On August 1, 2024 Labcorp (NYSE: LH), a global leader of innovative and comprehensive laboratory services, reported results for the second quarter ended June 30, 2024 and updated full-year guidance (Press release, LabCorp, AUG 1, 2024, View Source [SID1234645264]).
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"Labcorp delivered strong revenue and EPS growth in the second quarter and has significant momentum as we enter the second half of the year," said Adam Schechter, chairman and CEO of Labcorp. "We expanded our leadership in key therapeutic areas, including oncology, women’s health and neurology, and strengthened our position with customers through acquisitions and innovative digital and data solutions. We will continue driving long-term value by expanding our laboratory and testing solutions, forging new partnerships with health systems, and leveraging science and technology to improve health and improve lives around the world."
Labcorp continued to progress against its growth initiatives:
Received approval for the acquisition of select assets from Invitae, a leading medical genetics company. Through this acquisition, the company will utilize genetic insights to develop new treatments and deliver personalized care in oncology and select rare diseases. The transaction is expected to close in early August.
Subsequent to quarter end, entered into a comprehensive strategic collaboration with Naples Comprehensive Healthcare (NCH) in Southwest Florida to manage the daily operations of NCH’s inpatient lab operations. Separately, Labcorp will begin to serve as the primary lab for NCH’s physician network later this summer.
The company continues to make strides in science, technology, and innovation:
Received FDA approval as a Humanitarian Use Device for its companion diagnostic (CDx) to determine patient eligibility for treatment with BEQVEZ (fidanacogene elaparvovec-dzkt), Pfizer’s recently FDA-approved hemophilia B gene therapy.
Introduced first trimester preeclampsia screening test to determine the risk of developing preeclampsia before 34 weeks of pregnancy. It is the only test of its kind available in the United States and is relevant for all pregnant individuals. With the addition of this test, Labcorp is the only lab that can detect preeclampsia risk across all trimesters.
Launched new strategic service offerings within its precision oncology portfolio to strengthen the company’s leadership as a premier, single-source partner for biopharmaceutical companies. This includes the expanded availability of Labcorp Tissue Complete to Geneva and Shanghai and the addition of OmniSeq INSIGHT circulating tumor DNA into the portfolio of genomic profiling services.
Introduced Labcorp Global Trial Connect, a suite of central laboratory solutions aimed at increasing the speed of clinical trials.
Expanded Labcorp OnDemand with several new tests, including a standard drug, complete drug, comprehensive testosterone, HIV and complete Heart Health.
On July 25, 2024, the company announced a quarterly cash dividend of $0.72 per share of common stock, payable on September 13, 2024, to stockholders of record at the close of business on August 29, 2024. In addition, the Board of Directors approved an increase in share repurchase authorization by $1.0 billion to a total of $1.4 billion.
Consolidated Results
Second Quarter Results
Revenue for the quarter was $3.22 billion, an increase of 6.2% from $3.03 billion in the second quarter of 2023. The increase was due to organic revenue of 3.8%, acquisitions, net of divestitures, of 2.5%, partially offset by foreign currency translation of (0.1%). The 3.8% increase in organic revenue was driven by a 4.5% increase in the company’s organic Base Business, partially offset by a (0.7%) decrease in COVID-19 PCR testing (COVID-19 Testing). Compared to the Base Business last year, Base Business revenue grew 6.9%. Base Business includes Labcorp’s operations except for COVID-19 Testing.
Operating income for the quarter was $294.8 million, or 9.2% of revenue, compared to $266.3 million, or 8.8%, in the second quarter of 2023. The company recorded amortization, restructuring charges, and special items, which together totaled $185.1 million in the quarter, compared to $182.0 million during the same period in 2023. Adjusted operating income (excluding amortization, restructuring charges, and special items) for the quarter was $479.9 million, or 14.9% of revenue, compared to $448.3 million, or 14.8%, in the second quarter of 2023. The increase in operating income and margin was driven by demand and LaunchPad savings, partially offset by personnel costs.
Net earnings from continuing operations for the quarter were $205.6 million compared to $155.2 million in the second quarter of 2023. Diluted EPS from continuing operations were $2.43 in the quarter compared to $1.74 during the same period in 2023. Adjusted EPS (excluding amortization, restructuring charges, and special items) were $3.94 in the quarter compared to $3.42 in the second quarter of 2023.
Operating cash flow from continuing operations for the quarter was $561.1 million compared to $161.5 million in the second quarter of 2023. The increase in operating cash flow was due to cash earnings and working capital. Capital expenditures totaled $128.2 million compared to $103.3 million a year ago. As a result, free cash flow from continuing operations (operating cash flow from continuing operations less capital expenditures) was $432.9 million compared to $58.2 million in the second quarter of 2023.
At the end of the quarter, the company’s cash balance was $265.1 million and total debt was $5.07 billion. During the quarter, the company invested $33.9 million in acquisitions, paid out $60.4 million in dividends, and used $100.0 million for share repurchases.
Year-To-Date Results
Revenue was $6.40 billion, an increase of 5.4% from $6.07 billion in the first six months of 2023. The increase was due to organic revenue of 3.0%, acquisitions, net of divestitures, of 2.1%, and foreign currency translation of 0.2%. The 3.0% increase in organic revenue was driven by a 4.3% increase in the company’s organic Base Business, partially offset by a (1.3)% decrease in COVID-19 Testing. Compared to the Base Business last year, Base Business revenue grew 6.8%.
