volume leverage on the base business and strong productivity. This is more than offset by the impact of lower testing response revenue and our ongoing strategic investments across our business to support our near and long-term growth. For the full year, we drove positive volume leverage and productivity. We also had favorable business mix. This was partially offset by our strategic investments.
Moving on to the details of the P&L, total company adjusted gross margin in the quarter came in at 50.5%, 340 basis points lower than Q4 last year. And for the full year, adjusted gross margin was 51.6%, up 40 basis points versus the prior year. For both the fourth quarter and full year, the change in gross margin was due to the same drivers as those for our adjusted operating margin. Adjusted SG&A in Q4 was 17.3% of revenue. And for the full year, adjusted SG&A was 17.1% of revenue, an improvement of 80 basis points compared to 2020. Total R&D expense was approximately $390 million in Q4 and for the full year, R&D expense was $1.4 billion, representing growth of 19% 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 and net interest expense was $150 million, $16 million higher than Q4 last year largely due to the PPD financing activities. Net interest expense for the full year was $493 million, an increase of $5 million from 2020. Adjusted other income and expense was a net income in the quarter of $7 million, $8 million higher than Q4 2020 mainly due to changes in non-operating FX. For the full year, adjusted other income and expense was a net income of $38 million which is $8 million lower than the prior year. Our adjusted tax rate in the quarter was 13.8%. This is 220 basis points lower than Q4 last year, mainly due to the different levels of pre-tax profitability year-over-year. For the full year, the adjusted tax rate was 14.6% or 30 basis points higher than 2020.
Average diluted shares were 398 million in Q4, approximately 2 million lower year-over-year, driven by share repurchases, net of option dilution. And for the full year, the average diluted shares were 397 million. Turning to cash flow and the balance sheet, cash flow was another great highlight for the year. Cash flow from operating activities in 2021 was $9.5 billion, up 15% over the prior year and free cash flow for the year was $7 billion after investing $2.5 billion of net capital expenditure. This reflects strong returns we're generating in the short-term and the investments that we're making for the long-term. During the year, we returned approximately $2.4 billion of capital to shareholders through stock buybacks and dividends, and we ended Q4 with $4.5 billion in cash.
Our total debt at the end of Q4 was $34.9 billion, up $13.2 billion sequentially from Q3, largely as a result of the financing activities related to the PPD acquisition. Our leverage ratio at the end of the quarter was 2.7 times gross debt to adjusted EBITDA and 2.3 times on a net debt basis. And concluding my comments on our total company performance, adjusted ROIC was 19.8%, up 180 basis points from Q4 last year as we continue to generate exceptional returns. So now I'll provide some color on the performance of our four business segments and let me start with a few framing comments. The scale and margin profile of our COVID-19 response revenue varies by segments, but it's been consistent throughout the year. We continue to make strategic investments across all of our businesses. The size of those investments does not necessarily align with the response revenue in each segment, but does skew some of the reported segment margins.
And during Q4, we had four fewer selling days than the year ago quarter. And finally, we recently renamed Laboratory Products segment to reflect the inclusion of the PPD acquisition. It's now Laboratory Products and Biopharma Services segment. And also going forward, we will refer to PPD as our clinical research business within this segment. Moving on to the segment details, starting with Life Sciences Solutions, Q4 reported revenue in the segment decreased 5% and organic revenue was 8% lower than the prior year quarter. In the quarter, we delivered very strong growth in our bioproduction and biosciences businesses. This is offset by lower revenue in the genetic sciences business, driven by lower testing revenue versus the year ago quarter. For the full year, reported revenue in the segment increased 28% and organic revenue increased 23%.
Q4 adjusted operating income in Life Science Solutions decreased 14% and adjusted operating margin was 48.2%, down 490 basis points year-over-year. In the quarter, we delivered strong productivity, which is more than offset by unfavorable business mix and strategic investments. And for the full year, adjusted operating income increased 28% and adjusted operating margin was 50%, a decrease of 20 basis points versus 2020. In the Analytical Instruments segment, reported revenue increased 5% in Q4 and organic growth was 6%. Growth in the segment this quarter was driven by the electron microscopy and chromatography and mass spectrometry businesses. For the full year, reported revenue in the segment increased 18% and organic revenue increased 17%. Q4 adjusted operating income in the segment increased 15% and adjusted operating margin was 22.1%, up 190 basis points year-over-year.
During the quarter, we saw a favorable business mix and delivered strong volume pull-through and productivity enabled by our PPI Business System that was partially offset by the strategic investments we're making across the segment. For the full year, adjusted operating income increased 48% and adjusted operating margin was 19.7%, an increase of 390 basis points versus 2020. Turning to Specialty Diagnostics, in Q4, reported revenue and organic revenue were both 26% lower than the year ago quarter. In the quarter, we saw a strong growth in our transplant diagnostics and immunodiagnostics businesses which is offset by lower COVID-19 testing revenue versus the year ago quarter. For the full year, reported revenue in the segment increased 6% and organic revenue increased 5%.
