On July 29, 2021 Labcorp (NYSE: LH), a leading life sciences company, reported results for the second quarter ended June 30, 2021, and raised full-year guidance (Press release, LabCorp, JUL 29, 2021, View Source [SID1234585389]).
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"Our strategy focusing on science, innovation and technology led to strong second quarter results as we continued to advance health care and patient experiences," said Labcorp Chairman and CEO Adam Schechter. "Patients and pharmaceutical clients accelerated their return to normal health care and business activities, which drove 46% revenue growth in our base business. In light of our second quarter performance and improved outlook, we are raising full-year financial guidance."
Labcorp continues to further scientific advancements and make progress on its five-pillar strategy. As an example, in July the company signed an agreement to acquire the outreach laboratory business of Minnesota-based North Memorial Health and provide management services to its inpatient lab. Additionally, the company made significant strides in oncology, introducing capabilities that bring together its leading diagnostic testing and comprehensive drug development services. By doing so, Labcorp can deliver targeted solutions by leveraging breakthrough science and insights from clinical data to aid better treatment decisions and improved patient outcomes. The company also acquired the remaining ownership interest in OmniSeq, a pioneer in solid tumor profiling, after the quarter ended. This addition enhances Labcorp’s growing portfolio of diagnostic tests and clinical trial opportunities for people with cancer.
Separately, the company continued its critical contributions to the ongoing pandemic response, working with state and federal governments to expand testing access and facilitate vaccinations, and supporting the development of COVID-19 vaccines and therapies. To date, the company has performed over 50 million COVID-19 tests.
Consolidated Results
Second Quarter Results
Revenue for the quarter was $3.84 billion, an increase of 38.7% over $2.77 billion in the second quarter of 2020. The increase was due to organic Base Business growth of 35.5%, acquisitions of 1.2%, and favorable foreign currency translation of 2.0%. COVID-19 PCR and antibody testing (COVID-19 Testing) revenue of $444.0 million was flat compared to last year. Base Business includes Labcorp’s operations except for COVID-19 Testing.
Operating income for the quarter was $704.1 million, or 18.3% of revenue, compared to $297.7 million, or 10.8%, in the second quarter of 2020. The company recorded amortization, restructuring charges, and special items, which together totaled $135.8 million in the quarter, compared to $83.0 million during the same period in 2020. Adjusted operating income (excluding amortization, restructuring charges, and special items) for the quarter was $839.9 million, or 21.9% of revenue, compared to $380.7 million, or 13.8%, in the second quarter of 2020. The increase in operating income and margin was primarily due to organic Base Business growth, acquisitions, and LaunchPad savings, partially offset by higher personnel costs.
Net earnings for the quarter were $467.4 million, compared to $231.6 million in the second quarter of 2020. Diluted EPS were $4.76 in the quarter, up from $2.37 in the same period in 2020. Adjusted EPS (excluding amortization, restructuring charges, and special items) were $6.13 in the quarter, up from $2.57 in the second quarter of 2020.
Operating cash flow for the quarter was $487.2 million, compared to $370.7 million in the second quarter of 2020. The increase in operating cash flow was due to favorable working capital, partially offset by lower cash earnings. Capital expenditures totaled $97.2 million, compared to $98.5 million a year ago. As a result, free cash flow (operating cash flow less capital expenditures) was $390.0 million, up from $272.2 million in the second quarter of 2020.
At the end of the quarter, the company’s cash balance and total debt were $2.0 billion and $5.4 billion, respectively. During the quarter, the company repurchased $300.0 million of stock representing approximately 1.1 million shares.
Year-To-Date Results
Revenue was $8.00 billion, an increase of 43.1% from $5.59 billion in the first half of 2020. The increase was due to organic growth of 40.3%, acquisitions of 1.1%, and favorable foreign currency translation of 1.7%. The organic revenue increase includes a 23.8% contribution from the company’s organic Base Business and a 16.6% increase in COVID-19 Testing.
Operating income was $1,762.0 million, or 22.0% of revenue, compared to $105.1 million, or 1.9%, in the first half of 2020. The company recorded amortization, restructuring charges, special items, and impairments, which together totaled $259.8 million in the first half of 2021, compared to $641.5 million during the same period in 2020. This decrease was primarily due to the goodwill impairment recorded in the first quarter of 2020. Adjusted operating income (excluding amortization, restructuring charges, special items, and impairments) was $2,021.8 million, or 25.3% of revenue, compared to $746.6 million, or 13.3%, in the first half of 2020. The increase in operating income and margin was primarily due to organic Base Business growth, acquisitions, and LaunchPad savings, partially offset by higher personnel costs.
