On April 28, 2022 Labcorp (NYSE: LH), a leading global life sciences company, reported results for the first quarter ended March 31, 2022, and updated full-year guidance (Press release, LabCorp, APR 28, 2022, View Source [SID1234613109]).
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"Labcorp continues to advance our strategy through science, innovation and technology," said Adam Schechter, chairman and CEO of Labcorp. "We delivered a solid first quarter despite the impact of Omicron. We remain focused on growth opportunities while continuing to take actions to mitigate inflation. Our base business performance coming out of the quarter positions us well for continued success throughout the year."
During the quarter, Labcorp launched the Labcorp OnDemand digital health platform, intensifying its consumer focus and enhancing the user experience. The company made strides in oncology, including through key collaborations and closing its acquisition of Personal Genome Diagnostics (PGDx). Labcorp also entered into and expanded several strategic relationships with hospitals and health systems, including agreements to purchase select outreach laboratory business assets.
The company announced a quarterly dividend of $0.72 per share of common stock, which will be payable June 9, 2022, to stockholders of record at the close of business on May 19, 2022. In addition, Labcorp published its 2021 Corporate Responsibility Report which underscores its commitment to pursuing responsible, ethical and sustainable operations.
Consolidated Results
First Quarter Results
Revenue for the quarter was $3.90 billion, a decrease of (6.3%) from $4.16 billion in the first quarter of 2021. The decrease was due to organic revenue of (6.3%) and foreign currency translation of (0.4%), partially offset by acquisitions net of divestitures of 0.4%. The (6.3%) decline in organic revenue was driven by a (9.8%) decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 3.5% 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 $687.9 million, or 17.6% of revenue, compared to $1,057.9 million, or 25.4%, in the first quarter of 2021. The company recorded amortization, restructuring charges, and special items, which together totaled $106.1 million in the quarter, compared to $124.0 million during the same period in 2021. Adjusted operating income (excluding amortization, restructuring charges, and special items) for the quarter was $794.0 million, or 20.4% of revenue, compared to $1,181.9 million, or 28.4%, in the first quarter of 2021. The decrease in operating income and margin was primarily due to a reduction in COVID-19 Testing, higher personnel expense, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings.
Net earnings for the quarter were $491.6 million compared to $769.6 million in the first quarter of 2021. Diluted EPS were $5.23 in the quarter compared to $7.82 during the same period in 2021. Adjusted EPS (excluding amortization, restructuring charges, and special items) were $6.11 in the quarter compared to $8.79 in the first quarter of 2021.
Operating cash flow for the quarter was $356.0 million compared to $1,157.6 million in the first quarter of 2021. The decrease in operating cash flow was due to lower cash earnings and higher working capital requirements. Capital expenditures totaled $117.2 million compared to $95.4 million a year ago. As a result, free cash flow (operating cash flow less capital expenditures) was $238.8 million compared to $1,062.2 million in the first quarter of 2021.
At the end of the quarter, the company’s cash balance and total debt were $1.2 billion and $5.4 billion, respectively. During the quarter, the company invested $455.1 million on acquisitions. As part of the company’s accelerated stock repurchase program initiated in December 2021, 0.6 million shares were retired during the quarter.
First Quarter Segment Results
The following segment results exclude amortization, restructuring charges, special items, and unallocated corporate expenses.
Diagnostics
Revenue for the quarter was $2.45 billion, a decrease of (11.0%) from $2.76 billion in the first quarter of 2021. The decrease was due to organic revenue of (11.5%), partially offset by acquisitions of 0.5%. The (11.5%) decrease in organic revenue was due to a (14.7%) reduction from COVID-19 Testing, partially offset by a 3.2% increase in the Base Business. Total Base Business growth compared to the Base Business in the prior year was 5.6%.
Total volume (measured by requisitions) decreased by (5.0%) as organic volume decreased by (5.3%) and acquisition volume contributed 0.3%. Organic volume was impacted by a (8.5%) decrease in COVID-19 Testing, partially offset by a 3.1% increase in Base Business. Price/mix decreased by (6.0%) due to a decrease in COVID-19 Testing of (6.3%), partially offset by acquisitions of 0.2% and organic Base Business growth of 0.1%. Base Business volume was up 4.4% compared to the Base Business last year, while price/mix was up 1.2%.
Adjusted operating income for the quarter was $683.1 million, or 27.8% of revenue, compared to $991.6 million, or 36.0%, in the first quarter of 2021. The decrease in adjusted operating income and adjusted operating margin was primarily due to a reduction in COVID-19 Testing, higher personnel expense, and other inflationary costs, partially offset by organic Base Business growth and LaunchPad savings.
Drug Development
Revenue for the quarter was $1.46 billion, an increase of 1.5% from $1.44 billion in the first quarter of 2021. The increase was due to organic Base Business growth of 4.3% and acquisitions net of divestitures of 0.1%, partially offset by lower COVID-19 Testing of (1.7%) and foreign currency translation of (1.2%).
Adjusted operating income for the quarter was $168.6 million, or 11.6% of revenue, compared to $234.1 million, or 16.3%, in the first quarter of 2021. Adjusted operating income and margin declined primarily due to COVID-19 Testing, a reduction in COVID-19 vaccine and therapeutic work, the interruption of some clinical trial activity due to the conflict in Ukraine, higher personnel expense, and other inflationary costs. These impacts were partially offset by organic Base Business growth and LaunchPad savings.
Net orders and net book-to-bill during the trailing twelve months were $7.20 billion and 1.23, respectively. Backlog at the end of the quarter was $15.19 billion, an increase of 8.7% compared to last year. The company expects approximately $4.95 billion of its backlog to convert into revenue in the next twelve months.
Outlook for 2022
Labcorp is updating 2022 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, 2022, 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)
(1) 2022 Updated Guidance includes an impact from foreign currency translation of (0.4%), previous 2022 Guidance was (0.2%)
(2) Enterprise level revenue is presented net of intersegment transaction eliminations, including Drug Development COVID-19 Testing revenue
(3) 2022 Updated Guidance includes an impact from foreign currency translation of 0.0%, previous 2022 Guidance was (0.1%)
(4) 2022 Updated Guidance includes an impact from foreign currency translation of (1.1%), previous 2022 Guidance was (0.4%)
(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 877-825-4844 (631-813-4900 for international callers). The conference ID is 2386657. A telephone replay of the call will be available through May 12, 2022, and can be heard by dialing 855-859-2056 (404-537-3406 for international callers). The conference ID for the replay is 2386657. A live online broadcast of Labcorp’s quarterly conference call on April 28, 2022, will be available at Labcorp Investor Relations website beginning at 9:00 a.m. ET. This online broadcast will be archived and accessible through April 14, 2023.