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 outstanding quarter, capping off another excellent year. For the quarter and the full year, we delivered 14% core organic revenue growth. This differentiated level of performance demonstrates the power of our growth strategy and the trusted partner status that we've earned with our customers.
In addition, in Q4, we generated $370 million of COVID-19 testing revenue, $3.1 billion for the full year. Taking a step back and thinking about the top line performance for the year, I'm really proud of what the team delivered. We offset $4.2 billion less testing revenue, which was a headwind of over 10%, and still delivered slightly positive organic growth for the year. That's a great accomplishment. Then using the power of the PPI Business System, we were able to translate the topline strength to excellent adjusted EPS and cash flow results.
In Q4, we delivered $0.23 more adjusted EPS than our prior guide, ending the year at $23.24 and delivered $6.94 billion of free cash flow, all while continuing to invest in the business to enable an even brighter future. So 2022 was another excellent year. Let me now provide you with some details on our performance. Beginning with the earnings results. As I mentioned, we delivered $5.40 for adjusted EPS in Q4 and $23.24 for the full year.
GAAP EPS in the quarter was $4.01 and $17.63 for the full year. On the top line, as I mentioned, in Q4, we delivered 14% core organic revenue growth of $370 million of testing revenue. Reported revenue grew 7% year-over-year. The components of our Q4 reported revenue increase included 3% lower organic revenue, a 14% contribution from acquisitions and a headwind of 4% from foreign exchange. The full year core organic revenue growth was 14%, and we delivered $3.1 billion in testing revenue.
For the full year 2022, reported revenue increased 15%. This includes slightly positive organic growth, an 18% contribution from acquisitions and a 3% headwind from foreign exchange. Turn to our organic revenue performance by geography. The organic growth rates by region are skewed by the COVID-19 testing revenue in 2022 and the prior year. In Q4, North America grew in the low single digits, Europe declined in the low teens, Asia Pacific in the mid-single digits with China declining in the mid-single digits, and rest of the world declined high single digits.
For the full year, North America grew in the low single digits; Europe declined high single digits; Asia Pacific grew high single digits, including China, which also grew high single digits for the year; and the rest of the world declined high single digits. On a core organic growth basis, all regions had strong growth in 2022. With respect to our operational performance, adjusted operating income in the quarter decreased 19% and adjusted operating margin was 22.4%, 710 basis points lower than Q4 last year.
For the full year, adjusted operating income decreased 9% and adjusted operating margin was 24.5%, which is 650 basis points lower than 2021. For both the fourth quarter and full year, we achieved strong price realization to effectively address inflation while also delivering strong productivity. This was more than offset by lower testing volumes, continued strategic investments and the expected impact of incorporating PPD into our financials. For 2022, full year adjusted operating margin was 40 basis points lower than assumed in the prior guidance. 2/3 of this was due to business and currency mix and 1/3 due to one-time costs related to the runoff of testing revenue.
Total company adjusted gross margin in the quarter came in at 41.4%, 910 basis points lower than Q4 last year. For the full year, adjusted gross margin was 43.5%, down 810 basis points versus the prior year. For both the fourth quarter and the full year, the change in gross margin was due to the same drivers as those of our adjusted operating margin. Moving on to the details of the P&L. Adjusted SG&A in the quarter was 15.6% of revenue, an improvement of 170 basis points versus Q4 2021.
For the full year, adjusted SG&A was 15.8% of revenue, an improvement of 130 basis points compared to 2021. Total R&D expense was $390 million in Q4. For the full year, R&D expense was $1.5 billion, representing 5% growth over the prior year, reflecting our ongoing investments in high-impact innovation. R&D as a percent of our manufacturing revenue was 7% in Q4, 6.4% for the full year. Looking at results below the line for the quarter. Our net interest expense was $119 million, which is $31 million favorable to Q4 last year.
Net interest expense for the full year was $454 million, a decrease of $39 million from 2021. Adjusted other income and expense was a net expense in the quarter of $10 million compared to net income of $7 million in Q4 2021. The year-over-year variance is primarily due to changes in nonoperating FX. For the full year, adjusted other income and expense was a net income of $14 million, which is $24 million lower than the prior year. Our adjusted tax rate in the quarter was 12.8%, which is 100 basis points lower than Q4 last year, reflecting the results of our tax planning activities.