Net earnings (losses) in the first half of 2021 were $1,237.0 million, compared to ($85.6) million in the first half of 2020. Diluted EPS were $12.58 in the first half of 2021 compared to ($0.88) in the same period in 2020. Adjusted EPS (excluding amortization, restructuring charges, special items, and impairments) were $14.92 in the first half of 2021 compared to $4.94 in the first half of 2020.
Operating cash flow was $1,644.8 million, compared to $574.5 million in the first half of 2020. The increase in operating cash flow was due to higher cash earnings and favorable working capital. Capital expenditures totaled $192.6 million, compared to $205.1 million during the same period in 2020. As a result, free cash flow (operating cash flow less capital expenditures) was $1,452.2 million, up from $369.4 million in the first half of 2020.
Second Quarter Segment Results
The following segment results exclude amortization, restructuring charges, special items, and unallocated corporate expenses.
Diagnostics
Revenue for the quarter was $2.37 billion, an increase of 39.7% over $1.69 billion in the second quarter of 2020. The increase was due to organic Base Business growth of 37.8%, acquisitions of 1.1%, and favorable foreign currency translation of 0.9%. COVID-19 Testing revenue of $444.0 million was flat versus last year.
Total volume (measured by requisitions) increased by 39.6% as organic volume increased by 38.7% and acquisition volume contributed 0.9%. The organic volume growth was due to a 39.4% increase in Base Business, partially offset by a (0.7%) decrease in COVID-19 Testing. Price / mix increased by 0.1% due to currency of 0.9%, COVID-19 Testing of 0.7%, and acquisitions of 0.2%, partially offset by organic Base Business of (1.7%) due to the volume recovery. Organic Base Business volume was up 48.2% while price was up 3.1%.
Adjusted operating income for the quarter was $663.2 million, or 28.0% of revenue, compared to $308.8 million, or 18.2%, in the second quarter of 2020. The increase in adjusted operating income and adjusted operating margin was primarily due to organic Base Business growth and LaunchPad savings, partially offset by higher personnel costs. The company remains on track to deliver approximately $200 million of net savings from its three-year Diagnostics LaunchPad initiative by the end of 2021.
Drug Development
Revenue for the quarter was $1.50 billion, an increase of 36.7% over $1.09 billion in the second quarter of 2020. The increase was due to organic Base Business growth of 32.1%, acquisitions of 1.3%, and favorable foreign currency translation of 3.7%, partially offset by lower COVID-19 Testing performed through its Central Laboratories business of (0.3%). Drug Development’s Base Business benefited from broad-based demand, including COVID-19 vaccine and therapeutic work.
Adjusted operating income for the quarter was $221.1 million, or 14.8% of revenue, compared to $112.7 million, or 10.3%, in the second quarter of 2020. The increase in adjusted operating income and adjusted operating margin was primarily due to organic Base Business growth and LaunchPad savings, partially offset by higher personnel costs. The company continues to develop and execute LaunchPad programs to support profitable growth in Drug Development.
Net orders and net book-to-bill during the trailing twelve months were $7.86 billion and 1.41, respectively. Backlog at the end of the quarter was $14.28 billion, compared to $13.97 billion last quarter, and the company expects approximately $4.87 billion of its backlog to convert into revenue in the next twelve months.
Outlook for 2021
Labcorp is raising 2021 full year guidance to reflect its strong second quarter performance and improved full year outlook. The following guidance assumes foreign exchange rates effective as of June 30, 2021 for the remainder of the year. Enterprise level guidance includes the estimated impact from currently anticipated capital allocation, including acquisitions and share repurchases.
(1) 2021 Updated Guidance includes a benefit from foreign currency translation of 1.0%, Previous 2021 Guidance was 0.7%
(2) Enterprise level revenue is presented net of intersegment transaction eliminations, including Drug Development COVID-19 Testing revenue
(3) 2021 Updated Guidance includes a benefit from foreign currency translation of 0.4%, Previous 2021 Guidance was 0.3%
(4) 2021 Updated Guidance includes a benefit from foreign currency translation of 2.0%, Previous 2021 Guidance was 1.4%
(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 View Source 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 dialing 877-898-8036 (720-634-2811 for international callers). The conference ID is 1789612. A telephone replay of the call will be available through August 12, 2021, and can be heard by dialing 855-859-2056 (404-537-3406 for international callers). The conference ID for the replay is 1789612. A live online broadcast of Labcorp’s quarterly conference call on July 29, 2021, will be available at Labcorp Investor Relations website beginning at 9:00 a.m. ET. This webcast will be archived and accessible through July 15, 2022.