Q4 adjusted operating income decreased 43% in the quarter and adjusted operating margin was 20.5%, down 590 basis points from the prior year. In Q4, we drove positive productivity enabled by our PPI Business System. This is more than offset by unfavorable volume mix and strategic investments in the segment. For the full year, adjusted operating income decreased 6% and adjusted operating margin was 22.6%, a decrease of 300 basis points versus 2020. And finally, Laboratory Products and Biopharma Services segment, in Q4, reported revenue in the segment increased 16% and organic revenue growth was 5%. During Q4, we saw strong growth in the pharma services and laboratory products businesses and we recognized $375 million of revenue for PPD, the clinical research business.
For the full year, reported revenue in the segment increased 21% and organic revenue increased 15%. Q4 adjusted operating income in the segment increased 42% and adjusted operating margin was 11.5%, which is 210 basis points higher than the prior year. In the quarter, we drove strong productivity via our PPI Business System and saw favorable business mix, partially offset by strategic investments. For the full year, adjusted operating income increased 45% and adjusted operating margin was 12.4%, an increase of 200 basis points versus 2020. Let me now turn to our updated 2022 guidance. Before I get into the details, I'd like to begin with a quick reminder about our definition of core business which we introduced at our Investor Day last year and notably transition to it in 2022.
Core includes our base business, the vaccines and therapies response revenue and the PPD acquisition. Given the scale of the PPD acquisition, our core organic growth calculation will include PPD on a full year basis, if we think that gives you the best view of how to look at the total company business and how it's performing. For full transparency, we'll also continue to provide total company organic growth when reporting our actual performance in '22. So moving on to our guidance. As Marc mentioned, we're significantly increasing our full-year 2022 revenue and adjusted EPS outlook. We're raising our full-year '22 revenue guidance by $1.5 billion to $42 billion and we're raising our adjusted EPS guidance by $1.7 to $22.43. This very strong raise reflects the excellent strength of the business and we continue to expect 8% core organic revenue growth in 2022.
Let me now provide you with additional details on the updated guidance, starting with revenue where there are four elements driving the $1.5 billion raise: a $1 billion increase in the COVID-19 testing assumption, a $900 million increase for the core business, a $500 million decrease due to the change in FX rates and $100 million increase to reflect the PeproTech acquisition, which closed just before the year-end. In terms of our COVID-19 testing revenue assumption, we're continuing the same derisked approach to guidance as a range of outcomes for the year. Our guidance now assumes $1.75 billion of testing revenue in 2022. 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. And as we did in 2021, we'll flow the benefits of that 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 the core revenue raise, $600 million relates to PPD and reflects the excellent strength of that business and to a lesser extent, the recent GAAP changes around deferred revenue measurement for acquisitions. We now expect PPD, our new clinical research business, to deliver $6.5 billion in revenue in full year 2022. This represents 8% organic growth on a full year basis on top of 30% growth it delivered in 2021. And the remaining $300 million of the core revenue raise is to reflect the strong finish to 2021 by the rest of the core business. Our core business is in great shape. It ended 2021 with even more scale and as I mentioned earlier, we continue to expect that it will grow 8% organically in 2022. So a very strong raise overall for our revenue guidance and we will use our PPI Business System to generate strong pull-through on that revenue. And we now expect adjusted operating margin to be 25.4% in 2022, that's a 20 basis points higher than what we assumed in our prior guidance.
In terms of adjusted EPS, our stronger business outlook is enabling us to raise the 2022 adjusted EPS guidance from $21.36 to $22.43, further building on an already very strong outlook for the year. So let me now provide you with a couple of the details on the 2022 guidance to help you with your models. As I mentioned, PPD is expected to deliver $6.5 billion of revenue and a $1 billion of adjusted operating income in 2022. This acquisition is now expected to contribute $1.90 to adjusted EPS in the year. PeproTech is expected to deliver revenue of just over $100 million in 2022 and $0.05 of adjusted EPS. FX is now expected to be a year-over-year headwind of $500 million in revenue or 1.3% and $0.31 from adjusted EPS. We continue to assume an adjusted income tax rate of 13% in 2022. We now expect full year net interest cost to be approximately $490 million and other income to be $10 million. 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 $2 billion of share buybacks that we already completed in January and $475 million of capital returned to shareholders through dividends. We now estimate that the full year average diluted share count will be between 395 million and 396 million shares. And finally, a couple of comments on phasing to help you with your modeling. In terms of revenue dollars, the assumption in the guide is the revenue dollars a fairly linear for the year with Q1 and Q4 being slightly higher than Q2 and Q3. The derisked assumption for COVID-19 testing used in this guidance assumes that this revenue is very front-end loaded in the first half of the year and then it's in assumed endemic run rate level of $100 million of revenue per quarter in the second half of the year. Organic growth of the core business is expected to be fairly consistent throughout the year.
And then in terms of adjusted EPS phasing, this guidance assumes slightly more waiting towards the first half of the year than the phasing we had last year, with Q1 being about the same percentage of the full year as we had in 2021. To conclude, we delivered another outstanding year and we're in great position to achieve our 2020 goal -- 2022 goals. With that, I'll turn the call back over to Raf.