Operating income was $616.1 million, or 9.6% of revenue, compared to $596.1 million, or 9.8%, in the first six months of 2023. The company recorded amortization, restructuring charges, special items, and impairments, which together totaled $316.6 million in the first six months of 2024 compared to $300.0 million during the same period in 2023. Adjusted operating income (excluding amortization, restructuring charges, special items, and impairments) was $932.7 million, or 14.6% of revenue, compared to $896.1 million, or 14.8%, in the first six months of 2023. The increase in adjusted operating income was driven by organic demand and LaunchPad savings, partially offset by personnel costs.
Net earnings from continuing operations were $433.9 million compared to $363.6 million in the first six months of 2023. Diluted EPS were $5.13 in the first six months of 2024 compared to $4.08 during the same period in 2023. Adjusted EPS (excluding amortization, restructuring charges, special items, and impairments) were $7.62 in the first six months of 2023 compared to $6.88 during the same period in 2023.
Operating cash flow from continuing operations was $531.3 million compared to $347.2 million in the first six months of 2023. The increase in operating cash flow was primarily due to higher cash earnings. Capital expenditures totaled $262.0 million compared to $181.5 million during the same period in 2023. As a result, free cash flow (operating cash flow less capital expenditures) from continuing operations was $269.3 million compared to $165.7 million in the first six months of 2023.
Second Quarter Segment Results
The company’s two segments include Diagnostics Laboratories and Biopharma Laboratory Services (comprised of Central Laboratories and Early Development Research Laboratories). The following segment results exclude amortization, restructuring charges, special items, and unallocated corporate expenses.
Diagnostics Laboratories
Revenue for the quarter was $2.52 billion, an increase of 7.9% from $2.34 billion in the second quarter of 2023. The increase was due to organic growth of 4.7% and acquisitions, net of divestitures, of 3.2%, partially offset by foreign currency translation of (0.1%). The 4.7% increase in organic revenue was due to a 5.6% increase in the Base Business, partially offset by a (0.9%) decrease in COVID-19 Testing. Total Base Business growth compared to the Base Business in the prior year was 8.9%.
Total volume (measured by requisitions) increased by 5.7% as organic volume increased by 2.9%, while acquisitions, net of divestitures increased 2.8%. Organic volume was up due to a 3.4% increase in the Base Business, partially offset by a (0.5%) decrease in COVID-19 Testing. Price/mix increased by 2.1% due to organic Base Business growth of 2.2% and acquisitions of 0.4%, partially offset by COVID-19 Testing of (0.4%). Base Business volume increased 6.3% compared to the Base Business last year. Price/mix was up 2.5% in the Base Business compared to the Base Business last year.
Adjusted operating income for the quarter was $441.5 million, or 17.5% of revenue, compared to $409.7 million, or 17.5%, in the second quarter of 2023. The increase in adjusted operating income was driven by organic demand, acquisitions, and Launchpad savings, partially offset by higher personnel costs.
Biopharma Laboratory Services
Revenue for the quarter was $707.0 million, an increase of 1.1% from $699.0 million in the second quarter of 2023. The increase was due to organic growth of 1.2%, partially offset by foreign currency translation of (0.1%).
Adjusted operating income for the quarter was $107.4 million, or 15.2% of revenue, compared to $104.6 million, or 15.0%, in the second quarter of 2023. Adjusted operating income and margin increased due to organic growth and LaunchPad savings, partially offset by higher personnel costs.
Net orders and net book-to-bill during the trailing twelve months were $2.82 billion and 1.00, respectively. Backlog at the end of the quarter was $7.92 billion, a decrease of (0.6)% compared to last year. The company expects approximately $2.50 billion of its backlog to convert into revenue in the next twelve months. The company expects net orders, net book-to-bill, and backlog to increase in the second half of the year.
Outlook for 2024
Labcorp is updating 2024 full year guidance to reflect its second quarter performance, the acquisition of Invitae, and full year outlook. The following guidance assumes foreign exchange rates effective as of June 30, 2024, 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
Invitae Impact
Results
2024 Guidance
2024 Guidance
In Guidance
2023
Low
High
Low
High
at Midpoint
Revenue
Labcorp Enterprise (1)(2)
$12.2
4.8 %
6.4 %
6.4 %
7.5 %
1.0 %
Diagnostics Laboratories
$9.4
4.8 %
6.0 %
6.9 %
7.9 %
1.3 %
Biopharma Laboratory Services (3)
$2.8
3.7 %
5.7 %
3.7 %
5.0 %
Adjusted EPS
$13.56
$14.45
$15.35
$14.30
$14.90
($0.40)
Free Cash Flow from Cont. Ops(4)
$0.89
$1.00
$1.15
$0.85
$1.00
($0.15)
(1) 2024 Guidance includes an impact from foreign currency translation of 0.1%.
(2) Enterprise level revenue is presented net of intersegment transaction eliminations.
(3) 2024 Guidance includes an impact from foreign currency translation of 0.4%.
(4) 2023 Free Cash Flow from continuing operations excluding spin-related items.
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 August 1, 2024, will be available at the Labcorp Investor Relations website beginning at 9:00 a.m. ET. This webcast will be archived and accessible through July 18, 2025.