For the full year, the adjusted tax rate was 13% or 160 basis points lower than 2021. We repurchased $1 billion of shares in Q4, bringing our total repurchases for 2022 to $3 billion. Average diluted shares were 393 million in Q4, approximately 4 million lower year-over-year, driven by share repurchases net of option dilution. Turning to cash flow and the balance sheet. Full year cash flow from continuing operations was $9.15 billion. Free cash flow for the year was $6.94 billion after investing $2.2 billion of net capital expenditures.
We returned $118 million to shareholders through dividends in the quarter and $455 million for the full year. We ended the quarter with $8.5 billion in cash and $34.5 billion of total debt. Our leverage ratio at the end of the quarter was 2.9x gross debt to adjusted EBITDA and 2.2x on a net debt basis. Concluding my comments on our total company performance. Adjusted ROIC was 13.5%, reflecting the strong returns on investment that we're generating across the company. Now provides 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 varied by segment, and the testing revenue was significantly higher in the prior year, so that does skew some of the reported segment margins. We're executing strong pricing realization across all segments to address higher inflation. And we're referring to the acquired PPD business as our clinical research business and that revised in Laboratory Products and Biopharma Services segment.
The anniversary date of the acquisition was December 8. Moving on to the segment details, starting with Life Sciences Solutions. Q4 reported revenue in this segment declined 27%, and organic revenue was 24% lower than the prior year quarter. In Q4, we delivered very strong growth in our bioproduction business. This was more than offset by the moderation in testing revenue in the segment versus the prior year quarter. For the full year, reported revenue in the segment declined 13% and organic revenue declined 12%.
Q4 adjusted operating income in Life Science Solutions decreased 48% and adjusted operating margin was 34.1%, down 14 percentage points versus the prior year quarter. In Q4, we had unfavorable volume mix due to the significantly higher testing revenue in the prior year quarter. And for the full year, adjusted operating income decreased 29% and adjusted operating margin was 41.2%, a decrease of 880 basis points versus 2021. In the Analytical Instruments segment, reported revenue increased 9% in Q4 and organic growth was 14%.
Strong growth in this segment this quarter was led by electron microscopy and the chromatography and mass spectrometry businesses. For the full year, reported revenue in the segment increased 9% and organic revenue increased 14%. Q4 adjusted operating income in the segment increased 25% and adjusted operating margin was 25.4%, up 330 basis points year-over-year. In the quarter, we delivered strong volume pull-through and productivity. This was partially offset by strategic investments.
For the full year, adjusted operating income increased 26% and adjusted operating margin was 22.8%, up 310 basis points versus 2021. Turning to our Specialty Diagnostics. Segment in Q4 reported revenue declined 23% and organic revenue was 20% lower than the prior year quarter. In Q4, we continued to see strong underlying growth in the core led by our healthcare market channel and our transplant diagnostics and microbiology businesses.
This was offset by lower COVID-19 testing revenue versus the year ago quarter. For the full year, reported revenue in the segment decreased 16% and organic revenue was 13% lower than 2021. Q4 adjusted operating income decreased 30% in the quarter and adjusted operating margin was 18.6%, down 190 basis points versus Q4 2021. During the quarter, we delivered strong productivity, which was more than offset by the impact of lower testing volume.
For the full year, adjusted operating income decreased 20% and adjusted operating margin was 21.5%, down 110 basis points versus 2021. And finally, in Laboratory Products and Biopharma Services segment. Q4 reported revenue increased 42%, organic growth was 11%, and the impact of acquisitions was 35%. During Q4, organic revenue growth in this segment was led by the Pharma Services business. PPD, our clinical research business, continued to perform very well and during the quarter, it delivered over 20% core organic revenue growth and contributed $1.9 billion of revenue to the segment.
For the full year, reported revenue in the segment increased 51% and organic revenue increased 10%. Q4 adjusted operating income in the segment increased 73% and adjusted operating margin was 14.1%, which is 260 basis points higher than Q4 2021. In the quarter, we drove favorable business mix and delivered strong productivity and volume pull-through that was partially offset by strategic investments.
