On April 25, 2023 Labcorp (NYSE: LH), a leading global life sciences company, reported results for the first quarter ended March 31, 2023, and updated full-year guidance (Press release, LabCorp, APR 25, 2023, View Source [SID1234630477]).
Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
"Labcorp’s first quarter results set the foundation for a strong 2023, led by continued industry leadership and strength in our Diagnostics and Central Laboratories, and strong fundamentals in our Early Development Research Laboratories," said Adam Schechter, chairman and CEO of Labcorp. "We are on track to complete the spin of Fortrea, our Clinical Development business, by mid-year, and anticipate the business to accelerate in the second half of the year. Labcorp remains well positioned for customers and shareholders as we pursue our mission to improve health and improve lives."
In the first quarter, Labcorp executed against its strategic plan to position the business for both short- and long-term growth. The company continued the integration of the Ascension health system laboratories. Labcorp employees are now managing laboratories in nearly 100 Ascension hospitals. As a large-scale integration, Ascension serves as a proof of concept for the company’s ability to generate profitable growth through future healthcare system partnerships.
The company progressed the planned spin-off of the Clinical Development business, which is expected to be completed in mid-2023, subject to satisfaction of certain customary conditions. The new public company name and brand was introduced as Fortrea in the first quarter of 2023. In early January 2023, Tom Pike was appointed to lead the Clinical Development business. Mr. Pike will become the chief executive officer and chairman of Fortrea upon completion of the spin-off. For more information, please visit fortrea.com.
On March 31, 2023, Labcorp issued its 2022 Corporate Responsibility Report. The report offers an overview of the company’s governance profile, diversity and inclusion initiatives, sustainability impact and community engagement.
On April 6, 2023, the company announced a quarterly cash dividend of $0.72 per share of common stock, payable on June 8, 2023, to stockholders of record at the close of business on May 18, 2023.
Consolidated Results
First Quarter Results
Revenue for the quarter was $3.78 billion, a decrease of (3.1%) from $3.90 billion in the first quarter of 2022. The decrease was due to organic revenue of (3.6%) and foreign currency translation of (0.7%), partially offset by acquisitions, net of divestitures, of 1.2%. The (3.6%) decrease in organic revenue was driven by an (11.6%) decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 7.9% increase in the company’s organic Base Business. Base Business includes Labcorp’s operations except for COVID-19 Testing.
Operating income for the quarter was $341.0 million, or 9.0% of revenue, compared to $687.9 million, or 17.6%, in the first quarter of 2022. The company recorded amortization, restructuring charges, and special items, which together totaled $152.5 million in the quarter, compared to $106.1 million during the same period in 2022. Adjusted operating income (excluding amortization, restructuring charges, and special items) for the quarter was $493.5 million, or 13.1% of revenue, compared to $794.0 million, or 20.4%, in the first quarter of 2022. The decrease in operating income and margin was primarily due to a reduction in COVID-19 Testing. The margin decline was also negatively affected by the mix impact from the Ascension TSA and NHP-related constraints.
Net earnings for the quarter were $212.9 million compared to $491.6 million in the first quarter of 2022. Diluted EPS were $2.39 in the quarter compared to $5.23 during the same period in 2022. Adjusted EPS (excluding amortization, restructuring charges, and special items) were $3.82 in the quarter compared to $6.11 in the first quarter of 2022.
Operating cash flow for the quarter was $121.2 million compared to $356.0 million in the first quarter of 2022. The decrease in operating cash flow was due to lower COVID Testing earnings, partially offset by higher Base Business earnings. Capital expenditures totaled $93.9 million compared to $117.2 million a year ago. As a result, free cash flow (operating cash flow less capital expenditures) was $27.3 million compared to $238.8 million in the first quarter of 2022.
At the end of the quarter, the company’s cash balance and total debt were $0.4 billion and $5.4 billion, respectively. During the quarter, the company paid out $64.4 million in dividends.
First Quarter Segment Results
The following segment results exclude amortization, restructuring charges, special items, and unallocated corporate expenses.
Diagnostics
Revenue for the quarter was $2.38 billion, a decrease of (2.9%) from $2.45 billion in the first quarter of 2022. The decrease was due to organic revenue of (4.7%) and foreign currency translation of (0.3%), partially offset by acquisitions of 2.0%. The (4.7%) decrease in organic revenue was due to a (18.4%) decrease in COVID-19 Testing, partially offset by a 13.7% increase in the Base Business. Total Base Business growth compared to the Base Business in the prior year was 19.8%, which includes the benefit from the Ascension lab management agreement of approximately 7% as well as the positive impact from weather and revenue days of approximately 2%.
Total volume (measured by requisitions) decreased by (3.3%) as organic volume decreased by (5.6%) and acquisition volume contributed 2.3%. Organic volume was impacted by a (12.7%) decrease in COVID-19 Testing, partially offset by a 7.1% increase in the Base Business. Price/mix increased by 0.4% due to Base Business growth of 6.6%, partially offset by COVID-19 Testing of (5.7%), currency of (0.3%), and acquisitions of (0.2%). Base Business volume increased 11.0% compared to the Base Business last year, which includes the combined favorable impact from weather and revenue days of approximately 2%. Price/mix was up 8.8% in the Base Business compared to the Base Business last year, which includes the benefit of the Ascension lab management agreement.