For the full year, adjusted operating income increased 56% and adjusted operating margin was 12.8%, up 40 basis points versus 2021. Let me now turn to our 2023 guidance. As Marc outlined, we're starting the year with a very strong financial outlook, consisting of revenue guidance of $45.3 billion and adjusted EPS guidance of $23.70. It provides some details of the underlying assumptions, starting with revenue. Our initial guidance for 2023 assumes 7% core organic revenue growth, $400 million in testing revenue, $250 million of revenue from acquisitions and a tailwind of $100 million from FX.
This all assumes a return to more normal market growth conditions in 2023 in the range of 4% to 6%. Within our core revenue, we expect $500 million of vaccines and therapies revenue in 2023. This is $1.2 billion less than 2022, a 3% impact on core organic growth. Even with this headwind, we are expecting to deliver 7% core organic revenue growth in 2023, demonstrating the strength of our initial outlook, the agility with which we're managing the business and the ongoing benefits of our growth strategy. Turning to profitability. In 2023, we're assuming an adjusted operating margin of 23.9%. This is 60 basis points lower than 2022 driven by two elements, a 40 basis points of core margin expansion and 100 basis point headwind from the runoff of testing revenue.
The year-over-year margin change is consistent with the comments I made on the last earnings call, and I've described how to model the margin impact to the different elements of the year-over-year change in revenue. In 2023, with the pandemic-related testing revenue behind us, I thought this would be a good opportunity to take a step back and take a multiyear view on our meaningful margin expansion progression. During -- starting in 2019, pre-pandemic, excluding the impact of PPD, we're on track to expand operating margins 60 basis points a year on average through 2023, a 250 basis point improvement over the four-year period. So great progress on margin expansion.
Turning to adjusted EPS. We expect to deliver $23.70 in 2023. This is a 2% year-over-year increase, consisting of a 10% headwind from testing, more than offset by a 12% increase driven by the core business. We're actively managing the whole P&L to effectively deal with material runoff in testing and vaccines and therapies revenue and still grow our adjusted earnings per share for the year. This shows the strength of our growth strategy and the power of our PPI Business System. Moving on to some more detailed assumptions behind the guide. With regards to FX, in 2023, we're assuming this a year-over-year tailwind of approximately $100 million of revenue or 0.2% and $0.04 to adjusted EPS, also 0.2%.
We're assuming that the Binding Site acquisition will contribute approximately $250 million to our reported revenue growth and $0.07 to adjusted EPS in 2023. Below the line, we expect net interest expense in 2023 to be approximately $480 million. It's approximately $25 million higher than 2022 and includes the funding for the Binding Site acquisition. We assume that the adjusted income tax rate will be 11% in 2023. The improvement from 2022 is driven by a tax planning initiative.
We're expecting net capital expenditures will be approximately $2 billion in 2023, and free cash flow is assumed to be $6.9 billion for the year. In terms of capital deployment, our guidance assumes $3 billion of share buybacks, which were already completed in January. We estimate the full year average diluted share count of approximately 388 million shares. We're assuming that we'll return approximately $540 million of capital to shareholders this year through dividends.
And as is our normal convention, our guidance does not assume any future acquisitions or divestitures. And finally, I wanted to touch on quarterly phasing for the year. Revenue, adjusted operating margin and adjusted EPS are all expected to ramp up as we go through the year. This is due to several factors. Core organic revenue growth is expected to increase as we go through the year, largely due to the comps related to vaccines and therapies as well as the expected phasing of economic activity in China.
The impact of the runoff in testing revenue is most pronounced in Q1, and the benefits of the offsetting cost actions are spread over the year. From a foreign exchange standpoint, while a slight tailwind for the year as a whole, in Q1, FX is expected to be a year-over-year headwind of approximately $200 million of revenue and $80 million of adjusted operating income. Below the line, net interest expense is expected to decrease during the year as it generates free cash flow and earn interest on that cash build.
Putting all this together. For Q1, we expect core organic revenue growth to be in the mid-single digits, adjusted operating margin to be slightly lower than Q4 2022 and adjusted EPS to be just over 20% of the full year total. So to wrap up, we had an excellent 2022, and we're really well positioned to continue to deliver differentiated performance for all our stakeholders in 2023. I look forward to updating you on our progress as we go through the year. With that, I'll turn the call back over to Raf.