Adjusted operating income for the quarter was $441.5 million, or 18.5% of revenue, compared to $683.1 million, or 27.8%, in the first quarter of 2022. The decrease in adjusted operating income and margin was due to a reduction in COVID-19 Testing. Excluding COVID-19 Testing, operating income and margin were up due to the benefit of Base Business organic growth and LaunchPad savings, which were partially offset by higher personnel expense.
Drug Development
Revenue for the quarter was $1.40 billion, a decrease of (4.0%) from $1.46 billion in the first quarter of 2022. The decrease was primarily due to an organic decline of (2.4%), foreign currency translation of (1.5%), and acquisitions net of divestitures of (0.1%). The decrease in organic revenue was negatively impacted by approximately (8.0%) due to NHP-related constraints, reduced COVID-19 vaccine and therapeutic work, and the loss of the previously mentioned FSP contract.
Adjusted operating income for the quarter was $123.9 million, or 8.8% of revenue, compared to $168.6 million, or 11.6%, in the first quarter of 2022. Adjusted operating income and margin decreased due to NHP-related constraints, reduced COVID vaccine and therapeutic work, and the FSP contract loss, partially offset by demand growth and LaunchPad savings.
Net orders and net book-to-bill during the trailing twelve months were $7.15 billion and 1.27, respectively. Backlog at the end of the quarter was $16.62 billion, an increase of 9.4% compared to last year. The company expects approximately $4.89 billion of its backlog to convert into revenue in the next twelve months.
Outlook for 2023
Labcorp is updating 2023 full year guidance to reflect its first quarter performance and full year outlook. The following guidance assumes foreign exchange rates effective as of March 31, 2023, for the remainder of the year. Enterprise level guidance includes the estimated impact from currently anticipated capital allocation, including acquisitions, share repurchases and dividends.
(Dollars in billions, except per share data)
Previous
Updated
Results
2023 Guidance
2023 Guidance
2022
Low
High
Low
High
Revenue
Total Labcorp Enterprise (1)(2)
$14.9
1.0 %
4.0 %
1.5 %
4.0 %
Base Business (1)(2)
$13.7
8.5 %
10.5 %
9.5 %
11.0 %
COVID-19 Testing (2)
$1.1
(90.0 %)
(75.0 %)
(90.0 %)
(80.0 %)
Total Diagnostics (3)
$9.2
(2.0 %)
1.5 %
(0.5 %)
2.0 %
Base Business
$8.1
10.5 %
12.5 %
12.5 %
14.0 %
COVID-19 Testing
$1.1
(90.0 %)
(75.0 %)
(90.0 %)
(80.0 %)
Total Drug Development (4)
$5.7
5.0 %
7.0 %
3.5 %
5.5 %
Adjusted EPS
$19.94
$16.00
$18.00
$16.25
$17.75
Free Cash Flow (5)
$1.5
$1.0
$1.2
$1.0
$1.2
(1) 2023 Updated Guidance includes an impact from foreign currency translation of 0.1%, previous 2023 Guidance was 0.0%
(2) Enterprise level revenue is presented net of intersegment transaction eliminations
(3) 2023 Updated Guidance includes an impact from foreign currency translation of (0.2%), previous 2023 Guidance was (0.2)%
(4) 2023 Updated Guidance includes an impact from foreign currency translation of 0.6%, previous 2023 Guidance was 0.2%
(5) Free Cash Flow consists of operating cash flow less capital expenditures
Use of Adjusted Measures
The company has provided in this press release and accompanying tables "adjusted" financial information that has not been prepared in accordance with GAAP, including adjusted net income, adjusted EPS (or adjusted net income per share), adjusted operating income, adjusted operating margin, free cash flow, and certain segment information. The company believes these adjusted measures are useful to investors as a supplement to, but not as a substitute for, GAAP measures, in evaluating the company’s operational performance. The company further believes that the use of these non-GAAP financial measures provides an additional tool for investors in evaluating operating results and trends, and growth and shareholder returns, as well as in comparing the company’s financial results with the financial results of other companies. However, the company notes that these adjusted measures may be different from and not directly comparable to the measures presented by other companies. Reconciliations of these non-GAAP measures to the most comparable GAAP measures and an identification of the components that comprise "special items" used for certain adjusted financial information are included in the tables accompanying this press release.
The company today is providing an investor relations presentation with additional information on its business and operations, which is available in the investor relations section of the company’s website at www.Labcorp.com. Analysts and investors are directed to the website to review this supplemental information.
A conference call discussing Labcorp’s quarterly results will be held today at 9:00 a.m. ET and is available by registering at this link, which will provide a dial-in number and unique PIN to access the call. It is recommended that participants join 10 minutes prior to the start of the call, although participants may register and join at any time during the call. A live webcast of Labcorp’s quarterly conference call on April 25, 2023, will be available at the Labcorp Investor Relations website beginning at 9:00 a.m. ET. This webcast will be archived and accessible through April 11, 2024.